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A case study on ICRA’s approach to

rating
Telecom Tower Infrastructure
companies

Submitted by- Navdeep


kumar(infra)
Roll no-11

Navdeep
Singh(Telecom & IT)
Roll no-06
ICRA’s Approach to Rating Telecom
Tower Infrastructure companies

The strength of a telecom tower infrastructure
company lies in its ability to generate
sustainable cash flows and to maximize
returns on the capital invested, both of which
in turn are exposed to the risk factors
INTRODUCTION
 ICRA Limited (formerly Investment Information
and Credit Rating Agency of India Limited)
 It was set up in 1991 by leading
financial/investment institutions, commercial
banks and financial services companies as an
independent and professional Investment
Information and Credit Rating Agency.
 The international Credit Rating Agency Moody’s
Investors Service is ICRA’s largest shareholder.
 Today, ICRA and its subsidiaries together form
the ICRA Group of Companies (Group ICRA).
 ICRA is a Public Limited Company, with its
shares listed on the Bombay Stock Exchange
and the National Stock Exchange. 

Sustainable cash flows and the maximization of
returns on the capital invested are exposed to the
following risk factors :

 Sponsor Risks
 Ownership Structure
 Operating Risks
 a. Occupancy/Tenancy Level
 b. Cost Competitiveness
 Execution Risks
 Market Risks
 Contractual Risks
 Counterparty Risks
 Funding Risks
 Financial Risks
 Regulatory Risks

Need for study
 Ownership Structure

Tower infrastructure subsidiaries, which are


the spun-off tower divisions of the
telecom-operator companies

Independent tower infrastructure companies


(ITICs).
Operating Risks

Occupancy/ Tenancy Level


 Contract or Anticipatory Approach
 Emphasis on Client Servicing
 Quality of Services
 Quality of Clients

Cost Competitiveness
 Optimization of Capital Costs


Indicative Break-up of the
Capital Cost of Establishing a
Telecom Tower
Steel Tower
26 %

Foundation Works, Civil Works 32%

Erection and Project Management 05%


Services

Electrical Appliances/Equipment 36%

Approvals 01%

100%
TOTAL

 Optimization of operating costs

 Non-reimbursable expenses- site (land) rentals,


security expenses, expenses on repairs and maintenance
(of the tower),

 Reimbursable expenses- electricity & fuel expenses,


expenses on maintenance of air-conditioning and diesel
generating sets, etc.
Contractual Risks

Tenure of agreement
Penalty clauses for
premature exit from the
agreement
Re-negotiation of rentals
Coverage of space/ground
rentals

Funding Risks


The capital structure of the
company

The composition of debt

The nature of interest rate on
the debt.

The average cost of debt.
Financial Risks

Capital cost per tower & average occupancy


Earning before interest, taxes, depreciation
and amortization (EBITDA) margin.
Earnings before Interest and Tax
(EBIT)/Interest
Total Debt/EBITDA
Debt/Tangible Net Worth
Retained Cash Flow (Net Cash
Accruals)/Debt
Free Cash Flows/Debt
Debt Service Coverage Ratio
Retained Cash Flow/Capital Expenditure

Regulatory Risks

The domestic telecom industry is a highly


regulated one.
The telecom infrastructure sector being a
derivative of the telecom industry is
sensitive to regulatory changes that have a
bearing both on the telecom industry in
general and on tower infrastructure
companies in particular.
Regulatory changes that have the potential
to influence the intensity of competition in
the industry are a key determinant of a
tower infrastructure company’s
competitive positioning in the market.
SWOT Analysis of ICRA
 Strengths-
 ICRA is one of the leading Credit Rating agencies in India, and an
Associate of Moody’s Investors Service


 ICRA offers Consulting services, IT-based services, Information
services, and Outsourcing services.

 Strong brand and competitive strengths


 Proven ability to make product and service innovations


 Track record of Ratings


 Experienced Management team and rich talent pool
Weakness

Business impacted by global credit market


conditions
Approximately 50% of the business is linked
to the structured finance market, which
has been significantly impacted
Pipeline pertaining to new services and new
client has been significantly impacted as
some firms with whom pilot projects had
been done in the previous fiscal have
either gone out of business or have scaled
down operations
Clients unwilling to discuss price escalations
in the current business environment
Opportunities-
 1)Basel- II rollout.
 2)Acquisition of new clients
 3)Significant increase in volume of rated debt
and bank lines of credit

Threats-
 1)Economic slowdown, especially
investment demand
 2) Adverse debt and capital market
conditions
 3)Stagnation in financial sector volumes
and contraction in structured finance volumes
during Q2.

SWOT Analysis of Tower
companies
Strengths-

 Tower infrastructure is increasingly becoming


independent of telecom operators in India.

 Tower infrastructure subsidiaries have an
advantage in terms of assured occupancy from
their parents, which in turn may serve to
attract other tenants.

 ITICs differentiate themselves by offering


attractive payment terms (for instance, back-
ended payment structure) to telecom
operators, which enables the telecom
operators to reduce their costs in their initial
years of operation.
Weakness

Ownership Structure –
 In India still there are very few
Independent tower infrastructure companies
(ITICs).

Operating Risks
 a. Occupancy/Tenancy
Level – Occupancy level of towers is not
more than 1.7 which is required by a
company to earn reasonable returns.
 b. Cost Competitiveness –
Tower companies haven’t reached cost
competitiveness levels.
Opportunities

The telecom towers business in India is


lucrative with long-term growth prospects
Growth in telecom subscribers, falling
average revenue per user (ARPU) and
increasing Tele-density are driving growth
of telecom towers in India.
The market is expected to witness 17% p.a.
growth from 2008-2015 with the estimated
requirement of 554,000 towers by 2015.
Threats

Execution Risks & Regulatory Risks-These


are always a threat to the tower
companies.

Funding Risks & Financial Risks-since


gestation period is quiet large in case of
tower companies so these pose an
existential threat.

Counterparty Risks –this include the risk


associated with clients with not financially
sound.

Market Risks & Contractual Risks


Porter's Analysis
conclusion
ICRA information products, Ratings,
and solutions reflect independent,
professional and impartial
opinions,
It assist businesses enhance the
quality of their decisions and help
issuers access a broader investor
base
Even lesser known business entities
approach the money and capital
markets.
conclusion
ICRA’s rating decision on a tower
infrastructure company is influenced, in
varying degrees, by several factors, the
key among which are being discussed .
ICRA remains open to incorporating changes
in its rating methodology for rating
telecom infrastructure companies either in
response to or in anticipation of changes
impacting the dynamics of the Indian
telecom services.
Changes could be prompted by the evolving
regulatory framework or change in
competitive matrix among other factors.
Recommendations
 It should provide information and guidance
to institutional and individual
investors/creditors.
It should enhance the ability of
borrowers/issuers to access the money
market and the capital market for tapping
a larger volume of resources from a wider
range of the investing public .
It should assist the regulators in promoting
transparency in the financial markets .
It should provide intermediaries with a tool
to improve efficiency in the funds raising
process.
Any Questions
Thank you to ALL for listening
us!!!

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