The board of Indonesian phone company Indosat has mandated ING to advise it on its forthcoming corporate restructuring. Indosat is made up of three distinct companies and brands - Indosat (international fixed line), Satelindo (cellular) and IM3 (cellular). The aim is to merge all three companies into one, under the brand of Indosat, focused on the mobile part of the market.
ING will advise Indosat on the financial aspects of the reorganization, including the restructuring of the companies' combined debt load. Indosat has $370 million in loans and local bonds, Satelindo has $360 million in loans and local and international bonds and IM3 has $170 million in mainly local debt. The aim is to consolidate the three different debt loads into one and hopefully achieve better pricing and terms for the debt.
Indosat's new majority shareholder, Singapore Technologies Telemedia (STT), which bought 42% of the company late last year, is driving the move. The AAA rated government of Singapore wholly owns STT, and hence it would be able to get much better terms for its credit than an Indonesian phone company. By taking out additional layers of subsidiaries, the reorganization should be credit positive for Indosat, allowing it to take more advantage of its new owner's credit profile.
Moreover, STT found out that each of the three companies had different purchasing agreements with their suppliers, which was costing the company millions in unnecessary expenses. This re-organization will eradicate that and make sure all purchasing is done centrally, this saving the firm money.
Indeed, this is the first real move that STT has forced on Indosat and gives a clear indication why it thought it worth paying at 51% premium to the underlying stock price when it bought its stake in December. Unlocking value such as this is a key to make a successful acquisition.
It is understood that ING beat Merrill Lynch and Rothschild to secure this mandate. AT Kearney has also been retained to help advise on the re-launch of the Indosat brand.
