0 Indosat Seeks to Cut Dollar Debt

Indosat aims to slash its dollar debts this year to curb foreign exchange volatility risks and maintain earnings stability, top executives at Indonesia’s second-largest mobile phone operator said on Wednesday. The company, which is 55.79 percent owned by Qatar Telecom, has Rp 3.98 trillion ($409 million) worth of bond and loan debts to mature in 2013, it said last year. Of the total volume, two-thirds are denominated in dollars. But Bayu Hanantasena, the head of investor relations at Indosat, admitted the company had little ability to reduce its debts this year given an ambitious spending plan. 

He said Indosat plans more than $800 million in capital expenditure this year, eclipsing last year’s figure. Most of the capex will go to improving or expanding network infrastructure. Bayu said Indosat is likely to refinance most of its maturing debts this year and seek a variety of debt instruments. “It doesn’t have to be bonds. We still have short-term loan facilities from banks that have not been taken,” Bayu said. He added that the company is seeking to gradually deleverage its dollar debts, to reduce forex risks. 

“In 2012, we preferred to sell bonds in rupiah. This year we will also weigh into the rupiah,” Bayu said. The financial performance of Indosat — of which the Indonesian government has a 14.29 percent stake — has been hurt by currency fluctuation. In the first half of 2012, the company booked a net loss of Rp 132 billion, compared to net income of Rp 724 billion in the same period in 2011. Indosat booked Rp 522 billion in foreign-exchange losses as the rupiah weakened 4.3 percent in the first half of last year. 

In the first nine months of 2012, Indosat booked a 56 percent year-on-year growth in its net income, due to a one-time gain from the sale of its towers. Net income rose to Rp 1.63 trillion from Rp 1.05 trillion. Alexander Rusli, the president director and chief executive at Indosat, said he was worried that financial market fluctuations that hurt the rupiah would drive up the price of imported telecommunications equipment. “Companies like us spend a lot to import such goods,” he said. 

This year has started poorly for the rupiah, which weakened to 9,847 to the US dollar on Tuesday, the weakest level since September 2009, according to Bloomberg. Meanwhile, the Attorney General’s Office has recently pressed a corruption charge against Indosat, in just the second case of its kind in the country’s judicial history, a move that may also hurt the company’s earnings. 

Agung Setia Untung Arimuladi, a spokesman for the AGO, said over the weekend that prosecutors had issued a notice on Thursday charging Indosat and a privately held subsidiary, IM2, with corruption in connection with the transfer of a 3G operating license. The State Finance and Development Comptroller (BPKP) has said that IM2’s use of Indosat’s network caused state losses of up to Rp 1.3 trillion. Indosat has denied any wrongdoing, arguing that a cooperation agreement between the company and IM2 allowed for the transfer of the 3G license. 

Alex said on Wednesday that the company’s performance has not been affected so far, while it awaits legal proceeding. “Everything runs normally,” said Alexander. Despite the pressures, Alexander, who has led the company since November, said he believed Indosat has room to grow. He said revenue this year may grow 7 percent to 8 percent, on the back of strong demand from consumers for telecommunication services. “Voice calls and short text messaging will still grow,” Alexander said, adding that despite Indonesia having more mobile phones registered than its entire population, the churn rate is also high. Competition often causes customers to abandon their registered SIM cards and use new ones that offer more attractive package and discounts.

source : the jakarta globe