Moody’s Investors Services, one of the most trusted companies that provides comprehensive credit rating and research covering debt instruments and securities, released a full year report on PT XL Axiata Tbk, a sister company of Axis Capital Group, one of the biggest telecommunications company with subsidiaries around Asia. Moody’s reviews show that Axiata is broadly in line with their expectation and support XL's Ba1 corporate family rating and stable outlook, despite its elevated leverage.
Reported revenue has increased to 10% to IDR23.6 million for 2014 with an expected continued growth and development. Growth in data and value-added services supported by marginal growth in voice and SMS are some of the factors that helped the increase.
Smart phones penetration also increased by 127% year-on-year and the data usage in all media has also increased. However though, data prices continue to lag. There are no increase data prices over the years because of the complaints of uneven distribution of data among site locations. This factor is the reason why there is a 4% decline in blended average revenue per user.
Moody's expects margins to contract slightly in the end of 2015 owing to lower revenues from XL's higher margin tower leasing operations post sale of 3,500 towers to Solusi Tunas Pratama Tbk.
While XL's elevated leverage is not in line with its Ba1 rating given by Moody’s, this increase will be transient as we expect the company will use a majority of the proceeds from its IDR5.6 trillion sale of 3,500 towers to Solusi Tunas Pratama Tbk (STP, unrated) in December to pay down debt.
Management has maintained capex guidance of about IDR7 trillion for 2015, broadly in line with capex of IDR7 trillion in 2014 and IDR7.4 trillion in 2013. This continuing trend of declining capex to revenue is in line with Moody's expectations as the company has substantially completed its 3G network infrastructure, and has started enjoying some of the capex savings following its Axis acquisition, particularly spending to support its 2G network infrastructure. The emergence of 4G networking, first tested in Jakarta, Indonesia has also been helpful in the continues development of XL.
Additionally, XL's recent tower sale to STP is credit positive for XL as it allows the company to monetize its non-core tower assets to improve its liquidity. Furthermore, the sale and leaseback terms are quite favorable for XL, and will help to boost the company's cash flows and future operating profits. The fixed lease rental at IDR10 million per month is significantly lower than the current market average, and there are no separate service fees or inflation escalator. Such favorable deal terms are unprecedented in the Indonesian tower sector.