Apr 3, 2012

Bakrie Telecom breaches bond covenant

CDMA-based operator PT Bakrie Telecom Tbk (BTEL) finally revealed that it has breached a covenant of mininum ratio of EBITDA to net interest.
In the financial statement of 2011 last year, Bakrie Telecom confirmed that the operator was unable to meet the covenant of EBITDA to net interest of a minimum 5 folds as required by rupiah-denominated bond agreement.
According to BTEL's bond prospectus, the operator must meet the minimum 5 times ratio of EBITDA to net interest in 2010 and 2011. In 2009, Bakrie Telecom was required to meet the minimum 4 times of the same ratio.
In the last statement from Standard & Poor's (S&P), BTEL's financial metrics are likely to improve if the proposed issuance of non-preemptive rights goes ahead as planned. The company's ratio of adjusted debt (including equipment payables) to EBITDA will improve to about 4.8x in 2012 from our earlier expectation of more than 5x. The ratio of funds from operations 
(FFO) to adjusted debt will rise to about 8.5% from our earlier estimate of about 6%. Nevertheless, the company's financial metrics will remain highly leveraged.
"We believe BTEL has "weak" liquidity, as defined in our criteria. The company's liquidity sources are likely to cover liquidity uses by 0.5x in the next 12 months. We also expect that BTEL will breach its local currency bond covenants in one to two months.
"BTEL's liquidity would improve if the proposed transaction is successfully completed," said Sukkawala. "The company's liquidity sources would then cover liquidity uses by about 1.2x in 2012 and 1x in 2013. These ratios will also provide the company flexibility in managing the covenant."
S&P aims to resolve the CreditWatch placement when we have clarity on the outcome of the fundraising proposal.
Disclosure: No position at the stock mentioned above.

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