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)