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.