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.