20250425_EXCL_Laporan Hasil Pemeringkatan_31877997_lamp2.pdf

at 17% and 7%, respectively, before the merger.

Larger Spectrum Holding: XLSMART's expanded spectrum portfolio will benefit its network quality
and cost efficiency and improve overall competitiveness. Excluding the 15Mhz in the 900Mhz band that
will be returned by December 2026, the company will have 137Mhz total spectrum, more than XL's
90Mhz and Smartfren's 62Mhz on a standalone basis. In comparison, mobile market leader PT
Telekomunikasi Indonesia Tbk (Telkom, BBB/Stable, SCP: a-) holds 165MHz of spectrum and Indosat
135MHz.

Increased Network Coverage: The total mobile sites of the combined entity will be around 67,000,
with 20%-30% of sites overlapping. These will be gradually decommissioned, and we expect some to be
relocated, subject to negotiation with tower operators. Based on the number of mobile sites, we expect
XLSMART's network coverage and quality to be comparable to that of Indosat, which we expect to have
around 53,000 sites by end-2025 per its 2022 merger conditions set by the government.

Consolidation Supports Pricing Discipline: We believe the sector's consolidation into three operators
will foster price discipline and profitable long-term growth. Smartfren customers' lower average
revenue per user (ARPU) will dilute reported ARPU of the merged entity compared to XL. However,
beyond the very short term, we expect ARPU to rise as operators prioritise profitable growth over
market share gains. Mobile ARPU in Indonesia is still among the lowest in the Asia-Pacific.

Higher Leverage: We expect EBITDA net leverage to deteriorate from XL's standalone level of 1.1x at
end-2024, due to the consolidation of the higher-levered Smartfren, share purchases from dissenting
shareholders and expected capex at the 5G spectrum auction in 2025. We forecast XLSMART's leverage
to peak at 2.2x in 2025 (2.1x pro-forma based on a full-year EBITDA contribution from Smartfren) and
gradually improve to 1.6x by 2027, driven by EBITDA margin recovery and improved capex efficiency.

5G Spectrum Auction: We assume XLSMART will spend IDR4.9 trillion on 5G spectrum upfront
payments in 2025-2026, assuming telcos will still pay two times the winning bid amount as an upfront
payment. This is in line with the payment structures in past auctions and does not factor in any
potential incentive offered by government, which might lower the upfront cost and annual usage
charge.

Peer Analysis

XLSMART's overall business profile is weaker than that of Indosat due to XLSMART's smaller EBITDA
scale and lower mobile market share. This is offset by XLSMART's better business diversification
considering its larger fixed broadband business, which has over 1 million subscribers. In comparison,
Indosat's fixed broadband subscriber base reached 350,000 in 3Q24. Indosat also has a stronger
financial profile due to its lower forecast EBITDA net leverage of around 1.1x.

Incumbent Telkom has a stronger market position than XLSMART with 50% revenue market share in
Indonesia's mobile market and a dominant position in fixed broadband service through its 70%-owned
subsidiary, PT Telekomunikasi Selular. Moreover, Telkom has a wider EBITDA margin and significantly
lower net leverage below 1.0x. Telkom's IDRs remain capped by Indonesia's sovereign rating (BBB/

Stable) on close linkages with the state and the absence of restrictions that limit cash and asset flow
from Telkom to the government.

XLSMART's National Long-Term Rating is the same as that of Indonesian tower operator, PT Tower
Bersama Infrastructure Tbk (TBI, BBB-/AA+(idn)/Stable). TBI is the third-largest wireless tower operator
in Indonesia with about 20% market share. It has stronger cash flow visibility from long-term lease
agreements, and generally faces less competition. TBI also faces lower capex risk as the deployment of
new towers are typically on a precontracted basis. However, TBI's higher EBITDA net leverage around
5.0x offsets its lower business risk.

We rate XLSMART's National Long-Term Rating at one notch above the standalone credit profile of
state-owned energy company, PT Perusahaan Gas Negara Tbk (PGN, BBB-/AA+(idn)/Stable). PGN's SCP
is assessed at 'aa(idn)' and it is constrained by the regulatory risk for its gas distribution and
transmission business in Indonesia, which balances its dominant domestic market position. Any
regulatory changes can significantly affect PGN's profitability. We expect PGN's margin to decline to
below 20% from 2025, lower than XLSMART's EBITDA margin of at least 26%. However, PGN's capex
plans can be adjusted according to the price cap and it maintains a net cash position.

Key Assumptions

-- Revenue to reach IDR42 trillion in 2025 and IDR49 trillion in 2026, assuming the consolidation starts
from 16 April 2025 (2024 pro forma: IDR46 trillion).

