Moody's reviews Qtel's A1 rating for possible downgrade

"Following the change in outlook for Indosat in light of a weaker financial profile and Moody's expectation of increasingly limited headroom under Indosat's financial covenants Moody's is reviewing the impact this may have on Qtel given the existence of cross default clauses linking into Qtel," says Martin Kohlhase, a Dubai-based Moody's Assistant Vice President. Indosat's covenants limit Debt to EBITDA to 3.5 times maximum, which Moody's estimates stood at 2.9 times on December 31, 2009.

Although Qtel's group liquidity profile is strong with bank balances and cash of QR11.5bn (ca. $3.2bn) per December 31, 2009 and debt maturities in 2010 of QR1.9bn Moody's will review the general reliance of international operations on support from Qtel as well as government support assumptions for Qtel itself, which currently lift the ratings up by four notches from its Baa2 baseline credit assessment. The review will also encompass the intergroup support mechanisms and the standalone credit profile of Qtel Q.S.C. where QR23.6bn out of nearly QR36bn of group debt resides.

Ratings currently assume that Qtel fully extends shareholder support to Indosat in a timely manner. However, should the expected performance improvements at Indosat fail to materalise oody's could change the ratings for Qtel if this were to result in a significant cash call for Qtel that would weaken its liquidity profile.

The last rating action on Qtel was on May 27, 2009 when Moody's assigned provisional ratings of (P)A1 to Qtel's GMTN programme. The last rating action on Indosat was on March 10, 2010 when Moody's changed the outlook of the Ba1 ratings to negative from stable.

The principal methodology used in rating Qtel was Moody's "Global Telecommunications Industry", published in December 2007 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Qtel is Qatar's incumbent integrated telecommunication services provider and has over the past years expanded into North Africa, the Middle East and Asia where it has operations in 15 markets. The company recorded revenues of QR24bn ($6.6bn) and a net profit of circa QR3.9bn ($763m) in 2009.

Indosat is a fully-integrated telecommunications network and services provider in Indonesia. The company is the second largest cellular operator in the country, as well as its leading provider of international call services. It also provides multi-media, data communications, and internet services.