Top picks
Bakrie Telecom 11.5% '15
BTEL has carved a niche as value service provider and should continue to benefit from an expanding cellular market in Indonesia. Its leverage is aggressive and would stay at over 4x over the next few years but well within the single-B credit range in our view. 2Q10 results were weaker in revenue as a tradeoff with better margin. The recent USD300 million facility from ICBC should cover capex funding till 2012. News of potential merger with Telkom's Flexi has lifted bond price, but we believe the full impact is not fully reflected. We believe the merger should lead to improved leverage at 2.6x, and Telkom presence would instill some check-and-balance.
BLTA 7.5% '14
BLTA is a recovery play as dwindling new supply should restore balance to the chemical shipping market comes 2011. Its third consecutive rise in EBITDA in 2Q10 underscored that the cycle is bottoming out. Leverage is aggressive at >7x with still heavy capex in 2011-12, but mitigated by decent access to banks and adequate liquidity of USD250m post recent rights issue. In our view, recent negative rating actions are behind the curve. We still see some challenges ahead but believe that investors are well compensated for the risks.
Top pans
Bakrie Sumatera 10.75% '11
The recent restatement of its March 10 financial with close to USD500m reduction in cash balance raised a red flag. We believe the consolidation of Domba Mas' stretched balance sheet would put further financial strain and potentially could raise its leverage to over 7x. This would make refinancing of the bonds falling due next year a challenging task.
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