RPT-Fitch Affirms Rating Smartfren in 'CC (idn)'
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Oct 4 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmedNational Long-Term rating of PT Smartfren Telecom Tbk (Smartfren) in'CC (idn)'. At the same time, Fitch has affirmed RatingNational of a number of IDR603 billion bonds at 'CC (idn)'.
The bonds amounted to IDR675 billion and originally published in 2007by PT Mobile-8 Telecom Tbk, the name of Smartfren before the acquisition of PT SmartTelecom.
Initiator Level Factors
Weak Cash Flow Generated: Smartfren not make a profit onEBITDA level since 2008 due to the shrinking number of subscribersIn 2010 and higher operating expenses. However, the resulting losses haveshrink - to IDR500 billion in 2012 from IDR1.1 trillion in 2011 -due to the development of a customer's data segment. although Smartfrenhopes to turn a profit in 2014, Fitch believes that thethe company still will not generate sufficient cash flow to meetobligations.
Dependence Against Sustainable Pendaaan: Smartfren managed to getadditional loan of USD90 million from the First Anglo Financial and publishthe rest of IDR600 billion of mandatory convertible bonds (OWK) is total ofIDR4.7 trillion in H113. However, the company still has no funding formeet debt obligations, interest, and rents are due in 2014 and2015. Although successful in reducing losses and get additional loans,Fitch believes that Smartfren will still need additional funds tomeet its obligations in the next two years.
Unclear Source of Funds: To meet its obligations, requiring Smartfrenadditional funds related to such equity rights issue and OWK.
However, due to the volatility of the equity value and the uncertainty ofreceipt of cash, the company does not reflect the rank of additional fundsrelates to equity in the future. Sources of funds to meetobligations in 2014 and 2015 remains unclear because the company is stillconsider funding options.
Weakening Competitive Edge: Operator code division multiple access (CDMA)in Indonesia as Smartfren difficult to compete with GSM operatorsafter losing its competitive advantage in the form of lower rates.Weak ability to generate cash and the limited ability to obtainadditional funds to make the competition with GSM operators become more difficult. Fitchfound that difficulties CDMA operators can participate inconsolidation to improve their competitiveness.
Positive: future developments that may, individually and collectively,trigger level rise include:
- There is improved performance and liquidity of the company
Negative: future developments that could, individually or collectively,triggering the decline include:
- Failure to obtain new funds to meet obligations
-Announcement of conversion of debt to equity offerings, which will likelyclassified as DDE
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