BNI, BCA approve Indosat's merger plan

Rendi A. Witular, The Jakarta Post, Jakarta

The country's second largest telecommunications company PT Indonesian Satellite Corporation (Indosat) has secured approval from two of its major creditors, Bank BNI and Bank BCA, for a plan to merge its two telecoms subsidiaries this year.

Indosat president Widya Purnama said in a press statement on Tuesday that the approval from the two banks was crucial to gaining the support of other creditors.

The other creditors include Bank Mandiri, Bank Syariah Mandiri, Bank Danamon, Bank Niaga, Bank BRI, Bank Bukopin, Commerzbank AG, Alcatel CIT, PT Alcatel Enkomindo and Bank Paribas-BBD.

Indosat obtained dollar-denominated loans from BNI worth US$75 million and BCA worth $40 million last year. The loans will mature in 2007. BNI and BCA are respectively the country's second and third largest banks.

The publicly-listed telecommunications company has planned to merge two cellular subsidiaries, PT Satellite Palapa Indonesia (Satelindo) and PT Indosat Mobile Multi Media (IM3), and integrate them as a division of the company instead of separate subsidiaries.

The move will allow Indosat to consolidate the debts of the two units and help the company develop its cellular business.

The merger plan is slated to be concluded in October or November this year.

Indosat's overall debt, including the debts owed by its units, currently amounts to around $900 million in the form of short- term bonds and bank loans. This huge debt burden is mainly a result of the Satelindo acquisition.

The huge debt burden has hampered Satelindo's investment program, as under an agreement with existing creditors, the company is restricted to a maximum yearly capital expenditure of $50 million.

The restriction has impeded Satelindo's efforts to catch up with its arch rival, PT Telekomunikasi Selular Indonesia (Telkomsel), the cellular unit of Indonesia's largest telecommunications company, PT Telkom.

To help settle Satelindo's debts, Indosat has offered bonds worth Rp 1.75 trillion ($208 million).

Proceeds from the bond issue will be used to refinance Satelindo's debts, totaling $360 million in short-term bonds and bank loans.

The issue would, in effect, extend Satelindo's debt tenor and reduce its exposure to foreign currency fluctuations.