Indonesia’s Trikomsel warns it will likely default on Singapore-issued bonds

Visual from the company website

Indonesian mobile phone retailer PT Trikomsel Oke Tbk (TRIO), partly owned by Singapore-listed Polaris and Japan’s SoftBank Group, has notified its bondholders that it will not be able to pay interest on two Singapore dollar bonds that are due in November and December, due to the company’s financial difficulties as a result of falling rupiah against the US dollar.

This will mark the first default in Singapore dollar denominated debentures since 2009, and could decrease investor appetite for debt issued by Indonesian companies.

Trikomsel also cited sluggish sales and weakening domestic economy Indonesia, which it said curbed consumers purchasing parity, as reasons for the potential bond default.

Last week, Rating agency Standard & Poor’s had warned of potential defaults by Indonesian firms even as PT Trikomsel Oke Tbk was taking steps to meet lenders to restructure around $155 million of debt.

Polaris owns 44.9 per cent of Trikomsel while SoftBank Group has a 19.9 per cent stake.

Also Read: S&P warns of defaults after Indonesia telecoms firm Trikomsel seeks debt restructuring

The Jakarta-based company had issued a S$115 million bond due 2016 bearing a 5.25 per cent coupon rate, and a S$100 million bond due 2017 at 7.875 per cent coupon rate.

Trikomsel, in a filing with the Singapore stock exchange on Monday, said more than 80 per cent of its total debt of around $460 million was due in the next two years. This debt includes the two Singapore dollar bonds (S$215 million or US$155 million). “With the depleting and volatile cash flow, the company anticipates that it is unlikely to be in a position to service interest and repay debts as they fall due,” its filing said.

On Monday (October 26), Trikomsel Oke, which is listed on the Indonesian Stock Exchange, also hosted an informal introductory call with certain Noteholders of its two bonds.

The company said the call was to provide updates to the note holders on its liquidity position, financial performance and to outline the steps it has taken to date to address the challenges it faces, including possible restructuring options. The call was also aimed at inviting note holders to establish an informal steering committee to represent them in discussions with the company.

“As a first step, the company will be proposing a formal standstill of its obligations to its bank creditors as well as the bonds. For transparency, the company does not anticipate it will be in a position to make the upcoming interest payments due in November and December 2015,” Trikomsel said in a note to note holders.

“It will continue to service the interest, on certain essential banking facilities in Indonesia which are required for it to continue operations,” it added.

Also Read: SoftBank acquires 19.9% stake in Polaris owned Trikomsel in $120m deal, shares surge

“While the group has substantially met its obligations as they fall due to date, it is becoming apparent that it may not be possible to do so indefinitely,” Trikomsel’s statement added.

The company said given the current situation and “extremely serious” condition, the company’s board has engaged experienced professional advisers to assist them in reviewing the financial situation of the group and provide advice on sustaining its operations in the long run.

The company has appointed FTI Consulting as the financial advisor and Ashurst LLP as legal advisor.

“The review is still ongoing, but the Board has reached the preliminary conclusion that it is essential for the group to prioritize its cash flows for expenditures essential to maintain the ongoing operations,” it said.

The company said the performance of the company and its subsidiaries has been “severely affected” by both the depreciation of the Indonesian Rupiah against the US dollar and the general slowdown in the Indonesian economy.

“This has resulted in a substantially weakened earnings and significantly reduced cash flow, for which the company has effected various cost reduction initiatives and will continue its efforts to improve its liquidity position,” it said.

To ease communications with the note holders going forward, the company is in the process of establishing an informal steering committee of Noteholders comprising approximately 3 to 5 substantial note holders to discuss potential options with respect to the Notes.

Trikomsel added the company will engage directly with its bank creditors to discuss the business plan and a restructuring solution over the next few months. The company, however, assured that note holders are fully represented in the process through a note holders steering committee. 

Weakening Performance

Following an average of 8.25 per cent year on year revenue growth in 2012-2013 fiscal year, Trikomsel suffered declining sales, resulting in significant reduction of revenues in the last twelve months ended June 30, 2015 from Rp10.8 trillion to Rp8.9 trillion. The net revenues in the first half of 2015 declined 32.1 percent from the same period last year.

It recorded negative cash flow from operations of Rp53.5 billion in the six months to June 2015. Meanwhile, current liabilities increased in the six months period to June 30, 2015 from Rp3.6 trillion compared to Rp3.4 trillion in the same period last year.

The company said it plans to submit the restructuring proposals to all relevant creditors in the next 2-3 weeks with the aim of entering into restructuring term sheets with all relevant parties by Jan 31, 2016 and execute definitive documentation by Feb. 29, 2016.