Bangkok--12 May--Moody's
Moody's Investors Service has assigned a provisional (P)Ba1 rating to the proposed 10-year, USD senior unsecured bonds to be issued by Indosat Palapa Company BV and guaranteed by PT Indosat Tbk ("Indosat"). At the same time, Moody's has affirmed Indosat's Ba1 corporate family and senior unsecured ratings. The outlook for the ratings remains negative.
The bond proceeds will be used towards refinancing Indosat's USD235 million guaranteed notes, due November 2010, and the company's USD109 million guaranteed notes, due in 2012. Moody's expects to affirm the bond rating and remove it from provisional status following the closing of the proposed note issue and a review of the final terms.
"The prospective issuance will improve Indosat's liquidity profile by alleviating some of the company's short-term refinancing risk, which will escalate later this year," says Laura Acres, a Moody's VP -- Senior Credit Officer.
Nevertheless, in Moody's view, Indosat's liquidity profile will remain weak, given the significant amount of debt maturing over the next 12 months, as well as the company's budgeted capital expenditures, which together will continue to drive the company's free cash flow into negative territory.
"Although the proposed bond will alleviate liquidity pressures, it is our view that Indosat's financial flexibility will remain limited," says Acres, also Lead Analyst for Indosat, adding that, "the company may have to refinance existing lines as well as secure additional debt financing to fund capex, which will erode its headroom under financial covenants."
Indosat's Ba1 rating is supported by the company's 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.
The Ba1 rating also factors a one-notch uplift based on the expectation of support from majority shareholder Qatar Telecom (A1/under review for possible downgrade).
Indosat's negative outlook underscores Moody's view that the company's credit profile will remain weakly positioned for the rating level in the medium term due to material refinancing and capex requirements which reduce its headroom under financial covenants, and pressure its liquidity position.
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.
Further downward pressure on the rating could result from an ongoing deterioration in Indosat's credit metrics, such that the company is unable to afford itself adequate headroom under financial covenants, in particular the company's 3.5x debt/EBITDA covenant. In addition, the ratings could be downgraded if the company is unlikely to improve its operating profile or lower debt leverage, as measured by adjusted debt/EBITDA, to less than 3.0x.
The last rating action with respect to Indosat was taken on March 10, 2010, when the outlook on the ratings was changed to negative.
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. Indosat is 65%-owned by Qatar Telecom.
Hong Kong
Laura Acres
VP - Senior Credit Officer
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077
Hong Kong
Peter Choy
VP - Senior Credit Officer
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077