Apollo Towers Myanmar has been contracted by Telenor to build a total of 1,827 towers to date, of which at time of writing (early August 2015) 1,100 had been lit. With a full service tower+power proposition, Apollo is building fast and is positioning itself secure co-locations and become one of Myanmar’s two largest towercos. TowerXchange spoke with Apollo CEO Philippe Luxcey, a 20 year mobile veteran who had previously served as CEO of Orange in Uganda and Cameroon, and Corporate Finance Manager, Henry Butler, who had recently helped secure substantial new debt and equity for the towerco.
TowerXchange: Thanks for taking the time to speak to us today. Please tell us what Apollo has built to date in the first phases of the rollout?
Philippe Luxcey, CEO, Apollo Towers Myanmar:
In phase one of the rollout we secured an initial contract to build around 1,110 sites; most of these have already been delivered. There is a small number of sites that more challenging. We are sorting through those as we speak.
TowerXchange: How would you characterise the differences between the locations of towers you rolled out initially, compared to those you have been contracted to build in the next phase of the rollout?
Philippe Luxcey, CEO, Apollo Towers Myanmar:
The first phase of the rollout was concentrated in the main cities, in the densely population areas.
We have a contract to build 717 more towers for Telenor in the next phase of the rollout, but we’re not really pushing into rural Myanmar yet – these are more suburban than urban sites but we are building now in States like Shan, Kachin, Chin, Kayah, Rakhaing et cetera.
All that really distinguishes the first from the latest phase of the rollout is that there is a new Purchase Order (PO) for this next phase – in reality there is some overlap in terms of execution. Our first phase build is all but complete, and we’ve already started building the 717 towers in the next phase.
TowerXchange: So does the next phase of the tower rollout remain within reach of Myanmar’s transport infrastructure, or are you having to hand-carry equipment for the last miles to some sites?
Philippe Luxcey, CEO, Apollo Towers Myanmar:
We select sites which meet access criteria, and so far we have been able to deliver all towers by truck. Myanmar may have a finite number of tarmacked roads, but there are lots of small mud roads which, if not flooded, you can still use for access.
TowerXchange: It is unfortunate that the latest phase of contracts were awarded just before the rainy season – how have the monsoon rains affected Apollo?
Philippe Luxcey, CEO, Apollo Towers Myanmar:
It’s true that we received our PO just before Myanmar’s Water Festival – there are countrywide holidays for almost three weeks from 10 April to early May – but after that we were able to commence site acquisition and building towers. In fact we already have 60 sites on air from the second batch of 717. We have civil works under way for a further 200+ sites, but we’ve had to put about 100 sites on hold until flood waters recede.
Apollo has been exceptionally fortunate that we have only a handful of sites that are flooded, as we designed the majority of our sites with raised platforms.
It’s normal to face challenges rolling out during rainy seasons. I recall in 2007 the launch of a microwave backbone running from the South to the North of Cameroon was significantly delayed due to rain. It has an effect on some tasks yes, but we can still get a lot done during the rainy season
TowerXchange: How mature is the supply chain of telecom contractors in Myanmar now compared to when you arrived?
Philippe Luxcey, CEO, Apollo Towers Myanmar:
We decided to work with four big well known contractors from the outset. Leadcom, Camusat, GTL and ieng have deep experience in emerging markets, both Africa and Asia, as well Eastern Europe, so for them Myanmar was just one more new country, it was not an exceptional challenge. Of course it took time for them to select and train local subcontractors. There was no tower building background in Myanmar like in Africa where you have contractors who move from one operator to another. Here the country was opening so everything was new. It took time to adjust, but now it’s working well.
TowerXchange: Congratulations on raising debt a US$250mn loan from OPIC, recently supplemented by US$30mn in equity from local company MIL. Please tell us about your experiences raising capital for tower ventures in a country with perceived high country risk like Myanmar.
Henry Butler, Corporate Finance Manager, Apollo Towers Myanmar:
That perception of high country risk underpins all our discussions.
One of the other Myanmar towercos, who operated a simple business model with no power risk, were the first to secure debt funding through a consortium of commercial banks out of Singapore. They offshored some of the risk, and structured it with a large cornerstone of equity, so the ‘greenfield’ risk was significantly reduced at the start of the project. With no power and associated SLA penalty risk, they were able to present a straightforward business model with long term recurring revenues, and were able to secure debt on a relatively low gearing. Of course, if you have access to a parent guarantee that is always going to help offset some of the market or country risk.
However, as the award of next phase build contracts illustrates, providing power services is a source of competitive advantage for Myanmar towercos. Although when Apollo first approached the debt market, the perception was that power was trouble, and that achieving the SLAs was going to be challenging, so we had to get over that hurdle. We spent a great deal of time getting the banks and DFIs comfortable with Apollo’s ability to deliver power, explaining that if you get power right in emerging market towercos you’re going to be the partner of choice – operators have quickly realised that if it’s a choice between tower and power or just the tower, then it’s really no choice at all. Having different suppliers for tower and power can be very tough.
