Largest Syndicated Loan in Indonesia’s Telecom Sector Since the Asian Financial Crisis
SINGAPORE, February 4, 2004 – Underscoring foreign investors’ renewed confidence in Indonesia’s economy and growth prospects, particularly in the telecom sector, DBS Bank Ltd. and Bank Mandiri closed the syndication of a US$215 million loan to PT Mitra Global Telekomunikasi (MGTI), the first Indonesian telecom loan since the 1997 Asian Financial Crisis. The international law firm Milbank, Tweed, Hadley & McCloy LLP, led by partner David Zemans, represented the lenders in connection with the financing.
Commenting on the transaction, Milbank’s Zemans stated, “The successful syndication of the MGTI loan, together with last week’s $350 million bond deal for Indonesian mobile operator Excelcomindo, further demonstrates foreign investors’ renewed interest in Indonesia’s telecom sector, which currently has only a 15% penetration rate in a rapidly growing economy. Our role in the MGTI transaction is just the latest in a number of major Indonesian deals Milbank has been involved in over the past 12 months, including Indosat’s recent US$300 million bond offering and the sales of the government’s stakes in BRI, PGN and Indocement.”
About the Financing:
The US$215 million facility, which officially closed on January 20, 2004, has a tenor of five years and pays an interest rate of Libor plus 6% and is an amortising loan with a three month grace period. The facility refinances a bridge loan that DBS extended to MGTI when Alberta Telecommunication acquired all of the shares of MGTI from the existing shareholders for US$266 million in cash. Proceeds of the loan will be used by MGTI to refinance its existing debts Acting as coordinating arrangers, DBS Bank and PT Bank Mandiri (Persero) Tbk (Bank Mandiri) successfully closed the syndication of the loan to six other banks: ABN AMRO Bank N.V., PT Bank Danamon Indonesia, PT Bank DBS Indonesia Tbk, PT Bank Internasional Indonesia Tbk, ING Bank N.V. and PT Bank Rabobank International Indonesia.
In addition to its role as lender and coordinating arranger, DBS Bank Ltd. also acted as administrative agent, facility agent and security agent. DBS Bank is the largest bank in Singapore and one of the largest financial services groups in Asia.
About the Acquisition:
Telecom company MGTI was one of the five foreign owned KSO joint ventures established with state-owned PT Telekomunikasi Indonesia Tbk (Telkom) in the mid-1990s to roll out fixed line phone services throughout Indonesia. The shareholders included some of the largest international telecom firms, including PT Indonesian Satellite Corp. (Indosat), PT Widya Duta Infotel, Itochu Corporation, Telstra Global Ltd., NTT Finance (UK) Ltd., and Sumitomo Corporation. In the wake of the Asian Financial Crisis, the devaluation of the rupiah made the projects’ dollar debts unserviceable, and the MGTI – Telkom partnership collapsed.
While Telkom was able to buy out the other joint-venture KSO operations, it was unable to take over MGTI due to a disagreement over valuation. However, in September 2003, all of MGTI’s shareholders agreed to sell their entire stake to PT Alberta Telecommunication (Alberta) for US$266 million.
Alberta Telecommunication is a subsidiary of PT Saratoga Investama Sedaya, which is in turn controlled by well-known Indonesian business tycoon Edwin Soeryadjaya and a number of financial investors. Alberta was recently established to provide financial services in the telecommunications industry as well as to hold telecommunication investments such as MGTI. It has a capitalization of about US$32 million in the form of common equity and subordinated debt. Saratoga will become a silent partner in MGTI and receive a fixed minimum investment revenue from Telkom.
The fact that Alberta and Telkom were able to successfully negotiate a new revenue sharing agreement was critical in order to be able to successfully syndicate the loan. Under the terms of the new agreement, MGTI is to develop and operate a regional network of approximately 730,000 telecom fixed lines in Central Java and the Special District of Jogjakarta, in partnership with state-owned PT Telkom. In return, MGTI will receive a 30% share of the revenue for 15 years until 2010.
Milbank, Tweed, Hadley & McCloy played a leading role in Indonesia’s capital markets in 2003. In addition to its important role in the Indonesian government’s privatization program, most notably the successful sales of the government’s stakes in Bank Rakyat Indonesia, PGN and Indocement, Milbank was involved in a number of other significant Indonesian transactions closing in 2003, including sophisticated and complex capital markets, mergers & acquisition financings, project financings and restructuring transactions spanning a broad range of industries.
Milbank has been actively involved in Indonesia’s telecom sector, working on a number of major transactions including:
- Indosat’s US$300 million bond offering
- Indosat’s corporate restructuring and merger of its largest subsidiaries, PT. Satelit Palapa Indonesia (“Satelindo”) and PT. Indosat Multi Media Mobile
- Aria West restructuring
With offices in Asia for 25 years, Milbank continues to be at the forefront of landmark transactions spanning virtually every Asian country and across diverse industries, including the largest corporate debt offering ever in Asia, the largest distressed deal ever in Asia, and two of the largest private equity deals in Asia. Milbank has one of the deepest and broadest practices among U.S. firms in Asia, with practices encompassing capital markets, M&A and acquisition finance, project finance, restructuring, structured products transactions, leasing and transportation finance. Milbank currently has offices in Hong Kong, Singapore and Tokyo with attorneys qualified to practice New York and English law.
Milbank, Tweed, Hadley & McCloy LLP is a premier global law firm headquartered in New York, with offices in Washington, DC, Los Angeles, Palo Alto, London, Frankfurt, Tokyo, Hong Kong and Singapore. Milbank is a recognized leader in mergers and acquisitions, capital markets and corporate finance, project finance, acquisition finance and other major fields of legal practice. Milbank provides both English and U.S. law capabilities to its clientele, and provides a full range of services to many of the world’s leading financial, industrial and commercial enterprises, as well as governments, institutions and individuals.