Telekom Malaysia seeks debt financing

Telco issues RFP for a bridge financing and bond issue.

Telekom Malaysia sent out an RFP (request for proposals) this Monday seeking $300 million to $400 million in bridge financing ahead of a benchmark bond issue, likely to be launched early in the autumn. This marks the second RFP from the group, which had requested banks to submit proposals for a bond issue only a few weeks before.

Proceeds will be used to fund the group's prospective acquisition of an Indian cellular company, Idea. Telekom is hoping to buy up to 49% of the AT&T, Birla and Tata owned group through a JV with Singapore Technologies Telemedia (STT).

Bankers say Telekom also has a $200 million eurobond maturing at the beginning of August next year, which it is looking to re-finance.

The RFP is open to a number of banks. Telekom's previous two international bonds were mandated to JPMorgan in 1995, then Deutsche Bank and Merrill Lynch in 2000.

However, HSBC may have a head start this time round, since it is acting as Telekom's M&A advisor for the acquisition. STT is being advised by JPMorgan and Merrill Lynch.

Bankers expect a bond issue of up to $500 million and a 10-year maturity. The group's benchmark 8% December 2010 issue is currently yielding about 5.24%. This equates to about 145bp over Treasuries or 69bp over Libor.

The group normally trades at a premium of about 15bp to the sovereign since it has a one notch lower rating on Moody's side. It is currently rated Baa2/A- with stable outlook from both agencies compared to a Baa1/A- sovereign rating.

Idea company officials have said that Telekom and STT will purchase AT&T's 33% holding in the company and will then increase their stake to the maximum 49% foreign ownership limit through the issuance of new shares. Birla and Tata also own 33% each.

With 3.8 million subscribers at the end of April, Idea is India's fifth ranked cellular operator and has plenty of growth potential given India's sub 5% national penetration rate. At the end of the first quarter Telekom derived 27% of its net profit from its steadily expanding overseas operations.

At this point total debt amounted to M$11.25 billion ($2.97 billion), of which about 36% was denominated in US dollars. The group also had M$4.25 billion cash on hand.

Debt to capitalization stood at 38.3%, debt to EBITDA at 1.63 times and EBITDA/Interest coverage at 10.75 times.

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