TIME’s divestment of AIMS data centre business has no immediate credit impact

Published on 24 Nov 2022.

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RAM Ratings is of the view that the proposed partial divestment of TIME dotCom Berhad’s (TIME or the Group) data centre business – held via AIMS Data Centre Holding Sdn Bhd and AIMS Data Centre (Thailand) (collectively, AIMS) – to DigitalBridge Group, Inc (DigitalBridge) will not have any immediate credit impact on the Group’s RM1 bil Islamic Medium-Term Notes Programme (2017/2037) (rated AA2/Stable). 

RAM reaffirmed TIME’s rating in September 2022 in view of its resilient financial profile and solid operational performance in the domestic fixed broadband, data centre and international bandwidth spheres. 

Post-divestment, TIME will eventually maintain a 30% stake (upon DigitalBridge’s conversion of its irredeemable convertible preference shares) in AIMS Data Centre Holding Sdn Bhd and AIMS Data Centre (Thailand) Ltd, reduced from an effective stake of 100% and 73.93%, respectively. The disposal will result in the deconsolidation of AIMS which contributed a respective 13% and 9.5% of the Group’s revenue and net profit in FY Dec 2021. We expect the Group’s already superior credit metrics to strengthen further even after the divestment. 

On a pro forma basis, TIME’s gearing will average 0.04 times over the next three years, while funds from operations debt coverage will hover at an average 2.8 times. This factors in a more conservative scenario where AIMS’ earnings and cashflow contribution to the Group is excluded in its entirety, as well as our assumption of RM400 mil in annual average capital expenditure (capex) and investment spending (last three years’ average including AIMS: RM316 mil per annum). 

The divestment will also lead to net cash proceeds of RM2 bil and a one-off gain on disposal of RM2.5 bil (likely to be recognised in FY Dec 2023). While RM1 bil will be paid as special dividends, the balance has been earmarked primarily for expansion opportunities and working capital requirements. This will reduce the need for added leverage to fund capex and/or inorganic growth opportunities in the near term. 

Any loss of earnings diversity will be moderated by TIME’s ability to leverage on DigitalBridge’s expertise to accelerate the scale-up of AIMS’ footprint and expansion prospects in Asia, without shouldering the entire investment cost and accompanying risks on its own. DigitalBridge has a global digital infrastructure portfolio of USD 50 bil under management. In addition to its global reach and experience, DigitalBridge – as AIMS’ major shareholder – will help defray hefty capex associated with the funding of telecommunications infrastructure assets. All said, excluding AIMS, the Group’s fiscal 2021 adjusted revenue and earnings before interest, tax, depreciation and amortisation from remaining core businesses will still stand at a respectable RM1.21 bil and RM587 mil, respectively (including AIMS: RM1.40 bil and RM673 mil).

Despite holding a minority stake, TIME will remain actively involved in AIMS’ day-to-day operations through management and board representation, in accordance with a shareholders’ agreement.  TIME and DigitalBridge are anticipated to jointly drive its strategic direction henceforth. Given a pre-agreed three-year moratorium on share transfers without the written consent of the other shareholder, the likelihood of TIME fully disposing its ownership in AIMS in the immediate future is viewed to be low. 

Subject to relevant approvals, the divestment exercise is slated to be completed by end-June 2023. As with any shareholding change, the new partnership may fall short of expectations or differences in opinions may arise on the strategic direction and/or execution capabilities of either party. For now, however, our AA2 rating of TIME’s sukuk is unchanged and the outlook remains stable. We will reassess the longer-term impact of the disposal as more details are made available. 

 

Analytical contacts
Chu Jia Ying
(603) 3385 2519
jiaying@ram.com.my

Davinder Kaur Gill
(603) 3385 2525
davinder@ram.com.my

 

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