Indosat launches Rp 1t bond issue

Indosat launches Rp 1t bond issue

Dow Jones, Jakarta

PT Indonesian Satellite Corp. (Indosat) Wednesday started officially marketing its proposed Rp 1 trillion (US$1.12 billion) bond issue, which it said will be split into four tranches comprising mostly of five-year debt.

Fund managers say the fixed coupon rates offered by the telecommunications company's proposed issue are attractive amid declining interest rates here.

Indosat will use the proceeds from the bond issue to help refinance a Rp 1.5 trillion bridging loan it obtained earlier this year from Bank Mandiri to acquire a 25 percent stake in its cellular unit PT Satelindo. The acquisition boosted its ownership in Satelindo to 100 percent.

Indosat will look for other financing mechanisms to repay the remaining Rp 500 billion, the company said in a statement.

Of the four tranches, the first will carry a five year maturity, with the indicative fixed coupon rate at 15.5-16 percent, Indosat said.

The second tranche also has an indicative fixed coupon rate of 15.5-16 percent, but comes with perpetual maturity. This means that with this tranche, Indosat will have the right to buy back the bonds once every five years at 101 percent of face value.

Bond holders will also have the right to sell those bonds back to Indosat at 100 percent of face value, if the rating of the bond falls to AA- from the current AA+, or every 15 years after the bond is issued.

The third tranche will comprise five-year debt with the indicative fixed rate coupon at between 15.5 percent and 16 percent for the first year. After the first year, it will carry a floating coupon rate set at around 1.5-1.75 percent above the Bank Indonesia's three-month note rate.

The maximum coupon for those bonds, however, cannot exceed 18.5 percent, while the minimum rate won't go below 15 percent, Indosat said.

The last tranche will consist of up to Rp 100 of "Syariah bonds", which doesn't pay interest to bondholders, but holders will be entitled to profit sharing under the Islamic Syariah law.

Indosat will list the bond on the Surabaya Stock Exchange Nov. 8, the company said.

Indosat is among the handful of Indonesian companies tapping the local debt market this year. Many local companies are entering the debt market to raise funds as most banks are still undercapitalized and unable to lend.

Indosat president Widya Purnama said at Wednesday's presentation to investors the company will focus its investment in the cellular telephone segment to capture rising demand for such services in the country.

Currently, only 2.7 percent of Indonesia's over 200 billion population has access to cellular phone services, Widya said.

"The market potential is still very, very big," he added.

He also said the company will invest around $330 million in the business next year to enable it to serve between 1.5 million and 1.7 million new cellular subscribers next year.

Indosat, whose current main business is to provide international call services, is shifting its focus to cellular sector as revenues from its international call business are declining amid the rising use of electronic mail and the Internet telephone.