S&P Downgrades Bakrie Telecom To ‘CCC’; Outlook Negative | Press release
The following is a press release from Standard & Poor’s:
- BTEL has not disclosed its plans to bridge a funding gap of about
US$100 million over the next 12 months.
- The Indonesia-based limited mobility wireless operator will therefore
continue to face significant liquidity pressure.
- We are lowering our long-term corporate credit rating on BTEL to ‘CCC’
from ‘B-’ and our ASEAN regional scale rating on the company to ‘axCCC’ from
‘axB’. We are also lowering the issue rating on the senior unsecured notes
that BTEL guarantees to ‘CCC’ from ‘B-’. We are removing all the ratings from
CreditWatch, where they were placed with negative implications on April 17,
2013.
- The negative outlook reflects the uncertainty surrounding BTEL’s
fund-raising to address its “weak” liquidity.
SINGAPORE (Standard & Poor’s) May 6, 2013-Standard & Poor’s Ratings Services
said today that it had lowered its long-term corporate credit rating on
Indonesia-based limited mobility wireless operator PT Bakrie Telecom Tbk.
(BTEL) to ‘CCC’ from ‘B-’. The outlook is negative. We also lowered our
long-term ASEAN regional scale rating on the company to ‘axCCC’ from ‘axB’.
At the same time, we lowered our rating on the senior unsecured notes due 2015
that Bakrie Telecom Pte. Ltd. issued to ‘CCC’ from ‘B-’. BTEL guarantees the
notes. We removed all the ratings from CreditWatch, where they were placed
with negative implications on April 17, 2013.
“We lowered the ratings because BTEL is likely to continue to face significant
liquidity pressure over the next 12 months,” said Standard & Poor’s credit
analyst Suzanne Smith. The company has not disclosed its plans to bridge a
funding gap of about US$100 million over the next 12 months. Nevertheless, we
expect BTEL to meet the semi-annual interest payment of about US$20 million
that is due on May 7, 2013.
BTEL’s funding gap is on account of a US$50 million bank loan, of which about
US$5 million is due in June, September, and December 2013, and US$35 million
is due on maturity in March 2014. Also, the company needs to make finance
lease payments for towers of about US$40 million and has a hedge termination
cost of about US$15 million. This, we believe, makes it critical for BTEL to
raise funds, considering that the company’s continuing breach of an incurrence
covenant under its senior unsecured notes restricts any further fresh
borrowings.
“BTEL also continues to inadequately fund the interest reserve account that
was required under the terms of its senior unsecured notes. This underfunding
exposes the company to a potential payment acceleration, though unlikely, by
bond holders,” said Ms. Smith. “We do not have clarity on when the company
would address this breach, for which it has already received a notice from the
trustee.”
We believe BTEL has “weak” liquidity, as defined in our criteria. The
company’s liquidity sources are likely to cover uses by 0.6x in the next 12
months. We believe the company will not be able to meet the incurrence
covenant on its senior unsecured notes for the next 12-24 months.
The negative outlook reflects our view that BTEL will continue to face
liquidity pressure and may not be able to undertake fund-raising measures over
the next six months to address the funding gap.
We could lower the rating if: (1) we expect bondholders to accelerate payment
because of the covenant breach; (2) we expect BTEL to miss any principal or
interest payment; (3) we expect the company to undertake distressed exchange
of its bonds; or (4) BTEL does not share a credible plan to raise funds and
strengthen its liquidity by September 2013.
We could revise the outlook to positive or raise the rating if BTEL arranges
adequate funds to bridge a significant portion of its funding gap over the
next 12 months. This assumes that the company will maintain its operating
performance with EBITDA interest coverage of at least 1.5x.
RELATED CRITERIA AND RESEARCH
- PT Bakrie Telecom Tbk. ‘B-’ Rating Placed On CreditWatch Negative On
Rising Liquidity Pressure, April 17, 2013
- Criteria For Assigning ‘CCC+’, ‘CCC’, ‘CCC-’, And ‘CC’ Ratings, Oct.
1, 2012
- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18,
2012
- Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Sept. 28, 2011
- Key Credit Factors: Business And Financial Risks In The Global
Telecommunication, Cable, And Satellite Broadcast Industry, Jan. 27, 2009
- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
Complete ratings information is available to subscribers of RatingsDirect at
www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by
this rating action can be found on Standard & Poor’s public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left
column.
Primary Credit Analyst: Suzanne G Smith, Singapore (65) 6239-6380;
Secondary Contacts: Mehul P Sukkawala, CFA, Mumbai (91) 22-3342-4018;
Abhishek Dangra, FRM, Mumbai (91) 22-3342-3815;
