Singapore, May 12, 2017 -- Moody's Investors Service has today upgraded to Baa3 from Ba1 the
issuer rating of Indosat Tbk. (P.T.) (Indosat Ooredoo).
The outlook for the rating is stable.
At the same time, Moody's has withdrawn the company's Ba1 Corporate
Family Rating.
RATINGS RATIONALE
"The rating upgrade reflects the continued strengthening of Indosat Ooredoo's
operational metrics as well as the ongoing stabilization of its financial
profile, including lower leverage levels," says Nidhi Dhruv,
a Moody's Vice President and Senior Analyst.
The Baa3 issuer rating continues to incorporate a one-notch uplift
to reflect Moody's expectation of extraordinary support from the
parent company, Ooredoo Q.S.C. (A2 stable),
in a distressed situation. Ooredoo has a 65% shareholding
in Indosat Ooredoo.
"Although the Indonesian mobile sector remains competitive with around
seven operators, industry consolidation in recent years has led
to moderating price competition. We expect Indosat Ooredoo's
revenue to grow around 7% in 2017, supported by the increasing
contribution from data revenue as more subscribers utilize its 3G and
4G services," adds Dhruv, also Moody's lead analyst
for Indosat Ooredoo.
The company's subscriber base grew by 22.8% year-on-year
to 85.7 million in 2016. The increase was driven by subscriber
acquisition strategies, which included generous mobile data allowances,
and which also targeted prospective subscribers outside the main Indonesian
island of Java.
While these initiatives resulted in a slight contraction in average revenue
per user (ARPU), Indosat Ooredoo's adjusted EBITDA margin actually
increased to around 52% in 2016 from 49% in 2015 due to
tighter cost controls on its selling, general and administrative
expenses in 2016.
Moody's also expects the company to maintain its strong EBITDA margins
over the next two years through further cost controls, including
better management of network-related costs, such as through
securing lower rentals on renewals of tower lease contracts.
"Leverage -- as measured by adjusted debt/EBITDA --
declined to around 2.1x in 2016 from 2.5x in 2015 --
reflecting both lower debt levels and higher EBITDA. In addition,
the company's US dollar debt exposure declined to around 10% from
around 22% in 2015. Moody's expects a further reduction
to a mid-single digit percentage over the next 12-18 months
as the company continues to refinance its US dollar revolvers with rupiah
bonds," adds Dhruv.
Management has guided towards maintaining the company's net leverage
at 1.4x-1.5x, on a reported basis, a
level which supports the Baa3 rating. This ratio stood at 1.7x
as of December 2016.
In 2016, Indosat Ooredoo reported positive net profit after three
years of losses. Although Moody's expects the company to
re-initiate dividend payouts, any shareholder returns will
likely be reasonable and adhere to the company's overall leverage
and cash flow policies.
"In keeping with the investment-grade rating, Moody's
expects the company to maintain a prudent financial policy, with
low leverage, and prioritizing the deployment of excess cash towards
debt repayments and capital expenditures instead of large acquisitions
and significant increases in shareholder returns," adds Dhruv.
Given the continued investments needed to enhance its 3G and 4G LTE networks,
Moody's expects Indosat Ooredoo's cash capex in 2017 to be
around IDR7.0-7.5 trillion, in line with its
capex for 2016 of IDR7.3 trillion, as it continues to increase
its network capacity and coverage, especially outside of Java.
Indosat Ooredoo's cash balance and projected cash flow from operations
will be insufficient to meet its capex requirements along with its large
debt maturities of around IDR8.3 trillion over the next 12 months.
However, Moody's considers refinancing risk to be limited,
given the company's strong access to the local bank and bond markets,
as evidenced by its issuance of around IDR10 trillion local currency bonds
between December 2014 and September 2016.
The company also plans to issue an additional IDR3 trillion local currency
bonds by June, with around 70% of the proceeds to be applied
towards debt reduction, and the remainder applied to network-related
costs.
Indosat Ooredoo's rating reflects its fundamental credit strength,
underpinned by its strong market position, established network,
high margins, and improved financial profile, despite the
competitive character of the operating environment. As a result,
it is well positioned to benefit from the favorable growth dynamics existent
in the industry.
The stable outlook reflects our expectation that Indosat Ooredoo will
maintain a strong financial profile through steady revenue and earnings
growth, and that the competitive and regulatory environments remain
benign.
What Could Change the Rating -- Up
Further upward pressure is limited, given the small scale and the
still competitive operating environment. However, positive
rating pressure may build over time if there is consistent improvement
in Indosat Ooredoo's financial profile, such that (1) adjusted
debt/EBITDA falls below 1.5x on a consistent basis, and (2)
retained cash flow/adjusted debt remains above 40%-45%
on a sustained basis.
What Could Change the Rating -- Down
The rating could be downgraded if there is a material deterioration in
its underlying credit strength, arising from diminishing profit
margins, weaker operating cash flows, or increased shareholder
returns. Metrics indicative of downward pressure include (1) adjusted
debt/EBITDA rising above 2.5x, or (2) retained cash flow/adjusted
debt falling below 30% on a sustained basis. In addition,
the one-notch uplift -- based on expected support
from the parent company, Ooredoo Q.S.C. --
could be removed if its stake falls below 50%, or if it indicates
that Indosat Ooredoo is no longer a core asset.
The principal methodology used in these ratings was Telecommunications
Service Providers published in January 2017. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Indosat Tbk. (P.T.) is a fully integrated telecommunications
network and services provider in Indonesia. The company is the
second-largest cellular operator in the country in terms of revenue
and active subscribers, as well as the leading provider of international
call services. It also provides multi-media, data
communications, and internet services. The company is 65%
owned by Ooredoo Q.S.C.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Nidhi Dhruv, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Laura Acres
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
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