Fitch Ratings places Indosat on negative watch amid planned merger


Fitch Ratings has said it may downgrade PT Indosat Ooredoo's credit rating because of the possibility of decreased financial support from a major shareholder, following the publicly listed telecommunications company's announcement of a planned merger with competitor PT Hutchison 3 Indonesia. - Courtesy of Indosat

JAKARTA (The Jakarta Post/Asia News Network): Fitch Ratings has said it may downgrade PT Indosat Ooredoo's credit rating because of the possibility of decreased financial support from a major shareholder, following the publicly listed telecommunications company's announcement of a planned merger with competitor PT Hutchison 3 Indonesia.

Fitch wrote in a commentary on Tuesday (Sept 21) that it had placed Indosat’s “BBB” long-term foreign and local-currency issuer default rating (IDR) and its foreign-currency senior unsecured bond rating on negative credit watch, signalling a potential downgrade.

The company’s “AAA(idn)” national long-term rating and all outstanding rupiah-denominated senior unsecured bonds and sukuk (syariah-compliant bonds) were also placed on the negative watch.

Indosat’s current ratings are based, in part, on implied financial support from Qatar-based telecommunications giant Ooredoo.

With the planned merger, the resulting entity, PT Indosat Ooredoo Hutchison, or MergeCo, will no longer be controlled by Ooredoo, whose stake in the enterprise will fall from 65 per cent to 33 per cent. The legal and strategic linkages between the two are, therefore, expected to diminish.

“We believe MergeCo’s [standalone credit profile] is likely to be stronger than Indosat’s by one to two notches,” Fitch Ratings wrote.

“However, the removal of implied financial support from Ooredoo – as Indosat will cease to be controlled by Ooredoo and its debt will no longer benefit from cross-default clauses in Ooredoo's debt documentation – is likely to lead to a downgrade of Indosat's international and national ratings by one to two notches.”

Ooredoo and Hong Kong’s CK Hutchison have inked a US$6 billion deal to merge Indosat and Hutchison 3 Indonesia.

MergeCo is expected to be the second-largest telecommunications company in Indonesia, with nearly $3 billion in annual revenue, and could spend $300 million to $400 million on capital annually over the next three to five years.

The merger hinges on shareholder and regulatory approval, but Fitch assumes the merger will take effect on Jan 1, 2022, according to its commentary.

The credit rating agency expects to resolve the rating watch around the end of the year upon the closure of the merger, taking into account the transaction, post-merger financial policies and the effect of any additional conditions set by regulators, including limitations on spectrum transferability.

“We believe the deal will add scale and introduce long-term synergies for MergeCo, particularly for an eventual 5G rollout,” Fitch wrote.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 46
Cxense type: free
User access status: 3
Join our Telegram channel to get our Evening Alerts and breaking news highlights

Indonesia , Fitch , Ratings , Indosat

   

Next In Aseanplus News

Asean News Headlines as at 9pm on Wednesday (Oct 20)
3,646 new Covid-19 cases recorded in Vietnam
Miss Grand International chief says Phuket pageant will go ahead despite objections
Singapore's Covid-19 measures to be extended till Nov 21, to be reviewed at 2-week mark
Hidden kingdom of mud and clay enchants Siem Reap
Myanmar's economic woes due to gross mismanagement since coup: US official
Indonesian-Chinese consortium begins study on US$560mil coal-to-methanol plant
Singapore is No. 2 in the world for attracting and developing talent: Insead
Xi: Advance sound growth of digital economy
Covid-19 tally surpasses 490,000 in Myanmar with 1,133 new cases

Others Also Read


Vouchers