Bangkok--10 Mar--Moody's Investors
Approximately $344 Million of Debt Securities Affected
Moody's Investors Service has revised to negative from stable the outlook on PT Indosat Tbk's Ba1 corporate family ratings and senior unsecured ratings.
"The revision in outlook to negative is driven by our expectation that Indosat's adjusted debt / EBITDA will rise above 3.0x and remain there for a prolonged period, and that financing requirements during 2010 will increase the company's proximity to financial covenants," says Ivan Palacios, a Moody's AVP/Analyst.
"We expect Indosat's operating performance to improve over the coming year, but the improvement in revenues, EBITDA, and resulting cash flows will not be sufficient to lower leverage to less than 3.0x during 2010," says Palacios, also Moody's lead analyst for the company.
"In addition, Moody's believes that the company's expected weaker credit metrics for the rating category reflect a greater tolerance for leverage than in the past," adds Palacios.
Moody's expects Indosat's liquidity to remain tight over the near to medium term, as we forecast that cash on hand and cash flow from operations will not be sufficient to cover capex, working capital, and debt service requirements alone. This deficit, which we expect will be largely debt-funded, could limit Indosat's headroom under financial covenants and constrain the company's financial flexibility.
Furthermore, Moody's expects Indosat to line up refinancing with sufficient lead-time to address its escalating maturity schedule in late 2010, in particular the maturity of its $235 million notes due in November 2010 -- which a failure to do would likely result in downward rating action.
More positively, Moody's notes that the company's performance in Q4 2009 signaled some positive developments, with the addition of 4.4 million cellular customers and 12% sequential revenue growth in the cellular business. This performance, if sustained, could mitigate the downward pressure on the rating.
Indosat's Ba1 corporate family rating is further supported by its established market position as Indonesia's second largest cellular operator (in revenue and number of subscribers), and by the expectation of moderate growth in the cellular market and an improving macro-environment. In addition, the Ba1 rating factors a one-notch uplift due to expected support from majority shareholder Qatar Telecom (Qtel).
The ratings outlook could stabilize if Indosat can improve its operating performance and rebalance its capital structure such that adjusted debt / EBITDA remains below 3.0x.
Conversely, downward pressure on the rating could result from further deterioration in Indosat's credit metrics, such that the company was unable to afford itself adequate headroom under financial covenants, in particular the company's 3.5x debt/EBITDA covenant. In addition, if we believe an improvement in operating profile or recapitalization was unlikely to lower leverage to below 3.0x, ratings could be downgraded.
The last rating action with respect to Indosat was taken on September 16, 2009, when Moody's affirmed Indosat's Ba1 corporate family rating, and upgraded Indosat's bond rating to Ba1 in line with the upgrade to Indonesia's foreign currency ceiling to Ba1.
The principal methodology used in rating Indosat was Moody's "Rating
Methodology: Global Telecommunications Industry", published in December 2007 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.
Indosat is a fully integrated telecommunications network and services provider in Indonesia. The company is the second-largest cellular operator in the country, as well as its leading provider of international call services. It also provides multi-media, data communications, and internet services.
Singapore
Ivan Palacios
Asst Vice President - Analyst
Corporate Finance Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308
Hong Kong
Gary Lau
Managing Director
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077