Indosat raises bond 10% to Rp 1.1t

Indosat raises bond 10% to Rp 1.1t

Shanthy Nambiar, Bloomberg/Jakarta

PT Indosat, Indonesia's second-largest telecommunications company, is increasing a sale of bonds by 10 percent to Rp 1.1 trillion (US$114.9 million) to fund the expansion of its network, the arranger said today.

The bonds, the first debt sale by the company since October 2003, will mature in 2011 and offer investors a coupon of 12 percent, Hakiki Sudrajat, assistant vice president of investment banking at sale arranger PT Andalan Artha Advisindo, said in an interview in Jakarta.

Of the total, Rp 285 billion will be raised through a sale of Islamic bonds that adhere to the Koran's ban on payment of interest, said Sudrajat.

Indosat, 42 percent owned by Singapore Technologies Telemedia Pte., plans to spend $900 million this year to expand its network, including its cellular infrastructure. The company competes with PT Telekomunikasi Indonesia, which owns PT Telekomunikasi Selular, the country's biggest cellular operator.

The proposed debt offering will be Indosat's second sale of Islamic debt after the company sold Rp 175 billion in October 2002, paying investors returns averaging 16.75 percent. In October 2003, the company sold $300 million of seven-year bonds.

Indosat's latest Islamic bonds will be the so-called "Ijarah" type, Sudrajat said. The bonds will be backed by assets sold to a company created by the borrower to issue the securities. The borrower then rents back the assets. The rental goes back to investors in place of interest. At maturity, the bond seller buys back the assets at an agreed price and investors are repaid the principal.

Standard & Poor's rates Indosat's long-term local currency credit BB, two levels below investment grade. Moody's Investors Service assigned the company a Ba2 rating, also two levels below. Both are junk, or high-yield and high-risk, ratings.