SMI sells Myanmar Infrastructure Group for $12.7mn to Hong Kong’s Shining Star International

Tony Pretorius was formerly CTO with Helios Towers Africa and joined Myanmar Infrastructure Group (MIG) in January 2016. The industry veteran brings his years of experience in SSA to Myanmar, a country where a rollout that started with a lot of momentum and is now in a bit of a shakeout. Read on to learn about MIG’s sell to Shining Star and the current state of the Myanmar tower industry.

TowerXchange: Thanks for taking time to connect Tony. You’ve been in Myanmar now since the beginning of 2016. How’s it going over there?

It’s interesting. The people are lovely here, though from a developmental point of view, there is still a long way to go. The dynamic is different from what I am used to.

TowerXchange: Can you expand on that a bit more?

Access to capital is a big challenge, purely because there isn’t an investment banking or commercial banking history here yet. Great strides have been made over the last couple of years, but to raise debt finance locally is a challenge. Not impossible, but not as straightforward as in more established economies. To be able to leverage your infrastructure is not impossible, but not as easy as elsewhere.

Furthermore, the MNOs have also faced many challenges in meeting their licensing obligations, which naturally have had knock-on effects to their partners and vendors.  Nonetheless, we have found them to be responsible partners in working with us. Again, these challenges are not insurmountable.

TowerXchange: Given your role, what about from an operational perspective?

There are differences on the operational front, not fundamental, but similar to other emerging markets.

There’s a cadre of staff who need a lot of training and support to get them to the levels you want, hence reliance on expats which should diminish over time. The power situation is similar to other emerging markets. There is the unique challenge in Southeast Asia with weather patterns. Monsoon season is quite severe as opposed to just heavy or seasonal rain throughout the year. But you deal with it. Operational challenges are not that severe here compared to some of the SSA markets I’ve worked in.

TowerXchange: What about the market dynamics right now? Do you foresee consolidation or a potential sale?

Consolidation may occur at some point but at the moment we see new entrants and this is still an attractive market in its early stage of development.  We believe that MIG is well placed to take advantage of the market developments.  Clearly the number of towers needed in this country will far exceed some of the earlier projections, given where we are at present.

TowerXchange: So what type of valuations are we looking at potentially?

Typically, the valuation of a towerco business that’s been operational for a while is done on multiples of EBITDA. Such towercos have good co-leasing on towers, and have built up decent cash flows. Then, based on annual EBITDA or Tower Cash Flow (TCF), multiplied by (say) 12-14x, you’ll get the typical enterprise value a deal is done on.

Tower Bersama (Indonesia) did partial IPO a few years ago, at 20x EBITDA. This market won’t necessarily get 20x but could yield in excess 10x; likely somewhere in between.

TowerXchange: On a similar vein, congratulations on the recent announcement of the sale of MIG to Shining Star International for $12.7mn. Can we ask in simple terms, what are they buying? 

Tony Pretorius, COO, MIG: Simply stated, Shining Star has made an offer to buy SMI’s entire share of MIG.

TowerXchange: What motivated SMI to sell at this time?

The proposed divestment represents a good opportunity for SMI to re-deploy its capital and focus its resources on its fast-growing duty-free retail business, F&B ventures, and auto services in Myanmar.

TowerXchange: What makes Shining Star International a good counterparty?

The Shining Star Group is a well-established group within China/Hong Kong, focusing primarily on real estate, hotel and property management, education, healthcare, sports, and tourism businesses in China, Myanmar, and south-east Asia in general. Shining Star views Myanmar strategically in terms of its investments, along with adding telecoms infrastructure as one of its sectors to be developed.

TowerXchange: Going back to what’s happening on the ground right now in Myanmar. We are hearing build volumes have slowed for now?

Multiple factors have come in, where it appears that the biggest factor is that the MNOs have not rolled out as many new sites as previously, resulting in a slow down on the new site build front. Consequently, there’s been a dilution of the number of sites being awarded amongst multiple towercos, and a reduction in volume. Each towerco has therefore been building fewer towers. However, we expect that this situation is temporary, especially given the imminent launch of a fourth operator.

TowerXchange: What’s the situation with the soon to be confirmed fourth operator?

I’ve dealt with Viettel before in Africa; they are very aggressive and very smart, and they know what they are doing. I think the towercos are expecting lease up opportunities from Viettel, to assist them with their launch.

TowerXchange: Both Telenor and Ooredoo have been featured in the local press recently. A bit of a marketing and branding play here ahead of the fourth operator?

Maybe a bit of a marketing campaign in pushing the 4G rollout, where there are already 4G signals in the major cities. The traditional way for MNOs to roll out, i.e., roll out 2G, infill 3G, then infill 4G, appears to have been followed by one of the MNOs, whereas another MNO appears to leapfrogged straight to 3G, overlaid some 4G, and is now backfilling 2G; a slightly different approach. Right now for the MNOs, as it is still a growth market, it’s all about a “land grab,” competing on a daily basis at the customer level.