Fitch Ratings has affirmed Indonesia-based PT Bakrie Telecom’s (BTEL) long-term foreign-and local-currency issuer default ratings at ‘CCC’. The May 2015 $380 million bond was affirmed at ‘CCC’.
The outlook for the telecom operator is stable, with Fitch Ratings removing it from Rating Watch Negative (RWN).
According to the rating agency the removal of RWN reflects BTEL’s successful repayment of its $ 68 million bond through an equity injection of $ 59 million from a Bakrie group company, PT Bakrie Global Ventura, and a bank loan of $ 50 million. Fitch Ratings is of the view that BTEL’s liquidity is now adequate to meet its 2012 obligations.
However, BTEL continues to face liquidity risks for 2013. The rating agency expects BTEL?s EBITDA of about $ 115-120 for 2013 to be insufficient to cover its obligations of $167 million. The operator’s 2013 obligations comprise $ 15 million bank loan amortisations, $ 42 million finance lease principal, $ 25 million equipment payables, a minimum of $ 60 million interest payment and at least $ 25 million capex. Also, Fitch Ratings believes that BTEL can raise only a maximum of additional $ 30 million in fresh debt as the agency expects the company to remain in breach of an incurrence covenant in its $ bond document. Its consolidated debt for the last 12 months EBITDA was 5.6x at the end of June 2012, compared with the incurrence covenant of 4.75x.
According to Fitch Rating BTEL has limited flexibility to grow its network infrastructure in 2012-2013. BTEL?s forecast capex of $ 25 million each for 2012 and 2013 is much lower iin comparison to its average annual capex of about $ 150 million during 2008-2011. It is also smaller, as a share of turnover, compared with other Indonesian telcos. As a result, BTEL could lose its competiveness against larger GSM operators, given that fast-growing data traffic generally requires supporting investment.
Fitch believes that in the medium-to-long term BTEL may participate in CDMA industry consolidation as pure CDMA operators (such as BTEL) are struggling and also because competitors may exit CDMA to focus on GSM instead.
The rating also reflects the risk that without significant profitable growth, refinancing the $ 380m bond due in May 2015 will be a challenge. Although the bond is senior debt, its security ranks behind the company’s other debt finance.
