[MARC] MARC Ratings affirms Cellco’s MARC-1IS/AAIS ratings

MARC Ratings has affirmed its ratings of MARC-1IS /AAIS on Cellco Capital Berhad’s (Cellco) RM520 million Issue 1 issued under its Islamic Commercial Papers/ Islamic Medium-Term Notes (Sukuk Ijarah) Programme with a combined limit of up to RM1.0 billion. The rating outlook is stable.

Cellco is a special-purpose entity set up to raise funds via the Sukuk Ijarah Programme for Stealth Solutions Sdn Bhd (Stealth), an independent tower company and the originator of this transaction. Financial obligations vis-à-vis Issue 1 are backed by lease payments from 531 operational telco towers.

The ratings reflect the high visibility and stability of cash flow backed by long-term lease agreements with major telco players, with an average remaining contract life of 7.2 years (excluding options to renew). Stable cash flow and a strong liquidity position provide ample covenant headroom. MARC Ratings’ sensitised case, which includes tenancy growth and operating margin stress, forecasts an average finance service cover ratio of 2.4x, with a minimum of 1.7x, above the covenanted 1.5x.

As at end-September 2024, Stealth’s number of towers and tenants have remained largely unchanged from last year at 547 and 924, with the tenancy ratio stable at 1.7x. Like its peers, Cellco has some customer concentration risk that is characteristic of the oligopolistic nature of the domestic telco industry and not considered as a major concern. MARC Ratings also assesses renewal risk as low, as towers are mission-critical infrastructure for telcos, and switching costs are high for customers and could lead to service disruptions.

Stealth leases the sites on which its telco towers are located from third-party landowners. As the leases, typically on three-year terms, are shorter than the tower lease agreements, Stealth is exposed to the risk of the landowners not renewing the ground leases. This risk is largely mitigated by Stealth’s strong track record of lease renewals and no significant concentration on a single landowner.

Haziq Najmuddin, +603-2717 2965/ haziq@marc.com.my
Hafiza Abdul Rashid, +603-2717 2955/ hafiza@marc.com.my