Reuters logo
Fitch Assigns 'AAA(idn)' Ratings to Indosat Ooredoo's Bond, Sukuk
October 23, 2017 / 2:37 AM / a month ago

Fitch Assigns 'AAA(idn)' Ratings to Indosat Ooredoo's Bond, Sukuk

(The following statement was released by the rating agency) JAKARTA, October 22 (Fitch) Fitch Ratings Indonesia has assigned National Long-Term Ratings of 'AAA(idn)' to PT Indosat Tbk's (Indosat Ooredoo, BBB+/AAA(idn)/Stable) IDR2.72 trillion senior unsecured bonds and IDR700 billion sukuk ijarah issues. The issues are the second phase of Indosat Ooredoo's IDR9 trillion bond programme and IDR1 trillion sukuk ijarah programme - assigned at 'AAA(idn)' on 27 April 2017 - and are consequently rated at the same level as the programmes. Indosat Ooredoo will use around half of the proceeds to refinance its existing borrowings and the remainder to pay the license fee for radio frequency spectrum. The ratings on Indosat Ooredoo's bond and sukuk issuances are the same as Indosat Ooredoo's National Long-Term Rating of 'AAA(idn)' as the risk of default on these senior unsecured obligations is aligned with that of Indosat Ooredoo in accordance with Fitch's rating definitions. For the sukuk programme and issuances, the ratings also take into account the sukuk's structure and documentation, which include the following features: - The sukuk will represent the company's unsecured obligations and will rank pari passu with all its other unsecured obligations. The sukuk has full recourse to the issuer and the payment obligations under the transaction documents will be direct, unconditional and irrevocable. - On any periodic distribution date, Indosat Ooredoo will pay the sukuk holders rental due under the lease agreement for the sukuk assets, which is intended to be sufficient to fund the periodic distribution amounts payable by Indosat Ooredoo. - The company has committed to pay the stated periodic distribution and principle amounts in the transaction document. If the revenue generated from the sukuk asset in any distribution period is less than the periodic distribution amount, the company can take measures to ensure there is no shortfall in the distribution payable. - Indosat Ooredoo is committed to guaranteeing the functioning condition of the multimedia interactive, data and internet (MIDI) services network and the underlying sukuk asset against a decline in the value of the transfer benefit and the availability of a substitute for the MDI services network. Failure to do so, if there is a material negative impact on the company's ability to fulfil its obligations, will constitute an event of default. The programme documentation contains a negative pledge provision, cross-default as well as covenants, which are the same as those in Indosat Ooredoo's bond document. The sukuk transaction will be governed by Indonesian law. Fitch does not express an opinion on whether the relevant transaction documents are enforceable under Indonesian law, but considers Indosat Ooredoo's intentions to support its sukuk obligations. Fitch's rating on the sukuk reflects the agency's belief that Indosat Ooredoo will stand behind its obligations. When assigning ratings to the programme and issuance issued under the programme, Fitch does not express an opinion on the structure's compliance with sharia principles. 'AAA' National Ratings denote the highest rating assigned by Fitch on its National Rating scale for that country. This rating is assigned to issuers or obligations with the lowest expectation of default risk relative to all other issuers or obligations in the same country. KEY RATING DRIVERS Parental Support Drives Ratings: Indosat Ooredoo's ratings include implied support from its Qatar-based 65% parent, Ooredoo Q.S.P.C. (A/Negative). Ooredoo's bond and loan documents contain a cross-default clause covering significant subsidiaries, including Indosat Ooredoo; one of Ooredoo's largest subsidiaries, accounting for 25% of its 1H17 revenue and 28% of EBITDA. The corporate-wide rebranding to "Indosat Ooredoo" since November 2015 underscores the reputational risk to the parent. Implied support from Ooredoo leads us to give Indosat Ooredoo the highest rating possible on the National Rating scale. Strong Standalone Credit Profile: Indosat Ooredoo has a strong credit profile compared with most other Indonesian corporates, even before the assessment of implied support from its strong overseas parent, reflecting its size, established market position, operating EBITDAR margin of over 40% and moderate FFO adjusted net leverage. Fitch expects the company to deleverage to around 2.0x in 2017-2019 through positive free cash flow generation of 3%-5% of revenue. Positive Free Cash Flow: Our forecast cash flow from operations of around IDR9 trillion should be sufficient to cover cash capex, where management is planning to spend IDR6 trillion this year. We expect annual capex to stabilise at around IDR7 trillion-8 trillion in the next two years, driven by the rollout