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Telkom to expand its tower business amid promising growth

The country’s largest telecommunications operator, PT Telekomunikasi Indonesia (Telkom), is planning to expand its tower business on account of promising growth, a top Telkom executive has said

Khoirul Amin (The Jakarta Post)
Nusa Dua
Mon, October 20, 2014

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Telkom to expand its tower  business amid promising growth

T

he country'€™s largest telecommunications operator, PT Telekomunikasi Indonesia (Telkom), is planning to expand its tower business on account of promising growth, a top Telkom executive has said.

Telkom president director Arief Yahya revealed that the state firm would soon swap 51 percent of its stake in subsidiary tower unit PT Dayamitra Telekomunikasi (Mitratel) for around an 8 percent stake in tower operator PT Tower Bersama Infrastructure (TBIG) through a share swap deal.

'€œThe sooner [we swap the 51 percent of shares], the better. [It must be] before the [TBIG'€™s] stock price rises,'€ he said, adding that TBIG'€™s share price had continued to increase following previous transactions with Telkom.

Telkom announced recently that it had agreed to swap its 49 percent stake in Mitratel for 5.7 percent of TBIG'€™s enlarged share capital.

Under the deal, Telkom also has a two-year option to swap its remaining 51 percent stake in Mitratel for around 8 percent of TBIG'€™s shares.

The total transaction value (100 percent stake in Mitratel) is estimated to reach Rp 11.07 trillion (US$916.5 million), including Rp 2.7 trillion in Mitratel'€™s net debt.

Besides the swap deal, Telkom would be entitled to receive up to Rp 1.73 trillion if Mitratel could achieve certain performance milestones.

Arief said Tower Bersama could grow faster and help unlock the value of Mitratel'€™s towers.

According to investment group CLSA, both Telkom and TBIG will benefit from the deal, with TBIG potentially pushing up its earnings before interest, taxes, depreciation and amortization (EBITDA), and Mitratel potentially increasing its tower'€™s tenancy ratio.

CLSA analyst Abdullah Hashim said in a statement that TBIG'€˜s EBITDA would likely grow by 30 percent in compound annual growth rate (CAGR) for the next three years, compensating its share dilution.

  • Telkom will swap 51% of stake in its subsidiary for 8% of stake in Tower Bersama
  • Total value of the swap deal around Rp 11 trillion
  • Firm to receive Rp 1.7t if Mitratel performs well

'€œ[Another] potential upside is on increasing tenancy ratio for acquired towers from the current ratio of 1.1,'€ he said.

Mitratel currently has 3,928 towers with 4,363 tenants, while TBIG has 11,266 towers with 18,028
tenants.

Combined, the two will have 15,194 towers, the largest in the country, with 22,391 tenants and a 1.5 tenancy ratio.

Telkom'€™s wholesale and international service director, Ririek Adriansyah, said as quoted by tribunnews.com that his company would monetize its tower assets, including those of Telkomsel.

CLSA'€™s Abdullah stated that while an earlier 3,500 tower deal between PT XL Axiata and PT Solusi Tunas Pratama had initially raised concerns over possible cheaper leasing rates (lease back price 30 percent below market), future lease rates would likely remain at market price as demand for mobile data would skyrocket.

Indonesia'€™s digital universe is forecast to surge by more than 6 times from 84 exabytes this year to 656 exabytes in 2020, according to a study by the International Data Corporation (IDC) and EMC.

Analysts from Nomura voiced similar views, but they also highlighted that other specifics in any tower deals, such as leases, order books, land issues and taxes could be quite critical to assess the merit of the deals.

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