Fitch Places Bakrie Telecom's 'CCC' Ratings on Watch Negative

Published on: 18th Jul 2012

Fitch Rati­ngs has placed Indonesia-based Bakrie Telecom's (BTEL) 'CCC' Long-Term Foreign- and Local-Currency Issuer Default Ratings on Rating Watch Negative (RWN). Its USD380m senior unsecured bond - rated 'CCC' - has also been placed on Negative Watch. The Recovery Rating on the bond is 'RR4'.

The negative ratings watch reflects heightened liquidity risk associated with the repayment of its IDR650bn bond, due 4 September 2012, and ongoing finance lease obligations. At end-March 2012, BTEL's liquid assets comprised only IDR215bn unrestricted cash and equivalents and the company has yet to secure sufficient committed additional funds.

At end-March 2012, BTEL breached the 5.0x EBITDA/interest cover covenant on its IDR650bn bond. Fitch believes that new equity is the most likely source of new funding. This is because of BTEL's low rating headroom for new debt, particularly as its weak financial performance is threatening the USD bond covenant of 4.75x debt/last 12-month EBITDA.

In April 2012 BTEL announced a plan to raise IDR755bn through a rights issue. However, the company has not been forthcoming with further details. Its strategic tie-up in March 2012 with PT Sampoerna Telekomunikasi Indonesia (STI), including the acquisition of a 35% stake in STI through an equity swap, is unlikely to materially improve BTEL's financial strength or competitive position.

There is little headroom in the USD bond's 'RR4' Recovery Rating. Fitch will undertake further recovery analysis over the next month.

What Could Trigger a Rating Action?

Positive: The current Rating Watch is Negative. As a result, Fitch's sensitivities do not anticipate developments with a material likelihood, individually or collectively, of leading to a rating upgrade as this would require both an improvement in liquidity and trading position which, given current tough market conditions, will be a challenge. The ratings may be stabilised if the company secures new committed funding to meet upcoming obligations.

Negative: Future developments that may, individually or collectively, lead to negative rating action include a lack of new committed funding by end-July 2012 to meet the IDR650bn bond repayment.

 

Tags: [bakrie telecom]  [fitch ratings]  [Indonesia]