(The following statement was released by the rating agency)
SINGAPORE/SYDNEY/JAKARTA, August 07 (Fitch) Fitch Ratings has affirmed PT
Telekomunikasi Indonesia Tbk's (Telkom) Long-Term Foreign- and Local-Currency
Issuer Default Ratings (IDRs), as well as its foreign-currency senior unsecured
rating at 'BBB-'. The Outlooks on the IDRs are Stable.
KEY RATING DRIVERS
Sovereign constraint: Telkom's IDRs are capped by the Republic of Indonesia's
(BBB-/Stable) IDRs, due to the government's majority shareholding (53.9% at
end-June 2013). The government, through its control of its Board of Directors,
has significant influence over the company. Telkom continues to be strategically
important to the government as the country's fixed-line incumbent and dominant
wireless and broadband operator.
High rating headroom: Relative to other similarly rated Asia-Pacific incumbent
operators, Telkom's ratings have significant headroom given its low funds flow
from operations (FFO)-adjusted net leverage (end-June 2013: 0.5x), solid annual
free cash flow (FCF) generation of at least IDR5trn (USD500m) and high operating
EBITDAR margins of over 50%. Fitch believes that the risk of Telkom undertaking
major debt-funded acquisitions is limited in the short term.
Manageable capex and dividends: Fitch expects Telkom's credit profile to remain
robust despite rising capex and an expected gradual decline in its margins.
Telkom's operating EBITDAR margins will decline by about 100-150bps a year, due
to greater competition and a higher contribution from the less profitable data
segment. Telkom's FFO will be sufficient to fund its capex plan of about
IDR15trn-17trn (20%-25% of its revenue) and dividends of about IDR10trn-12trn
(at least 65% of its net income) for 2013/14.
Asset monetisation: Telkom's plan to monetise its tower assets either through a
public equity offering or through a sale to a strategic partner will further
strengthen its balance sheet. Telkom's 100% subsidiary PT Dayamitra
Telecommunications is in the process of consolidating a majority of tower assets
owned by Telkom and Telkom's GSM subsidiary, PT Telekomunikasi Selular
(BBB/Stable). Telkom is due to decide on its tower monetisation strategy by
Imminent consolidation: Fitch believes that the Indonesian telecom industry will
consolidate over the next 12 to 24 months. A possible merger between the
third-largest, PT XL Axiata's (BBB/Stable), and PT Axis Telecom, and a
consolidation among CDMA operators would reduce the industry overcapacity and
the number of telcos to four to five from the existing seven. Smaller operators
especially those operating under CDMA technology are struggling to grow
profitably and have limited financial flexibility to fund capex.
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
- Upgrade in the sovereign's IDRs;
- Weaker links between the government and Telkom.
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
- Downgrade of the sovereign IDRs;
- A significant increase in shareholder return or a major debt-funded
Fitch Ratings Singapore Pte Ltd
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#35-05 Suntec City Tower 4
+62 21 29026412
+61 2 8256 0307
Applicable criteria, 'Corporate Rating Methodology', dated 5 August 2013, are
available at www.fitchratings.com.
Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:
Additional information is available on www.fitchratings.com.
Applicable Criteria and Related Research:
Corporate Rating Methodology â Effective 12 August 2011 to 8 August 2012
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