Indosat says no to Telkom merger plan<\/p>\n
By Christiani S.A. Tumelap<\/p>\n
JAKARTA (JP): Listed state-owned international telephone
\noperator PT Indosat has opposed a plan to merge it with state-
\nowned domestic telecommunications provider PT Telkom.<\/p>\n
Company director for business development Safwan Natanegara
\nsaid Indosat was not in favor of the idea because it would not
\nbe of any advantage to the company.<\/p>\n
\"We once agreed to the idea... We were assured it would
\ncreate more value... However, after conducting a thorough study,
\nwe find it is just unacceptable,\" he said over the weekend.<\/p>\n
He said the merger would certainly create a stronger telecoms
\ncompany but it would reduce the value of Indosat, which would in
\nturn give its shareholders lower returns.<\/p>\n
An Indosat executive, who asked for anonymity, said concern
\nover Telkom's huge debts was the main reason behind the
\nmanagement's rejection of the merger proposal.<\/p>\n
\"Indosat has a strong and much better balance sheet than
\nTelkom... The merger would force us to also bear Telkom's huge
\ndebts... that would certainly damage our reputation in the eyes
\nof investors and creditors,\" he said.<\/p>\n
The idea of the merger was raised by Telkom, which argued that
\na merger was necessary to anticipate the planned liberalization
\nof the country's telecommunications sector.<\/p>\n
International call services will be fully opened to foreign
\ncompetition in 2005 after Indosat loses its exclusive rights in
\nthe sector in 2004.<\/p>\n
While new players in the fixed line telecommunications sector
\nwill not be able to enter the country until after Telkom's
\nexclusive right as sole provider of the service expires in 2010.<\/p>\n
The decision of whether or not to merge Indosat and Telkom is
\nlies with the government. But the prospect of merging the two
\ncompanies is slim if the government sticks to its initial plan of
\nthe two companies operating independently until Telkom's
\nexclusive rights end in 2011.<\/p>\n
The source said business restructuring might be better for
\nIndosat in facing the era of free competition.<\/p>\n
\"We are transforming Indosat from only an international direct
\ndial operator into a full network and service provider,\" he said.<\/p>\n
Indosat, with total assets of Rp 4.8 trillion at the end of
\n1998, booked Rp 1.1 trillion in net profit in 1998, almost double
\nthe 1997 yield of Rp 640 billion. The company's market
\ncapitalization as of May this year reached at Rp 17 trillion.<\/p>\n
While Telkom, which had total assets of Rp 23 trillion in
\n1998, booked a net profit of 1.16 trillion last year compared to
\nRp 1.15 trillion in 1997. The company's market capitalization as
\nof May this year reached Rp 36 trillion.<\/p>\n
Indosat has at least 26 subsidiaries and affiliated companies
\nhere and abroad operating in fixed line, mobile telecoms,
\nsatellite transponder leasing, international telecoms, value-
\nadded services and other sectors.<\/p>\n
Company data show the firms yielded at least Rp 92.8 billion
\nin 1998 and Rp 168 billion in the first half of 1999. The
\ncontribution of subsidiaries and affiliates is expected to almost
\ndouble this year to reach Rp 206 billion.<\/p>\n
However, a recent study by the Boston Consulting Group (BCG)
\nrecommended that Indosat refocus the portfolios of its
\nsubsidiaries and affiliates because many of them had not been
\ngenerating good returns.<\/p>\n
According to Indosat data, only a handful of the subsidiaries
\nand affiliates yielded values higher than the cost of investment.
\nThese included cellular operators Telkomsel and Satelindo and
\nfixed line providers Pramindo Ikat and MGTI,<\/p>\n
The estimated value of Indosat's 35 percent stake in Telkomsel
\nis between Rp 1.5 trillion and Rp 1.9 trillion, almost triple the
\ncompany's initial investment of Rp 63.9 billion.<\/p>\n
While the value of its 13 percent stake in Pramindo Ikat,
\nwhich is one of Telkom's joint operation scheme partners, is
\nestimated at between Rp 188 billion and Rp 225 billion, more than
\nits initial investment of Rp 162 billion.<\/p>\n
BCG has recommended that Indosat strengthen its current
\ninvestments, particularly in local GSM cellular operators
\nTelkomsel, Satelindo, international satellite transponder lessors
\nIntelsat and Inmarsat, local multimedia and internet providers
\nIndosatcom and Lintasarta, and local broadband network and
\ncontent provider Metra.<\/p>\n
It added that Indosat should gain a controlling stake in one
\nlocal GSM operator, either Telkomsel, Satelindo or Excelcomindo
\nPratama.<\/p>\n
Indosat recently said it planned to sell 6.5 percent of its
\n7.5 percent stake in Satelindo to acquire a new stake in
\nExcelcomindo.<\/p>\n
BCG also recommended that Indosat divest its stakes in firms
\nof less strategic importance, such as local PCS\/PCN-based
\ncellular provider Primasel, international satellite-based
\ntelecoms operator ICO Global Communications Limited in London,
\ninternational telecoms providers Camintel in Cambodia and Inkatel
\nin Kazakhstan and value-added service provider USA Global Link
\nInc.<\/p>\n
Indosat was also advised to divest its shares in local
\nproperty firm Graha Lintas, finance company Kalimaya Perkasa,
\nproperty firm Menara Jakarta and Intikom.<\/p>\n
Indosat posted an unaudited consolidated net income of Rp
\n638.4 billion for the first half of 1999, a figure representing a
\n36.8 percent increase over the corresponding period in 1998.<\/p>\n
The company's shares are listed on the Jakarta and Surabaya
\nstock exchanges, while its American Depository Shares are listed
\non the New York Stock Exchange.<\/p>",
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