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April 3 (The following statement was released by the rating agency)
Fitch Ratings has affirmed the Long-Term rating and the Foreign Currency Long-Term Rating
Local Currency Issuer Default Rating (IDR) of PT Indosat Tbk (Indosat) at 'BBB'. Fitch
also has affirmed the National Long-Term rating perusahaandi 'AAA (idn)'.
Outlook is stable for IDR and National Long-Term rating. Fitch
also has affirmed the Senior Unsecured Rating at 'BBB'.
National ranking in the category of 'AAA' denotes the highest rank
Fitch on national rating scale for Indonesia. this ranking
provided to an issuer or debt securities with the expectation of default risk
the lowest relative to other issuers or securities in Indonesia.
Factors Fueling Rating
Lower Rating Headroom: stand-alone credit profile of Indosat at 'BB'
now has a rating lower headroom. Funds flow from operations
(FFO)-adjusted net leverage of the company will still be around 2.4x-2.5x
(2013: 2.5x) - 3.0x closer to the limit where Fitch will be paying particular attention to the
action negative ranking. Intense competition in the data segment and the high
capital expenditure requirements will prevent a significant decline in the level of debt
and beyond the positive impact of the sale of 5% stake in PT Tower Bersama
Infrastructure Tbk (BB / Stable) of IDR1.4 trillion (USD120 million) in 2014.
Lower Profitability: operating EBITDAR margin of Indosat in 2014
is likely to fall to 40% -42% (2013: 43%) in the midst of competition
strong in the segment data and customer acquisition costs are higher because of segment
voice stagnant. Fitch estimates that the gains from services
data is a major proponent of revenue growth will remain much more
lower than the more traditional segments of voice and text services due
lack of scale and price-based competition from operators more
Dollar depreciation: Among the Indonesian telecommunications operators, Indosat is
most exposed to currency depreciation as 47% of debt
is payable in U.S. dollars, in which only 25% dihedging. The company also
pay around USD40-45 million tower lease costs in U.S. dollars
EBITDA cause further exposure to currency risk. in
2013, Indosat adds IDR2.8 trillion of debt or leverage of approximately 0.3x
due to the weakening of the rupiah. Fitch expects that the company will replace
a portion of its debt in U.S. dollars with debt in dollars in 2014.
Negative FCF in 2014: FCF of Indosat in 2014 is expected to be
negative (2013 FCF margin: -5%) due to the stagnant FFO will not be enough to
finance the capital expenditures required to support data services
growing rapidly. Capital expenditure / income will be high around
33% -35% (2013: 40.5%) because the company will pursue a competitor in the development
3G service. At the end of December 2013, the company had 5,400 3G base stations, remote
lower than the ownership of PT XL Axiata Tbk (XL, BBB / Stable) at 15,000 and PT
Telekomunikasi Indonesia Tbk (Telkom, BBB-/Stabil) at 27,000.
However, Fitch believes that the strategy of Indosat to deploy
3G technology using spectrum in the 900MHz bandwidth 2 and 2100MHz will
resulting in savings in capital expenditure compared to competitors
most other uses 2100MHz. FCF of Indosat is expected to
became positive in 2015 due to the cost of capital expenditures peaked in
Industry Consolidation: Fitch estimates that the industry will consolidate
or smaller telecom operators will raise the tariff for
their business models are not sustainable. Operator Code Division Multiple
Access (CDMA) including PT Bakrie Telecom (C) and Telecom Tbk PT Smartfren
(CC (idn)) continued difficulty to increase market share and face the problems
liquidity. Indosat and Telkom as the market leader is likely to
CDMA segment stop them and reallocate the spectrum for
Support From Parent Company: Indosat final rating at 'BBB'
3 notches into account the increase of stand-alone credit profile at its 'BB'
due to the strategic importance to its parent company - Ooredoo QSC
(OOredoo, A + / Stable), which owns 65% of shares. Document debentures and
Ooredoo bonds have cross-default clauses that include children
Significant companies including Indosat. Indosat is one child
company of Ooreedoo growing rapidly and contributing 25% and
26% of the consolidated revenues and EBITDA in 2013.
Fitch does not expect that the positive ranking of actions will occur
due to the leverage of the company will remain high in the medium term.
Negative: future developments that may, individually or
collective downgrade include:
- Weakening the relationship between Indosat and Ooredoo
- FFO-adjusted net leverage rises above 3.0x on an ongoing basis
Traveler also has affirmed the following instruments:
Indosat Palapa Co. BV USD650 million 7.375% bonds maturing in 2020, secured
by Indosat, at 'BBB'.
Indosat's 8.625% IDR1.2 trillion bond maturing in 2019 at 'AAA (idn)'
Indosat's IDR1.5 trillion 8.875% bonds due in 2022 at 'AAA (idn)'
Indosat's 8.625% IDR300 billion Sukuk Ijarah Bonds maturing in 2019 at 'AAA (idn)'