Indosat in bond issue to refinance unit's debts
Rendi A. Witular, The Jakarta Post, Jakarta
Telecommunication company PT Indonesian Satellite Corp. (Indosat) is offering bonds worth Rp 1.75 trillion (US$208 million) to settle the debts of its cellular unit PT Satellite Palapa Indonesia (Satelindo).
Indosat finance director Nicholas Tan Kok Peng said in a public expose on Thursday that all of the proceeds from the bond issue would be used to refinance Satelindo's debts, totaling $360 million in short-term bonds and bank loans.
He explained that the issue would, in effect, extend Satelindo's debt tenor and reduce its exposure to foreign currency fluctuations.
The issue will also help reduce Indosat's annual interest burden on a portion of debts, from around 19.5 percent a year to between 12 percent and 13 percent.
Indosat's overall debt, including those owned by Satelindo, currently amounts to around $900 million.
Indosat, the country's second largest telecommunications firm, said that its bonds would consist of two tranches, with the first carrying a fixed coupon rate of 12.25 percent to 12.75 percent, which will mature in five years, but is callable in four years.
The second tranche carries a fixed coupon rate of 12.50 percent to 13.00 percent with a maturing period of seven years, but is callable at the end of year four or six.
Acting as underwriters are PT AAA Sekuritas and PT ING Securities Indonesia.
The bonds have received an AA+ rating from local rating agencies PT Pefindo and PT Kasnic Credit Rating Indonesia.
The bookbuilding of the bonds is slated for Sept. 18 to Oct. 3, the offering period for Oct. 14 to Oct. 16, and the bonds are to be listed on Oct. 22 on the Surabaya Stock Exchange.
Indosat plans to integrate Satelindo with IM3 to become a division of the firm, rather than a subsidiary.
The company hopes that by vertically merging its cellular phone units, it will be able to consolidate the companies' debts, making it easier for Indosat to refinance the debts and invest more to develop its cellular business.
Currently, the debt burden has hampered Satelindo's investment program, as under its 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, the cellular unit of Indonesia's largest telecommunication company, PT Telekomunikasi Indonesia, or Telkom.
The cellular business contributed 57.5 percent to Indosat's revenue at Rp 3.883 trillion in the first half of the year.