Feb 12, 2012

S&P places BB for Indosat notes rating

Standard & Poor's Ratings Services (S&P) said today that it had placed its BB long-term corporate credit rating on Indonesia-based telecom operator PT Indosat Tbk (ISAT) and the BB rating on the company's guaranteed senior unsecured notes on CreditWatch with positive implications. 
At the same time, S&P placed the axBBB- ASEAN scale long-term rating on Indosat on CreditWatch with positive implications.
The CreditWatch action reflects our view that Indosat's liquidity position could benefit from the company's sale of 2,500 towers to PT Tower Bersama Infrastructure Tbk. (not rated). 
"We expect Indosat to receive about US$350 million in upfront cash payment for the sale. We expect the company to use this cash to repay debt and fund capital expenditure." 
Indosat will also receive a 5% stake in Tower Bersama's expanded capital, and up to US$113 million in potential deferred payment as a sale consideration. 
Indosat has also signed a 10-year lease agreement for the towers that it has proposed to sell to Tower Bersama. "In addition to the proposed sale, Indosat has tied up credit facilities over the past six months. These factors should improve the company's liquidity," said Standard & Poor's credit analyst Mehul Sukkawala. 
"The company also expects to cut costs and lower its capital expenditure with the tower sale. However, we do not expect Indosat's leverage to improve significantly due to the tower sale because we will factor in the present value of lease obligations as debt while assessing the company's financial performance."
S&P believes Indosat has "less than adequate" liquidity, as defined in its criteria. The company's sources of liquidity are likely to cover its uses of liquidity by about 1.1x in the next 12 months. 
However, S&P believes that upfront cash proceeds of Rp3.15 trillion from the proposed sale would result in "adequate" liquidity for Indosat. 
"We forecast the company's sources of liquidity at 1.5x its uses of liquidity over the next 12 months after factoring in the sale. We aim to resolve the CreditWatch action within the next two to three months, when the transaction is likely to be completed," said Mr. Sukkawala. 
S&P will raise the rating by one notch following the completion of the tower sale because we expect the transaction to improve the company's liquidity. 
According to Indosat, the deal is subject to approval by Tower Bersama's shareholders and consent from Indosat's bondholders.
"If the deal does not go through, we will review Indosat's liquidity management policy to determine any further rating action."

Disclosure: No position at the stock mentioned above.  

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