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TEXT-S&P:PT Bakrie Telecom Tbk. 'CCC+' ratings placed on watch dev
March 20, 2012 / 9:43 AM / in 6 years

TEXT-S&P:PT Bakrie Telecom Tbk. 'CCC+' ratings placed on watch dev

(The following statement was released by the rating agency)

March 20 -

Overview

-- BTEL plans to raise US$70 million through the issue of non-preemptive rights and US$50 million through a bank loan. However, the success of the plan is uncertain, in our view.

-- We expect the company’s liquidity and covenant headroom to improve if the proposal goes ahead as planned. Nevertheless, liquidity is likely to come under considerable pressure if the plan fails.

-- We are placing our ‘CCC+’ long-term corporate credit rating on the Indonesia-based limited mobility wireless operator on CreditWatch with developing implications.

-- We are also placing the ‘CCC+’ issue rating on senior unsecured notes due 2015 that the company guarantees on CreditWatch with developing implications.

Rating Action

On March 20, 2012, Standard & Poor’s Ratings Services placed its ‘CCC+’ long-term corporate credit rating on Indonesia-based limited mobility wireless operator PT Bakrie Telecom Tbk. (BTEL) on CreditWatch with developing implications. We also placed our ‘CCC+’ issue rating on senior unsecured notes due 2015 issued by Bakrie Telecom Pte. Ltd. on CreditWatch with developing implications. BTEL guarantees the notes.

Rationale

The CreditWatch placement reflects the criticality of BTEL’s recently announced fundraising plan to the company’s credit profile. The success of the plan is uncertain, in our view. The proposal could improve BTEL’s liquidity and covenant headroom. We expect the ratio of sources of liquidity to uses of liquidity for 2012 to rise to 1.2x from our earlier expectation of 0.5x. Nevertheless, BTEL’s liquidity is likely to come under considerable pressure if the plan fails.

BTEL plans to raise US$70 million through the issuance of non-preemptive rights and US$50 million through a bank loan to prepay Indonesian rupiah (IDR) 650 billion of local currency bonds maturing in September 2012 and fund capital expenditure of US$50 million-US$70 million in 2012. Nevertheless, the company has not yet received shareholders’ approval for the non-preemptive rights issue. The acquirer of preemptive rights is not known yet and BTEL is still negotiating with banks for the loan. Moreover, the fundraising is likely to be completed only by June 2012.

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.

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