Indosat initial tower sale looks weak on pricing, good for either TBIG or TOWR (James Sullivan, Vishesh Gupta)

Thomson Reuters reported yesterday that ISAT is considering sale of 4000 towers out of its total portfolio of ~12000 towers. The news story said that ISAT aims to raise ~US$500 mn from the first tranche of tower sale. The company has not commented on the report.

A few key takeaways on the indicated tower sale from our analysis of independent tower portfolio valuations in Indonesia:

Pricing looks weak: ISAT's 4000 tower sale at US$500 mn amounts to an EV/Tower of US$125k which is much less than existing tower portfolio valuations of TOWR and TBIG at US$350-430k EV/Tower. The indicated pricing also seems weak as compared to earlier indications from ISAT management that they expected to get valuations of ~US$200k for their towers.

The offer looks attractive for TBIG/TOWR (the two biggest independent tower operators in Indonesia): The indicated offer price in Thomson Reuters news article is at around a 65-70% discount to their existing tower valuations and thus could be an attracitve proposition. Based on 1Q11A financials; our calcualtions indicate that TBIG's net debt/Equity would increase to 233% from 60% currently if it were to acquire ISAT's 4k towers at US$500 mn while TOWR's net debt/Equity would rise to 627% from 316% currently. JPMorgan does not maintain coverage of TBIG or TOWR.

Attaching the article from Reuters

Janeman Latul
Equities Correspondent
ThomsonReuters Indonesia

18:27 23Jun11 RTRS-INDONESIA'S INDOSAT LAUNCHES AN INITIAL SALE OF 4,000 TELECOMS TOWERS, EYES OVER $500 MLN FROM THE SALE - SOURCES
18:27 23Jun11 RTRS-INDOSAT HAS INVITED POTENTIAL BIDDERS TOWER BERSAMA AND SARANA MENARA TO ASSESS TOWER DATA - SOURCES
18:38 23Jun11 RTRS-Indonesia's Indosat launches sale of 4,000 telecom towers-sources
JAKARTA/HONG KONG, June 23 (Reuters) - Indosat , Indonesia's No.2 mobile phone provider, has launched an initial sale of 4,000 telecom towers aiming to raise more than $500 million, said three sources with direct knowledge of the plan on Thursday.
The company has invited several potential bidders, including Profesional Telekomunikasi Indonesia, a unit of Sarana Menara Nusantara , Tower Bersama Infrastructure and Solusi Tunas Pratama to assess data on the towers.
Indosat will not offer the towers to its main rivals Telekomunikasi Indonesia and XL Axiata , said the sources, who declined to be identified because the sale was not public yet.
The potential bidders have been talking to banks over loans to fund the acquisition, sources said.
Bids are due by early next week.
The sale could be the first auction of around 10,000 towers that sources told Reuters last year it is considering selling.
Indosat, controlled by Qatar Telecom , declined to comment.
(Reporting by Janeman Latul and Fathiya Dahrul in JAKARTA and Maggie Chen from Basis Point in HONG KONG; Editing by Neil Chatterjee)