Malaysian telco issues $500m Islamic bond for Myanmar towers investment

Malaysian telecoms giant Axiata Group on November 13 issued a US$500 million Wakala Sukuk, or Islamic bond, to fund its investment into a Myanmar towers business.

This is the largest-ever corporate bond issued with proceeds to be invested into a Myanmar towers business, demonstrating considerable investor confidence in the frontier market.

Telecoms towers companies have led the way in terms of innovative cross-border financing into Myanmar – last year Pan Asia Majestic Eagle completed the first cross-border, non-recourse financing arrangement in the country.

A spokesperson for Axiata told The Myanmar Times yesterday that around $125 million of the bond’s proceeds will be used to fund the acquisition of a majority share in Myanmar Tower Company (MTC) under Axiata’s wholly owned subsidiary Edotco Group.

The remaining funds will be used for “general corporate purposes,” she said, though did not disclose whether or not this would include capex for MTC’s Myanmar rollout. In the bond’s prospectus the use of proceeds is listed as “general corporate purpose/other”.

Last month, Edotco entered into a conditional share purchase agreement with Digicel Group to buy its 75pc stake in MTC for $221 million on a cash-free and debt-free basis – to be settled in cash for around $125 million.

Axiata has raised the necessary funds at a competitive rate – its $500 million, five-year bond was launched with initial price guidance of 1.95pc over US treasuries. Bookrunners Deutsche Bank and CIMB were able to tighten pricing to 1.75pc, with a final yield of 3.466pc, according to a company statement.

The total book was worth over $1.92 billion, with 58pc of the bond going to investors from Asia, 22pc to Europe and 20pc to the Middle East. The deal was Reg-S, meaning it was not sold into the US.

According to Axiata, investors were both conventional and Islamic, including asset management firms, financial institutions, insurance companies and sovereign wealth funds, with participation form more than 170 accounts.

It was the second deal under Axiata’s $1.5 billion multi-currency issuance program established in 2012, and was rated BAA2 by Moody’s and BBB by Standard & Poor’s.

The unusual structure of the Sukuk is based on the Sharia principle of Wakala, whereby the underlying assets are airtime vouchers, representing entitlement to a specific number of airtime minutes on the mobile networks of Axiata subsidiaries.

The bond is structured to avoid interest payments, which are forbidden under Sharia law. Malaysia has the largest and most liquid Sukuk market in the world.

This is the second Islamic bond issued with a view to financing MTC – last year Qatar investment bank QInvest priced a $60m Sukuk for Digicel Group, to fund the tower company’s rollout.

When asked about the deal, a spokesperson for QInvest said it was “very private”.

Lawyer Clifford Chance reportedly advised on the transaction, though also declined a request for comment, as did Digicel Myanmar’s chief executive officer Oliver Coughlan.

MTC, which signed an agreement in 2013 with operator Ooredoo to develop, construct and lease 1250 telecommunications towers, was put up for sale earlier this year, including all its contracts and sites. Axiata is currently negotiating sale of the remaining 25pc of the company with Yoma Strategic Holdings – Digicel’s local partner.

Edotco was set up in 2012 and has regional ambitions – it now manages over 14,000 towers in countries including Bangladesh, Cambodia, Malaysia, Pakistan and Sri Lanka.

In Myanmar, it will enter a tough market. While the rollout of towers since last year has been one of the fastest in history and many more site remain to be built, companies have faced challenges ranging from land ownership to floods to child labour to landmines.

Nevertheless, Axiata is optimistic, noting that mobile penetration in Myanmar remains among the lowest in southeast Asia – at just over 50pc in June, according to the Ministry of Communications and Information Technology.

The company sees huge potential in Myanmar, largely driven by rising mobile penetration, operator licence obligations, potential new entrants and new spectrum licencing, according to the company spokesperson.

An international tender for a 49pc stake in a joint venture that will receive Myanmar’s fourth operator licence is likely to be issued next year, and Axiata may consider bidding.

“Axiata is always keen to look into inorganic opportunities within its target markets,” she said.

Source: Myanmar Times

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