Indosat hopes to solve debt woes

Indosat hopes to solve debt woes

Dow Jones, Jakarta

PT Indonesian Satellite Corp., or Indosat, the country's second largest telecoms company, said it plans to reorganize its business in a bid to solve a growing debt problem.

Indosat has hired consultants from ING Groep N.V. to advise it on the restructuring. The plan aims to integrate the company's two wholly-owned cell phone units - PT Satelit Palapa Indonesia, or Satelindo, and Indosat Mobile Multi Media, or IM3 - into the main body of the company.

By doing so, Indosat will consolidate the total US$900 million debts of the three companies, making it easier to refinance its borrowings, the company said.

After the business reorganization, the company will relaunch its cell phone business, with the three units all under the Indosat brand name.

"I expect the business reorganization would improve our debt situation," Wityasmoro Sih Handajanto, Indosat's director of business development, told Dow Jones Newswires. Indosat plans to complete the business restructuring around September, he added.

Indosat's debt load increased in 2002 when it bought Satelindo, the nation's second largest cell phone company. Much of Satelindo's $360 million debt is in short-term borrowings. Indosat is planning to issue dollar-denominated bonds later this year to refinance some of Satelindo's debt, people close to the matter say, but Wityasmoro declined to confirm this, merely saying, "we are looking at ways to re-profile our debt."

Under its current loan agreements, Satelindo is limited to maximum yearly capital expenditure of $50 million. Indosat, which is 42 percent-owned by Singapore Technologies Telemedia, hopes that by combining Satelindo with the main company, it will be able to refinance Satelindo's debt and spend more on developing its cell business.

Only around 5 percent of Indonesia's 220 million population have cell phones, meaning a huge expansion of sales is possible, analysts say.

Indosat needs to increase investment in its cell phone business to catch up with its rival, state-owned PT Telekomunikasi Indonesia, whose cell unit is currently the sector leader, analysts say. Telkom owns a 65 percent stake in PT Telekomunikasi Selular Indonesia, or Telkomsel, which had around 6.6 million subscribers at the end of March, and hopes to add about 2 million new subscribers every year.

Indosat expects its cell subscribers to rise by about 80 percent in the first half of 2003 from last year to around 4 million, Wityasmoro said. That number could rise to around 5 million by the end of the year, compared with 3.1 million at end- 2002.

Cell phone subscriber growth could compensate for falling revenues from Indosat's international call business, which is expected to drop by up to 10 percent to around Rp 1.92 trillion from Rp 2.137 trillion a year earlier, he added.

"We expect that our cellular business this year will grow further and contribute higher revenue," Wityasmoro said.

Tighter competition from thriving Internet-based telephone services, and Telkom's recent entrance into the international call business, could further hurt Indosat's revenues, he added.

For the first quarter of this year, Indosat's total revenue rose 27 percent to Rp 1.902 trillion from Rp 1.496 trillion a year earlier, thanks to higher revenue contribution from Satelindo.

But net profit dropped to Rp 53.76 billion from Rp 195.35 billion in the same period last year, in part due to rising interest expenses after it took over Satelindo's debt.