Potential sale of towers by Indosat to Tower Bersama is positive for both companies - DBS

Tower Bersama Infrastucture: Buy; Rp2,425; TP Rp2,700; TBIG IJ
Indosat: Buy; Rp5,150; TP Rp6,200; ISAT IJ

PT Tower Bersama Infrastructure plans to acquire 4,000 towers owned by PT Indosat, Investor Daily Indonesia reported, citing Helmy Yusman Santoso, finance director Tower Bersama. The acquisition ' s value may be more than USD500 million, the report said. The Indonesian company is likely to use funds from capital expenditures and loans to finance the acquisition, according to Santoso, who didn ' t give a value for the transaction.
Our View
· Positive for Indosat. Indosat owns close to 12K towers in its portfolio, which can result in potential upside of 15%-25% for its share price if all sold for USD125K-140K per tower. This should also provide enough cash ammunition to the company to reduce its FY10 net debt of USD2.2bn (net debt to EBITDA over 2x).
· Positive for Tower Bersama too. 4K towers at USD500m, translates to USD125K per tower, which is fairly attractive considering an average tenancy ratio of slightly over 1x for the big tower portfolio. The construction cost of each tower comes to around USD 100K and it takes couple of months to complete.
· Tower Bersama should be able to raise debt. Tower Bersama’s net debt stood at ~USD180m as at 1Q11. 4K towers should generate USD60m EBITDA annually. Including TBIG’s USD90m EBITDA, consolidated EBITDA of USD150m should easily support net debt of USD680m, below 5x EV/EBITDA.