-- EBITDA margin of 27% in 2025, gradually improving to 28% in 2026 (2024 pro forma: 26%).

-- Annual capex of IDR12 trillion-13 trillion over 2025-2026 (2024 pro forma: IDR10.3trillion), including
total spectrum capex of IDR4.9 trillion over 2025-2026

-- 2025 dividend distribution of around IDR1,120 billion (2024: IDR646 billion).

-- IDR2.4 trillion spending to acquire shares from dissenting XL and Smartfren shareholders in 2025.

-- IDR6.9 trillion net debt from Smartfren is consolidated into XLSMART's balance sheet upon
consolidation.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:

- EBITDA net leverage above 2.1x for a sustained period.

- Deterioration of business profile, such as market share loss, increasing competition or significantly
higher than expected spectrum cost that leads to weakening profitability of the merged business.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:

- EBITDA net leverage below 1.1x for a sustained period, while maintaining its post-merger market

position and delivering sustained EBITDA growth

Liquidity and Debt Structure

XLSMART on a pro forma basis has IDR4.2 trillion debt maturing in 2025 and is likely to depend on
refinancing to roll over debt. We believe the merged company has reasonable refinancing ability, with
access to capital markets and bank facilities, supported by strong relationships with local and foreign
lenders. All outstanding XL debt are provided on an unsecured basis, reflecting its solid banking access.
Smarfren refinanced its rupiah syndication loan in November 2024 with lower interest. XLSMART's
outstanding debt are all denominated in Indonesian rupiah, in line with its revenue and costs.

Issuer Profile

XLSMART is the surviving entity from the merger of XL and Smartfren. The combined telco has over 94
million mobile subscribers and over 1 million fixed broadband subscribers at end-2024. Axiata and
Sinar Mas each own 34.8% of XLSMART and jointly control the company.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file
which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts,
commodity price assumptions, default rate forecasts, sector key performance indicators and sector-
level forecasts are among the data items included.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A
score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being managed by the entity. Fitch's ESG
Relevance Scores are not inputs in the rating process; they are an observation on the relevance and
materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores,
visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

Fitch Ratings Analysts

Wenny Anthony
Senior Analyst
Primary Rating Analyst
National
+62 21 4063 2249
PT Fitch Ratings Indonesia DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof.Dr. Satrio Kav 3-5 Jakarta
12940

Mengjia Lu
Associate Director
Primary Rating Analyst
International
+65 6796 7259
Fitch Ratings Singapore Pte Ltd. 1 Wallich Street #19-01 Guoco Tower Singapore 078881

Shiv Kapoor, CFA
Director
Secondary Rating Analyst
+65 6796 2720

Steve Durose
Managing Director
Committee Chairperson
+61 2 8256 0307

Media Contacts

Leslie Tan
Singapore
+65 6796 7234
leslie.tan@thefitchgroup.com




Rating Actions

 ENTITY/DEBT          RATING                                         RECOVERY              PRIOR

 PT XLSMART
 Telecom
                    LT IDR         BBB-            Downgrade                            BBB
 Sejahtera
 Tbk


                    Natl LT        AA+(idn)        Downgrade                            AAA(idn)


                    LC LT IDR      BBB-            Downgrade                            BBB



       • senior
                 Natl LT           AA+(idn)        Downgrade                            AAA(idn)
         unsecured

RATINGS KEY OUTLOOK WATCH
POSITIVE

NEGATIVE

EVOLVING

STABLE



Applicable Criteria

Corporate Rating Criteria (pub.06 Dec 2024) (including rating assumption sensitivity)

Corporates Recovery Ratings and Instrument Ratings Criteria (pub.02 Aug 2024) (including
rating assumption sensitivity)

Country-Specific Treatment of Recovery Ratings Criteria (pub.03 Mar 2023)

National Scale Rating Criteria (pub.22 Dec 2020)

Parent and Subsidiary Linkage Rating Criteria (pub.16 Jun 2023)

Sector Navigators – Addendum to the Corporate Rating Criteria (pub.06 Dec 2024)

Sukuk Rating Criteria (pub.13 Jun 2022)



Applicable Models

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing
description of model(s).

Corporate Monitoring & Forecasting Model (COMFORT Model), v8.1.0 (1)




Additional Disclosures

Solicitation Status



Endorsement Status


 PT XLSMART Telecom Sejahtera Tbk      EU Endorsed, UK Endorsed

 PT XLSMART Telecom Sejahtera Tbk           EU Endorsed, UK Endorsed



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