Fitch Affirms Bakrie Telecom at 'CCC'; off Negative Watch

Published on: 11th Sep 2012

Fitch Ratings has affirmed Indonesia-based Bakrie Telecom's Long-Term Foreign- and Local-Currency Issuer Default Ratings at 'CCC'. The May 2015 USD380m bond was affirmed at 'CCC'. All ratings have been removed from Rating Watch Negative (RWN). The Outlook is Stable. The USD bond, which is fully guaranteed by Bakrie Telecom, has a Recovery Rating of 'RR4'.

­The removal of RWN reflects Bakrie Telecom's successful repayment of its IDR650bn (USD68m) bond through an equity injection of USD59m from a Bakrie group company, Bakrie Global Ventura, and a bank loan of USD50m. Fitch believes that Bakrie Telecom's liquidity is now adequate to meet its 2012 obligations.

However, Bakrie Telecom continues to face liquidity risks for 2013. Fitch expects Bakrie Telecom's EBITDA of about USD115m-USD120m for 2013 will be insufficient to cover its obligations of USD167m. Its 2013 obligations comprise USD15m bank loan amortisations, USD42m finance lease principal, USD25m equipment payables, a minimum of USD60m interest payment and at least USD25m capex. Also, Fitch believes that Bakrie Telecom can raise only a maximum of additional USD30m in fresh debt as the agency expects the company to remain in breach of an incurrence covenant in its USD bond document. Its consolidated debt/last 12 months EBITDA was 5.6x at end-June 2012, compared with the incurrence covenant of 4.75x.

Fitch believes that Bakrie Telecom has limited flexibility to grow its network infrastructure in 2012/2013. Bakrie Telecom's forecast capex of USD25m each for 2012 and 2013 is much lower than its average annual capex of about USD150m during 2008-2011. It is also smaller, as a share of turnover, compared with other Indonesian telcos. As a result, Bakrie Telecom could lose its competiveness against larger GSM operators, given that fast-growing data traffic generally requires supporting investment.

Fitch believes that in the medium-to-long term Bakrie Telecom may participate in CDMA industry consolidation as pure CDMA operators (such as Bakrie Telecom) are struggling and also because competitors may exit CDMA to focus on GSM instead.

The rating also reflects the risk that without significant profitable growth, refinancing the USD380m bond due in May 2015 will be a challenge. Although the bond is senior debt, its security ranks behind the company's other debt finance.

 

Tags: [bakrie telecom]  [Indonesia]