Indosat may fail in its bond issue

Indosat may fail in its bond issue

JAKARTA (JP): Publicly-listed state telecommunication company
PT Indosat may not be able to meet its target to raise about Rp
1.5 trillion (US$141.50 million) in cash from its recent bond
offering, company spokesperson S. Auliana said here on Tuesday.

Auliana said that a weaker rupiah and the subsequent higher
bank deposit interest rates had discouraged investors from
investing their cash in bonds.

"Subscription for our bonds may be below the targeted Rp 1.5
trillion," she told a press briefing.

Another Indosat official said that, up until Wednesday,
subscription for its bonds had reached about Rp 1 trillion.

Indosat is offering bonds worth approximately Rp 1.5 trillion
to finance expansion plans. The bonds are issued in two series,
with the A series carrying fixed interest rates of between 17.5
percent and 18.5 percent throughout their five year tenure.

The B-series carry a combination of fixed and floating
interest rates. The rate for the first year is fixed at between
17.5 percent to 18.5 percent, while for the remaining years the
rate is set at 2.5 percentage points above the average interest
rate of three-month time deposits at four local banks.

The offer period for the bonds will be closed today.

Auliana said that Indosat initially thought the bond market
held potential, given its strong growth recently.

But the rupiah's sharp descent has prompted Bank Indonesia to
tighten the money supply by raising interest rates on its
certificates.

In response, banks must offer higher interest rates to compete
with Bank Indonesia certificates.

Aside from competing against higher deposit rates, the bond
market is also losing its appeal because of the government's move
to tax bond transactions.

Auliana said that, to cover the shortfall from the bond
proceeds, Indosat was considering taking loans, or divesting five
percent of its stake in the company.

Indosat issued the bonds mainly to cover its expansion into
the cellular market, for which it would allocate some 35 percent
of the proceeds.

Twenty six percent of the proceeds would be spent on the
development of Indosat's domestic network, 23 percent on its
international direct dial services, 10 percent on its Internet
and multimedia services, and another 6 percent on its
international marine cable communications system.

This year, Auliana said, Indosat planned to spend about Rp 12
trillion on its expansion programs.

"This year we'll do most of the heavy investments. Next year
our investment will probably be between Rp 1 trillion and Rp 2
trillion," she explained.

The company had recently signed an agreement with fixed line
operator PT Telkom to end their cross-ownership in several
subsidiaries.

The $1.5 billion deal requires, among other things, both
companies to trade their shares in cellular operators PT
Telkomsel and PT Satelindo.

Indosat would end up owning Telkom's stake in Satelindo, while
Telkom would take over Indosat's stake in Telkomsel.

Given Telkomsel's high value, Telkom must pay Indosat another
$346 million, which Indosat would use to further boost its stake
in Satelindo.

Next to Satelindo, Indosat would also launch its own cellular
service, slated for August this year.

Auliana said the company expected some 50,000 to 60,000
customers in the first year of operation.

Separately, tea producer PT Sinar Sosro said it planned to
issue bonds worth Rp 200 billion in a public offering next month.

Sosro's five-year bonds would come with fixed coupon yields of
between 18.5 percent to 19.5 percent, and floating coupon yields
of between 3.5 to 4 percentage points above the average six-month
deposit rates of appointed local banks.

The company plans to use most of the proceeds to finance the
completion of several of its factories and the repayment of
debts. (bkm)