Since the opening of the market to international operators in 2014, Myanmar has seen rapid uptake in mobile subscriptions, with demand exceeding even the most optimistic forecasts. From a very low base, SIM penetration has raced to between 75-80%. As an emerging country with vast opportunities, the realities on the ground also prove challenging for foreign operators and towercos alike. Seven towercos currently serve the marketplace, with ownership having changed hands for two, in 2015 and 2016 respectively. The two deals took place roughly one year apart, with a 28% drop in valuation when comparing price per tower. Read on for full deals on the players involved and key details.
First recorded transaction
The first deal in Myanmar took place in Q4 2015, with edotco’s acquisition of a 75% controlling stake in Digicel Myanmar Tower Company (MTC). The transaction valued 100% of the towerco, on a cash and debt free basis, at US$221mn. At the time, MTC’s portfolio included 1,250 towers, setting the benchmark price per tower of US$176,800.
Following the deal, TowerXchange noted that while this is a considerably higher price than India, where towers changed hands for an average of US$114,301 between 2009 and 2015, lease rates in India are typically just US$550-600, whereas in Myanmar lease rates range from US$1,400 to US$1,700, driven by relatively high capex and opex.
TowerXchange also felt the pricing was justified as the towers were built in phase one of the rollout, concentrated on Myanmar’s three biggest cities Yangon, Mandalay, and Naypyidaw, in highly desirable locations.
Roughly one year later, in early November 2016, it was announced that Axiata, parent company of edotco, increased its stake in Myanmar to a further 87.5% by exercising the put and call option it signed with Yoma Strategic Holding Ltd., back in December 2015.
The additional 12.5% stake was sold for US$35mn, based on previous negotiations that set the price for the full 25% at the higher of US$40.25mn or an agreed multiple of the towerco’s 12-month EBITDA, and trailing 12-month actual performance. A multiple between 9.80x and 12.40x was quoted in The Myanmar Times.
According to Yoma, the sales price is based on the formula set out in the put and call option agreement, and an agreed premium taking into account certain agreed variations to the terms of the existing agreements. Yoma also noted based on the latest unaudited financial statements, as of 30 September 2016, the book value of the sale shares is approximately US$32.55mn.
Minority shareholder Yoma, one of Myanmar’s foremost real estate companies, has done well out of the deal. Yoma Chief Executive Melvyn Pun was quoted in Singapore’s The Strait Times saying, “Our original investment of US$20 million has now grown to US$70 million, of which half is being sold.” Yoma also reported a fair value gain of US$14.7mn through this transaction.
For now Yoma will retain the remaining 12.5%, with a new revised shareholders agreement to be signed with edotoco for future sales.
At the time of edotco’s purchase from Digicel, the 25% owned by Yoma would have been valued around US$55.25mn to the sale price of US$221mn. Given this, 12.5% one year ago, was roughly US$27.625mn, compared to the recent sell price of US$35mn. Note that the put and call option agreement had set one base price of US$40.25mn for the 25%, or US$20.125mn for 12.5%.
Tower transaction history in Myanmar
Second recorded transaction
Myanmar’s second acquisition was announced in October 2016, which after months of speculation, confirmed the sale of Myanmar Infrastructure Group (MIG), owned by Singapore Myanmar Investco (SMI) to Hong Kong-based Shining Star International Holdings Ltd., for US$12.7mn. Tower count for MIG around September was reportedly around 100, which would yield a price per tower around US$127,000.
While it may be tempting to compare the yield from the edotco-MTC and Shining Star-MIG transactions and conclude that valuations are declining in Myanmar, it is not that simple. First, edotco’s tenancy ratio was reportedly “1.84 and heading for two” as recently as Q2 2016. While MIG’s tenancy ratio is not in the public domain, TowerXchange understands it is substantially less than edotco’s. Secondly, while the MIG towers are in good locations, they are not as desirable as those in the edotco portfolio. These two factors alone could account for a substantial difference in valuation. Indeed TowerXchange feels SMI realised a good yield selling their towers at approximately a 27% premium on replacement value after just a single year.
Next deal
As we noted in our article “Two tiered towerco market emerges in Myanmar,” the next sale will likely be Pan Asia Majestic Eagle Limited (PAMEL, sometimes referred to as Pan Asia Towers or PAT), with edotco being a likely bidder.
PAMEL’s 1,250 towers were built for Ooredoo in phases one and two. The portfolio is almost a mirror image of the Digicel MTC towers. While the tenancy ratio is not in the public domain, TowerXchange expects it to be above 1.8. PAMEL has management DNA in common with Indonesia’s Protelindo, but remains a distinct entity. In 2014 PAMEL secured US$85mn in financing from a consortium of five banks: DBS, ING, OCBC, Standard Chartered and Sumitomo Mitsui.
Apart from edotco and perhaps new entrant OCK, TowerXchange feels that it is a case of when, and not if Myanmar’s other private equity backed towercos exits, although the backers of Irrawaddy Green Towers (Alcazar Capital et al) and Apollo Towers (Tillman Global Holdings et al) seem patient enough to lock in maximum value from the 4G rollout and fourth MNO launch before selling – indeed either could be a bidder for PAMEL at the right price.
Sell now or hold?
The question remains whether now is the best time to sell, when plenty of transactions are expected in 2017. Organic and tenancy ratio growth is almost guaranteed, especially in light of the MNOs focus on 4G rollout to support data services, to be spurred by the auction of 1,800MHz spectrum in early 2017, and the entry of the fourth operator Vietnam-based Viettel via a consortium.
About Axiata and edotco
Axiata Group Berhard is one of the leading telecommunications groups in Asia, with controlling interests in six mobile operators under the brand names of ‘Celcom’ in Malaysia, ‘XL’ in Indonesia, ‘Dialog’ in Sri Lanka, ‘Robi’ in Bangladesh, ‘Smart’ in Cambodia and ‘Ncell’ in Nepal, with strategic interests in ‘Idea’ in India and ‘M1’ in Singapore. In 2012, it established edotco, the group’s infrastructure company, which now operates a portfolio of 17,054 towers and 12,000km of fibre across six countries.