We spent a great deal of time getting the banks and DFIs comfortable with Apollo’s ability to deliver power, explaining that if you get power right in emerging market towercos you’re going to be the partner of choice
The education process required that we demonstrate our ability to deliver the uptimes required by SLAs, and to improve the banks’ comfort in the potential for co-location growth. Their due diligence teams visited Myanmar, met with our management teams and visited a number of our towers. On this point, a lender’s confidence in the management team is vital. The banks built confidence in the experience our management team had accumulated in Africa, Thailand, Nepal, Cambodia and Malaysia, and in the experience and involvement of our shareholders, TPG and Sanjiv Ahuja.
We had lots of dialogue with commercial banks, some of which were very keen as they’d been left out of the consortium making up the aforementioned transactions, but we chose OPIC. Development finance is always a strong play for emerging market towers because they inherently take away some of the country risk – indeed some corporate banks we were talking to at the early stages were only keen to enter Myanmar alongside a DFI.
Any lender that comes into Myanmar or any market like it needs to be aware that they’re not necessarily able to control as many variables as they might in a developed market – think of the lack of hedging products in Myanmar – lenders have to be flexible. OPIC were pragmatic about the realities of building a tower business in Myanmar.
You either have to pay for country risk, or you offset it by minimising contract risk, in the end you probably have to do a bit of both in Myanmar.
TowerXchange: Tell us a bit more about your recent equity raise.
Henry Butler, Corporate Finance Manager, Apollo Towers Myanmar:
We wanted to focus on a small group of specialised investors who could add value to our business, and so it was great to announce last week that we’re partnering with Myanmar Investments International Limited (MIL). MIL are listed on AIM in London but are on the ground here with Mike Dean and Aung Htun, who is a Myanmar national. They’re an intelligent and thorough outfit who managed to complete a great deal of due diligence in the weeks running up to closing. They were already invested into Myanmar, believe in the growth story, and they were willing to get involved and get involved at in depth levels. Myanmar is not easy, so shareholders need to be engaged – a hands off approach doesn’t work here.
TowerXchange: Let’s go back to the point about convincing the bankers that it was worthwhile engaging with the complexity of power in Apollo’s business model. What operational evidence were you able to provide to make your case?
Henry Butler, Corporate Finance Manager, Apollo Towers Myanmar:
Of course it’s true that there are more moving parts when towercos provide power. But there is also more opportunity to extend your growth story – particularly in Myanmar when the next phase of the rollout has seen all contracts awarded to towercos who provide power – a lender wants to see businesses who grow and wants to grow with them. And we’re dimensioning the power systems for two tenants from the outset on our next 717 sites, and it’s easy for us to add an extra battery bank for a third tenant.
I believe provision of power, not only steel, must be a core competency of any emerging market towerco.
Philippe Luxcey, CEO, Apollo Towers Myanmar: Securing capital required that we demonstrate that we had a good operation, good people, and good contractors. Today we are delivering an average of 99.95% uptime, which demonstrates our ability to meet what might appear to be stringent SLAs.
TowerXchange: What specific investments in power systems have you had to make to deliver such strong uptime statistics?
Philippe Luxcey, CEO, Apollo Towers Myanmar:
Today we are using the same solutions as towercos in other countries – there is no energy revolution. A good battery bank for backup is often sufficient in Africa, with generators only on critical sites, but one of our key learnings has been that in Myanmar we need generators on all sites except rooftops.
We’ve been able to connect to the grid at almost every site we’ve built so far in Myanmar, but the quality of the grid is very poor. In Africa generally you have grid power or you don’t, there may be outages but when the grid is available it’s generally 220V. Here you might get 110V, 120V, 130V and that’s much more challenging for power equipment to deliver the 48V DC required to power telecom equipment and recharge the batteries.
We’re using charge discharge battery and DG hybrids – we have deployed no renewable energy so far. Most of our phase one sites were in the Yangon region, which is at a latitude not ideally suited for solar, and there is insufficient wind resource for wind power. The situation will be different in Mandalay and further North, but in the South renewables often aren’t an option. And during the monsoon season you would need sufficient DGs to achieve the desired autonomy even if you had solar.
TowerXchange: How do you foresee demand for co-location? Will KGSM co-locate?
Philippe Luxcey, CEO, Apollo Towers Myanmar:
We are seeing demand for co-location growing every day. We have a long term contract with KSGM and a contract with Ooredoo, while of course Telenor is our anchor tenant. What is attracting Ooredoo and KSGM is the quality of our sites. For example most of our ground based tower sites are designed with an elevated one metre slab for power and telecom equipment, so even when the area is flooded with water we can maintain continuity. We view it as critical to maintain 24/7 service especially with regards to power.
Philippe Luxcey will be speaking at the TowerXchange Meetup Asia on November 24 and 25 in Singapore. For more details visit www.towerxchange.com/meetups/asia
