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Rating Action:

Moody's confirms Indosat's ratings; outlook stable

06 Oct 2008
Moody's confirms Indosat's ratings; outlook stable

Approximately US$345 million of debt securities affected

Singapore, October 06, 2008 -- Moody's Investors Service has today confirmed the Ba1 local currency corporate family rating of PT Indosat Tbk ("Indosat"), and the Ba2 foreign currency senior unsecured bond rating of Indosat Finance Company B.V. and Indosat International Finance Company B.V. The outlook on all ratings is stable.

This concludes the rating review initiated on 10 June, 2008, when Singapore Technologies Telemedia ("STT"), a wholly-owned unit of Singapore government's investment firm, Temasek Holdings, sold its 40.8% interest in Indosat to Qatar Telecom ("Qtel" unrated) for US$1.8 billion.

"The rating confirmation reflects Moody's assessment of Qtel's ability and willingness to support Indosat in a distress situation, as well as the expectation that the change in shareholding structure will not have a material impact on Indosat's existing business strategies and financial policies," says Ivan Palacios, a Moody's AVP/Analyst and lead analyst for Indosat.

QTel enjoys a relatively strong stand-alone operating and financial profile, while it also benefits from the strong support from the Qatar government (rated Aa2), which owns a 55% stake in the company.

Because Indosat is 40.8% owned by Qtel and is also the latter's largest non-domestic business, (representing 64% of Qtel's subscribers and around one third of revenues and EBITDA on a YTD June 2008 pro forma basis), Indosat is deemed to be a key strategic investment for Qtel. Furthermore, the existence of a cross default clause also suggests that Qtel's willingness to support Indosat would be very high; Indosat's rating of Ba1 therefore continues to benefit from a one-notch uplift.

Moody's also notes that the change in shareholding structure is not expected to have significant impact on Indosat's existing financial policies, such as Total Debt/Equity below 1.5x and a dividend policy of around 40%-50% of net income, which remain consistent with its standalone Ba2 rating.

Indosat's liquidity profile remains adequate following the completion of the tender offer for the US$ bonds, triggered by the change of control. Indosat's expected operating cash flow generation, its cash position of around US$1 billion as of 30th June 2008, and the availability under the recently signed US$450 million facility, leaves the company well positioned to cover expected outlays within the next 12 months, including US$205 million tendered bonds and US$1.4 billion capex plan for 2008.

Upward pressure for the local currency corporate family rating will primarily be driven by consistent improvement in Indosat's underlying credit strength. Specific ratios that Moody's would consider include: (FFO + interest expense) / interest expense remaining above 5.0x; Debt/EBITDA remaining below 2.0x; and positive free cash flow on a consistent basis. An upgrade of the foreign country ceiling will trigger the upgrade of the company's Ba2 senior unsecured bond rating.

Downward pressure on the rating could result from a deterioration in Indosat's standalone credit assessment, such that (FFO + interest expense) / interest expense drops below 3.5x and Debt/EBITDA increases above 3.0x on a sustained basis.

In the event that Qtel were to implement more aggressive financial policies at Indosat, such as an increased appetite for leverage or a more aggressive dividend policy, this could have negative rating implications. In addition, a material reduction in QTel's shareholding, or indications that Indosat is no longer a core asset for the group, may have negative consequences for the rating since it may affect the rating uplift currently enjoyed by the company.

Indosat is a fully-integrated telecommunications network and services provider in Indonesia. The company is the second largest cellular operator in the country, as well as its leading provider of international call services. It also provides multi-media, data communications, and internet services.

Singapore
Ivan Palacios
Asst Vice President - Analyst
Corporate Finance Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308

Singapore
Tony Tsai
Senior Vice President
Corporate Finance Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308

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