Ratings agency says XL tower sale could negatively impact on Indonesia’s tower sector

8 Oct 2014

Mobile World Live writes that a plan by Indonesian mobile operator XL Axiata to divest around 35% of its towers to the country’s third largest tower operator – Solusi Tunas – for IDR5.6 trillion (USD460 million), could adversely impact the domestic tower sector if, as expected, it drives down rental rates and sparks a round of price competition. Under the plan, Solusi Tunas will narrow the gap on Indonesia’s two top tower companies — Profesional Telekomunikasi Indonesia (Protelindo) and Tower Bersama Infrastructure (TBI) — giving it 6,300 towers, compared to its rivals’ 10,795 and 10,159 towers, respectively.

Moody’s said that whilst the move is good for XL Axiata’s credit rating by improving its liquidity and leverage, it also warned that the main two rivals would potentially ‘face revenue pressure if the terms of the deal become a benchmark for future rental contracts’. However, Moody’s went on to add that there is ‘no near-term risk … as the existing contracts are non-cancellable, non-negotiable and long-dated. The average remaining life of Protelindo’s contracts are 7.4 years and TBI’s are 7.2 years.’ Nonetheless, it notes that Solusi Tunas will be in a strong position to offer low rental rates on towers it builds and purchases to expand quickly and gain market share – forcing the others would to follow suit.

Indonesia, XL Axiata