RPT-Fitch: Indonesian telcos can ride currency storm
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Aug 27 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings says Indonesian telcos' credit profiles will largely remain unaffected by a weakening Indonesian rupiah, which depreciated 10% between February and August 2013. Fitch believes that a combination of hedging contracts, long-dated debt and strong inherent credit profiles will stave off negative rating action on Indonesian telcos in the short term. However, most telcos' free cash flow generation (FCF) generation will be affected in 2013 by higher interest costs and capex, a significant part of which is priced in foreign currency.
PT Indosat Tbk (BBB/Stable), Indonesia's second-largest telco, is the most exposed to IDR depreciation as 43% of its total debt is in foreign currency (around USD950m), of which only 25% is hedged. Fitch expects Indosat's 2013 operating EBITDA margin will decline by 100bps as a significant part of its tower lease rentals are denominated in USD. Its FCF margin will also decline as about USD400m or 50% of its upcoming capex is expected to be denominated in USD.
However, a negative rating action is unlikely in the short term given Indosat's ability to access capital markets and likely support from its parent Ooredoo's (A+/Stable), evidenced by the presence of cross-default clauses on the latter's loan documents. Further, Indosat only has USD70m maturing within a year and its average debt maturity is comfortable at about 4.9 years.
The market leader, PT Telekomunikasi Indonesia Tbk (BBB/Stable), is insulated from IDR depreciation, having only USD180m (about 12% of total debt) of foreign currency debt. It has a stronger credit profile than its Indonesian peers with a funds flow from operations (FFO)-adjusted net leverage of 0.5x at end-June 2013.
The third-largest telco PT XL Axiata (BBB/Stable) is also in a comfortable position with only USD310m (about 19% of total debt) of foreign currency debt, of which 92% is hedged.
Indonesia's two telecom tower companies - PT Profesional Telekomunikasi Indonesia (Protelindo, BB/Stable) and PT Tower Bersama Infrastructure Tbk (TBI, BB/Stable) - have a natural hedge as they receive significant part of revenue in USD from their tenants.
Protelindo has about USD475m debt, representing 63% of its overall debt, However, most of its non-IDR debt is not due before 2018. The company receives about 36% (at least USD100m) of its revenue in USD and held about USD120m in cash at end-June 2013.
TBI has about USD905m in foreign currency debt, representing 84% of its overall debt. Over 90% of its debt is protected through a combination of a natural hedge and hedging contracts. TBI receives 18% of its annual revenue in USD (around USD40m). At end-June 2013, it also had about USD112m in cash. Fitch believes TBI can comfortably refinance its USD88m maturing in the next 12 months given available committed undrawn facilities of USD275m at end-June 2013. TBI's average debt maturity is about four years.
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