Moody's: Telkomsel Win in Bankruptcy Appeal Credit Positive
Moody's Investors Service views as credit positive for Telekomunikasi Selular (Telkomsel) the decision of Indonesia's Supreme Court to overturn a lower court's ruling that declared it bankrupt in September 2012.
Despite its positive implications, this development does not have any impact on the Baa1 ratings and stable outlooks of both Telkomsel and its parent, Telkom Indonesia.
On 14 September 2012, the Central Jakarta District Court accepted a bankruptcy petition filed by Prima Jaya Informatika against Telkomsel for non-payment of IDR5.3 billion (USD558,000). Prima Jaya Informatika had a two year contract with Telkomsel for distribution of prepaid cards and SIM cards, which resulted in the above disputed claim.
"Although the disputed amount was small relative to Telkomsel's cash on hand of IDR6.8 trillion and total assets of IDR58.9 trillion as of September 2012, the bankruptcy, if upheld, could have resulted in the acceleration of repayment of some of Telkomsel's bank loans, and which could have triggered a cross-default at Telkom Indonesia," says Nidhi Dhruv, a Moody's Analyst and also Lead Analyst for Telkomsel and Telkom Indonesia.
As mentioned in our press release on 25 September 2012, had the Supreme Court upheld the lower court decision, there was imminent downward pressure on both ratings, reflecting both company's exposure to an uncertain legal and regulatory environment in Indonesia.
The Supreme Court's decision in favour of Telkomsel removes these potential risks. As per Telkomsel, the Supreme Court announced its decision on 21 November 2012, but the official verdict was received by the company only on 10 January 2013.
"The Supreme Court's timely decision also comes ahead of 3G license auctions in Indonesia, and the closure of the bankruptcy litigation means that Telkomsel can now bid for additional 3G spectrum, as local laws prohibit a bankrupt company from participating in the auction," adds Dhruv.
Operators are required to submit bids for additional 3G spectrum by 31 January 2013, and the outcome of the auction process will be announced on 27th February 2013.
Telkomsel continues to maintain a strong operating and financial profile with adjusted debt/EBITDA of 0.2x for the twelve months ended September 2012. Moody's expects Telkomsel's strong financial metrics and liquidity to provide it financial flexibility to continue meeting its capex and debt obligations.
Telkom Indonesia is the largest integrated telecommunications company in Indonesia. The company generated gross revenues of IDR75.3 trillion ($8.0 billion) for the 12 months ended 30 September 2012. Telkom Indonesia is 53.80% owned by the Government of Indonesia.
Telkomsel is the largest wireless telecommunications company in Indonesia. The company reported net operating revenues of approximately IDR52.6 trillion ($5.6 billion) for the 12 months ended 30 September 2012. Telkomsel is 65% owned by Telkom, and the remaining 35% minority share is owned by Singapore Telecommunications Limited (Aa3 stable).