S&P's Ratings: PT Indosat Tbk. 'BB+' Ratings Affirmed On Revised Corporate Criteria, Outlook Stable

Warta Ekonomi -

WE.CO.ID, Singapura- Standard & Poor's Ratings Services said today (20/1) that it had affirmed its 'BB+' long-term corporate credit rating on Indonesia-based telecom operator PT Indosat Tbk. The outlook is stable. We also affirmed our 'BB+' long-term issue rating on the company's guaranteed senior unsecured notes.

At the same time, we affirmed our 'axBBB+' long-term ASEAN regional scale rating on Indosat. We removed all the ratings from Credit Watch, where they were placed with positive implications on Nov. 26, 2013.

"We affirmed the rating because we view Indosat to be 'strategically important' to its parent Ooredoo Q.S.C.," said Standard & Poor's credit analyst Mehul Sukkawala. "Under our group rating methodology, a company has to be either a 'highly strategic' or a 'core' subsidiary to be rated above the sovereign." We assess Indosat's stand-alone credit profile as 'bb+'.

We believe Indosat is "strategically important" to Ooredoo because the Qatar-based parent has a strong interest in ensuring Indosat's financial stability. This is because of the cross default clause in Ooredoo's bank loan and bond documents. Moreover, Indosat is the largest contributor to the parent's revenue (at about 25%) and EBITDA (about 27%).

We do not assess Indosat as "highly strategic" to its parent because it does not account for a significant portion of Ooredoo's revenue and EBITDA. Also, Indosat is based in a different region from the parent and does not share the same name or brand.

We assess the group credit profile of Ooredoo to be 'a', the same as the corporate credit rating on Ooredoo (A/Negative/A-1) after factoring in government support. Our assessment of Indosat's business risk profile as "fair" reflects our view of the company's "fair" competitive position, "intermediate" risk in the telecom industry, and "high" country risk.

"We expect Indosat to maintain its market share in Indonesia once issues related to its network modernization are resolved," said Mr. Sukkawala. Indosat benefits from its moderate business diversity owing to the company's fixed data and international long distance call business. Indosat also had strong EBITDA margins of about 45% for the nine months ended Sept. 30, 2013, although the company's return on capital is weaker than the industry average.

Our assessment of Indosat's financial risk profile as "intermediate" is based on our expectation that the company's ratio of funds from operations (FFO) to debt will be above 35% over the next two years. We factored in a marginal deterioration in the ratio in 2013 on account of a depreciation of the Indonesian rupiah and the company's weaker-than-expected operating performance. We also anticipate that Indosat's free cash flows will remain positive over the next two years despite continuing high capital spending for network modernization in 2014. The stable outlook on Indosat reflects the outlook on the sovereign rating of Indonesia (BB+/Stable/B; axBBB+/axA-2).

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Foto: SY