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Bakrie Telecom downgraded after missing payment

Rating agencies Fitch Ratings and Standard and Poor’s (S&P) downgraded the foreign and local currency ratings of cell phone operator Bakrie Telecom (BTEL) to “near default” and “default”, respectively, for failing to pay the company’s US$21

Anggi M. Lubis (The Jakarta Post)
Jakarta
Sat, November 9, 2013 Published on Nov. 9, 2013 Published on 2013-11-09T11:49:52+07:00

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ating agencies Fitch Ratings and Standard and Poor'€™s (S&P) downgraded the foreign and local currency ratings of cell phone operator Bakrie Telecom (BTEL) to '€œnear default'€ and '€œdefault'€, respectively, for failing to pay the company'€™s US$21.8 million coupon on bond, due on Thursday.

Fitch Ratings announced on Friday it had downgraded BTEL'€™s long-term foreign- and local-currency issuer default ratings to '€œC'€ from '€œCC'€. It also downgraded the May 2015 $380 million bond fully guaranteed by BTEL to '€œC'€ from '€œCC'€. The recovery rating of the bond is '€œRR4'€ '€” which basically means that BTEL has average recovery prospects.

'€œUnder the terms of the notes, the company has a grace period of 30 days to pay the coupon before a default is triggered,'€ Fitch said in the official release.

'€œWe believe that BTEL is unlikely to be able to source the liquidity needed to pay the coupon within the grace period and that the company will to have to restructure some, or all, of its debt obligations.'€

Fitch said the company'€™s rating could be further downgraded to RD (restricted default) in the event of a restructuring of the bond if it imposed a material reduction in terms, or non-payment of the coupon within the grace period.

Meanwhile, S.&P cut the company'€™s long-term corporate credit rating to '€œD'€ from '€œCC'€ and its long-term ASEAN regional-scale rating to '€œD'€ from '€œaxCC'€, after the company missed the interest payment.

'€œWe lowered our assessment of BTEL'€™s management and governance to '€˜weak'€™ from '€˜fair'€™ based on our view that the company failed to implement its strategy successfully to address the challenges of using CDMA [Code division multiple access] wireless technology and manage intense competition,'€ S&P'€™s credit analyst Mehul Sukkawala said in a written statement to explain the agency'€™s decision to lower BTEL'€™s rating.

The company materially underperformed on its unrealistic targets for operating performance, he added.

In an announcement posted on the Indonesian Stock Exchange (IDX) website on Friday evening, BTEL said its strategy would be to carry out '€œre-profiling its US dollar global bonds'€.

The company said it had appointed FTI Consulting as a financial advisor since July to analyze BTEL'€™s business and financial condition in fulfilling its US dollar global bonds'€™ obligation.

It also said it had formed a steering committee with bondholders to seek alternatives for the re-profiling and had informed bondholders on a payment postponement until the re-profiling was agreed.

'€œWe are currently focusing on improving the company'€™s performance while continuing to launch innovative products for consumers,'€ the statement, made in response to media coverage, said.

BTEL, one commissioner of which is Anindya N. Bakrie, son of tycoon Aburizal Bakrie who is hoping to join the 2014 presidential elections, posted a 10.2 percent decrease in its revenues in the first nine months of this year, but its profits plunged even lower due to high costs stemming from the sharp drop in the rupiah against the US dollar in the third quarter.

BTEL, which runs CDMA networks, booked a net loss of Rp 1.5 trillion (US$133.5 million), 55.4 percent greater than the same period last year.

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