of its Long-Term Evolution (LTE) network and the expansion of mobile coverage outside of Java. Our capex projection excludes additional spectrum fees in the upcoming 2100MHz spectrum auction. In spite of a potential capex increase, we expect Indosat Ooredoo to balance capex needs to maintain its balance-sheet strength. The company intends to de-lever, with net debt/EBITDA falling to 1.5x from 1.7x in the medium-term. Margin Dilution: Fitch sees the operating EBITDAR margin narrowing to 45%-47% in 2017 and 2018 due to the larger mix of revenue from lower-margin data services and competitive pressures. Indosat Ooredoo's expansion into the lower average revenue per user ex-Java market may dilute margins further. Nevertheless, we expect the increasing focus on data monetisation to drive rational competition, despite targeted promotions in certain market segments. Royalty payments to Ooredoo will also begin in 2017, but we expect only a small effect on profitability. The brand licence provides access to Ooredoo's group-wide products and services, including regional marketing campaigns, events and sponsorship. Rupiah Depreciation Exposure: Indosat Ooredoo's proportion of US dollar-denominated debt fell to 5% in the year to end-June 2017 (end-2016: 12%), lowering its vulnerability to rupiah depreciation. Management is looking to refinance maturing dollar-denominated debt with rupiah borrowings, which should further lessen currency risk and earning volatility. The company had hedged 68% of its US-dollar exposure through foreign-exchange forward swaps as of end-June 2017. DERIVATION SUMMARY The ratings on Indosat Ooredoo's bond and sukuk programmes and the issuances from these programmes are aligned with its National Long-Term Rating. Indosat Ooredoo's ratings include implied support from its overseas parent, Ooredoo, and therefore its National Long-Term Rating is rated at the highest level on the National Rating scale. We assess that the ties between the stronger parent and Indosat Ooredoo are moderate and therefore rate the subsidiary on a bottom-up basis under our Parent and Subsidiary Rating Criteria. Indosat Ooredoo is well positioned against its closest peer, PT XL Axiata Tbk (XL, BBB/AAA(idn)/Stable), based on the scale of its mobile operations in Indonesia. Indosat Ooredoo has a stronger balance sheet, with lower FFO adjusted net leverage of around 2.0x and foreign-denominated debt exposure of 5%, compared with XL's 2.5x and 32%, respectively. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Revenue to grow in the mid-single-digits in 2017-2019 (2016: 9%). - Competition to stabilise as telcos rationalise bonus data allowance to drive monetisation. - Operating EBITDAR margin of around 45%-47% in 2017 and 2018, which includes onset payment of royalty fees to Ooredoo in 2017. The royalty fees are at 0.3%-1.0% of Indosat Ooredoo's operating revenue in 2017-2019. - Annual capex of IDR7 trillion-8 trillion in 2017-2019, excluding additional spectrum fees from the upcoming 2100MHz spectrum auction. - Dividend payout at 50% of normalised net income. - No mergers, acquisitions or tower sales. RATING SENSITIVITIES The programme and issuance ratings are at the highest level on the National Ratings scale and therefore cannot be upgraded. Negative: Developments that may, individually or collectively, lead to negative rating action include: - Weakening of linkages with Ooredoo. LIQUIDITY Reliant on Refinancing: Fitch expects Indosat Ooredoo to partially refinance its short-term maturities of close to IDR6 trillion over the next 12 months, given its unrestricted cash balance of IDR2 trillion at end-June 2017. The company had another IDR4 trillion in undrawn credit facilities and had previously demonstrated reasonable refinancing, with access to capital markets and local banks amid implied support from Ooredoo. The total on-balance-sheet debt of IDR19 trillion comprises 88% fixed-rate borrowings and 5% US dollar-denominated debt. A majority of its US-dollar bank loans will mature this year and are likely to be refinanced by rupiah-denominated debt. Contact: Primary Analyst Rufina Tam Associate Director +62 21 2988 6813 PT Fitch Ratings Indonesia DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta 12940 Committee Chairperson Steve Durose Managing Director +61 2 8256 0307 Date of Relevant Rating Committee: 15 March 2017 Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(idn)' for National ratings in Indonesia. Specific letter grades are not therefore internationally comparable. Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Non-Financial Corporates - Effective from 10 March 2017 to 7 August 2017 (pub. 10 Mar 2017) here Criteria for Rating Sukuk - Effective from 16 August 2016 to 14 August 2017 (pub. 16 Aug 2016) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Parent and Subsidiary Rating Linkage (pub. 31 Aug 2016) here Additional Disclosures Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below