Rating On PT Media Nusantara Citra Notes Affirmed; Issue Size Reduced
2006 - Singapore, 31 Aug 2006

SINGAPORE (Standard & Poor's) Aug. 31, 2006--Standard & Poor's Ratings Services said today it affirmed its 'B+' rating on senior secured debt of up to US$182 million to be issued by Indonesia's PT Media Nusantara Citra's(MNC; B+/Stable/--) wholly-owned subsidiary, Media Nusantara Citra B.V. The notes are unconditionally and irrevocably guaranteed by MNC and some of its subsidiaries, excluding PT Rajawali Citra Televisi Indonesia (RCTI) and PT Cipta Televisi Pendidikan Indonesia (TPI). The size of the issue has been reduced from the initial proposed amount of US$230 million as the company delays entering its pay TV business.

RCTI and TPI, however, will become subsidiary guarantors of this issuance once RCTI's local currency bonds are fully paid (which is not later than October 2008), TPI is fully acquired by MNC, and TPI's debt is fully repaid (upon completion of the new bond issuance). The proceeds that will be received by Media Nusantara Citra B.V. will be on-lent to RCTI and TPI and these inter-company loans will be assigned to bondholders as security. This will mean that the new bondholders will be the largest creditor at RCTI and the only creditor at TPI until all guarantees are put in place. With the intercompany loans as security, bondholders will have a direct claim to the operating assets of RCTI and TPI for amounts up to the intercompany loans as if they were an unsecured creditor to the company. The rating on the notes is subject to final documentation.

"The rating on MNC reflects the concentration of MNC's cash flows from a single source, an aggressive financial profile, intense competition in Indonesia's TV broadcasting industry, and the weaker credit profile of its parent," said Standard & Poor's credit analyst Yasmin Wirjawan. "These weaknesses are, however, partially offset by MNC's leading market position in Indonesia's TV advertising market, its established local language programs that are popular with viewers, and the favorable growth prospects for advertising spending in Indonesia," she added.

MNC's flagship broadcasting station is operated by RCTI, which contributed nearly all of MNC's operating EBITDA in the first half of 2006. MNC's reliance on RCTI will remain high in the near to medium term. Indonesia's TV broadcasting industry is highly competitive, with 11 free-to-air TV stations, of which MNC owns three. The industry is also fragmented, and no single TV network captures more than 21% of viewers. The company's financial profile is aggressive, as debt to EBITDA is expected to reach 3.5x-4.0x in the near term, while the ratio of funds from operations to debt could decline to 15%-20%. Including cash programming cost, debt to equalized EBITDA is projected to peak at 5x-6x in the near term. The company also plans to spend US$89 million in 2006 and 2007 for an expansion program that will be mostly financed by debt.

The credit profile of MNC is linked to that of its parent, PT Bimantara Citra Tbk., given the latter's full ownership in MNC, shared senior management, and control over MNC's business strategy and financial policy. MNC is the only integrated media company in Indonesia, with its three TV stations capturing 38% of audience share and 32% of advertising expenditures as of May 2006. The company produces and owns more than 50% of its programming, measured by hours, mainly in local language, providing MNC with the flexibility to control the timing, quality, costs, and the ability to tailor specific target audiences suitable to advertisers.

The company is likely to benefit from robust growth in advertising spending in Indonesia, which has grown at a compounded annual rate of 24% over the past 10 years. Advertising spending is expected to continue rising steadily in the near to medium term, with the improved domestic economic outlook. TV advertising is the main advertising medium in Indonesia, and accounts for more than 60% of advertising spending.

MNC's near-term liquidity is weak. At June 30, 2006, the company had cash balance of about Indonesian rupiah (Rp) 137 billion (US$14.4 million), and Rp400 billion marketable securities (mostly bonds). These were insufficient to cover debt due in one year of Rp728 billion. However, this will be mitigated by the new bond issuance as it will be used to refinance part of the group's debt including short-term loans (US$114 million), acquire the remaining 25% stake in TPI (US$25 million), and the balance to fund working capital as well as other general corporate purposes.

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