Apr 30 2012
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Fitch Upgrades Indosat to 'BBB'; Rates Notes 'AAA(idn)'
Its foreign currency senior unsecured rating has also been upgraded to 'BBB' from 'BBB-'. At the same time, the agency has assigned Indosat a National Long-Term Rating of 'AAA(idn)' and 'AAA(idn)' ratings to its proposed bond and sukuk ijarah with maximum issuance of IDR2.5trn and IDR500bn respectively.
The upgrade reflects Indosat's improved credit profile (free cash flow (FCF) margin at 4.5% in FY11 versus -2.3% in FY10) and Fitch's expectations that funds flow from operations (FFO)-adjusted net leverage will be below 2.5x (FY11: 2.8x) over the medium term, boosted by the sale of 2,500 towers to PT Tower Bersama Infrastructure Tbk (TBI; 'BB'/Stable) and continued positive FCF.
Fitch notes Indosat's strategic importance to its parent, Qatar Telecom ( Qtel ; 'A+'/Stable; which has a 65% beneficial ownership in Indosat). This is reflected in the three-notch uplift to Indosat's 'BB' standalone rating. Indosat was the largest revenue and EBITDA contributor to the Qtel group, at 29% and 32% respectively in FY11. Qtel acts as Indosat's controlling shareholder, providing significant financial expertise, as well as legal, operational and technical support to the company. Fitch believes that financial support will also be provided by Qtel should the need arise, although the agency views this as unlikely based on its financial projections for Indosat.
Indosat's ratings may be downgraded if there is a weakening of the linkages between Indosat and Qtel or if FFO-adjusted net leverage rises above 2.5x on a sustained basis. Similarly, the international ratings may be upgraded if FFO-adjusted net leverage declines below 1.0x on a sustained basis whilst the company continues to generate positive post-dividend FCF. However, any upgrade of the Long-Term Foreign-Currency IDR and foreign currency unsecured rating would be contingent on Indonesia's Country Ceiling being upgraded above 'BBB'.
Nitin Soni (international ratings)
Fitch Ratings Limited
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Fitch Ratings Indonesia
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© Press Release 2012
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