Announcements Corporate Rating Alerts

GCR Accords a First-time Rating of BBB(NG) to Pan African Towers Limited; Outlook Stable

Lagos, 22 October, 2020 – Global Credit Rating Co. Limited has assigned a first-time long-term and short-term national scale Issuer ratings of BBB(NG) and A3(NG) respectively to Pan African Towers Limited, with a Stable outlook accorded. The ratings are valid until August 2021.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Pan African Towers Limited (“PAT” or the “Company”) based on the following key criteria:

PAT’s ratings reflect its inherent business strength, an experienced management team, the substantial imminent cash investment in the Company and the expectation for a timeous and successful roll out of an aggressive expansion plan in the short to medium term. Although much smaller than its dominant peers, PAT’s strong growth prospects are underpinned by the substantial telecom infrastructure deficiency in Nigeria. However, with a limited track record, this is contingent upon a successful execution of its expansion plans.

PAT’s business risk assessment is mitigated by low sectorial cyclicality (even amid COVID-19); strong regulatory support for local content; stable, long-term, contracted revenues; embedded annual lease escalations; with financially strong telecom counterparties. Accordingly, debtor risk is also low. This is somewhat counterbalanced by earnings concentration (c.80%) to two key tenants, albeit in line with the industry structure.

Revenue is primarily derived from lease charges for hosting transmission equipment of third-party telecom operators. Having witnessed strong revenue progression in the past 26 months, PAT is seeking to expand its market share and gain from economies of scale through the acquisition of existing towers from smaller players, thereby enlarging its lease portfolio.

The EBITDA margin has increased steadily over the review period, albeit still below the level reported by the dominant competitors. Specifically, as is typical of the industry, cost efficiencies are constrained by high and volatile diesel costs (c.50% of total cost), but PAT passes diesel-related cost escalations to its tenants. While the Company plans to significantly reverse this trend through more cost-effective alternative energy sources, efficiency gains will only manifest in the medium to long term. During this period, earnings margins will also be impacted by lower legacy tenancy rate from the proposed sites to be acquired.

To date, PAT has maintained a conservative gearing profile, with adjusted net debt to EBITDA at 118%. Although the company requires a substantial capital outlay for its planned rapid expansion, funding will remain weighted to investment inflows (USD52m expected), and around N25.4bn to be raised through InfraCredit Guaranteed Bonds over the next three years. Nevertheless, this will escalate PAT’s hitherto low leverage above 4.0x over the next two years, before moderating below 3.0x in FY23. While the relative predictability of earnings mitigates funding risk somewhat, gearing could spike further if there is any significant earnings underperformance. Besides, the Company evidences low liquidity coverage, with sources of funds barely covering uses over the 12-month period ending December 2020, and 0.8x over the next 24 months.

The successful and timeous implementation of expansion plans and significant ramp-up of earnings could lead to upward ratings migration. Failure to roll out growth plans, due (inter alia) to cost overruns, adverse foreign exchange movements, inability to close the planned fund raising, or other exogenous factors, would leave PAT in a weak competitive position. Higher than expected gearing and/or loss of key tenants could adversely impact the ratings

NATIONAL SCALE RATINGS HISTORY

Rating Class Rating Outlook Date
Initial Ratings
Issuer – Long term BBB(NG) Stable October 2020
Issuer – Short term A3(NG) Stable October 2020

ANALYTICAL CONTACTS

Primary Analyst

Samuel Popoola

Lagos

+23 41 904 9462

samuel@gcrratings.com

Committee Chairperson

Dave King

Chairman

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Corporate Entities, updated February 2018

Glossary of Terms/Ratios (February 2018)

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.COM.NG.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity; d) the ratings expire in August 2021.

PAT participated in the rating process via teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings have been disclosed to Pan African Towers Limited.

The information received from PAT and other reliable third parties in according the credit rating included;

  • 2019 audited annual financial statements (plus four years of comparative numbers),
  • unaudited management accounts as at June 2020,
  • long term financial forecasts,
  • industry comparative data and regulatory framework,
  • a breakdown of facilities available and related counterparties.
  • Information specific to the rated entity and/or industry was also received

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

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