Indosat-Deutsche Telekom deal expected this week: Official

Dadan Wijaksana, The Jakarta Post, Jakarta

State-owned international telecommunications company PT Indosat is expected to reach a deal this week with Germany's Deutsche Telekom over the price for the latter's 25 percent stake in cellular operator PT Satelindo, a senior official at the Office of the State Minister of State Enterprises said on Monday.

Mahmudin Yassin, deputy head for privatization, said that the negotiating process had been going well and was now entering its final stage.

"The negotiations are now in the final stage. Hopefully, we can wrap them up this week," he told reporters.

The acquisition of the Satelindo shares is seen as a crucial step for boosting the value of Indosat before the government sells its shares in the latter company as part of this year's privatization program.

Indosat currently controls a 75 percent stake in Satelindo, the country's second largest cellular operator.

Reports earlier said that Deutsche Telekom was asking for US$400 million for the 25 percent stake, while the government was offering $200 million.

Deutsche Telekom, which is currently facing financial losses, has been trying to unload its assets in the region.

The publicly-listed Indosat is mulling various options for financing the acquisition plan, including a rights issue and a bond issue.

As for the source of the funds for the acquisition, Mahmudin refused to elaborate, saying that the government was moving one step at a time: "We're now focusing on the price first. We'll worry about fund-raising after that."

State Minister of State Enterprises Laksamana Sukardi has said that a rights issue for the publicly-listed Indosat was among the three options the government had in mind to finance the purchase of Deutsche's stake.

The other two options were self-financing and borrowing via a bond issue.

A rights issue means issuing more shares to allow Indosat to raise funds from the stock market. There is no clear timetable for the rights issue, but the government hopes to finalize it before June, when the first stage of Indosat's share sale takes place.

The government owns a 65 percent stake in Indosat, with a 45 percent stake to be sold this year through a two-step process.

The first divestment is scheduled for June, when the government will release around a 15 percent stake through the stock market.

The remaining 30 percent will be sold in October to strategic investors.

The country's cellular phone industry has been rapidly growing. Thus raising its stake in Satelindo would help boost Indosat's earnings, which would in turn make it a more attractive investment.

Satelindo had some 1.9 million customers as of the end of last year, and is targeting to raise its customer base to 3 million. The company needs around $130 million in new investment to realize this target.

But under a debt restructuring plan agreed with its creditors, Satelindo is restricted to only spending between $50 million and $70 million on investment.

Analysts said that Indosat was expected to chip in to finance the expansion program.

Indosat acquired a majority stake in Satelindo last year in exchange for surrendering its stake in the country's largest cellular operator PT Telkomsel to the state-owned domestic telecommunications operator, PT Telkom.