Indosat leads the way

Many people might have laughed at State Minister for Research and Development B.J. Habibie's remarks in early May, 1993, that 50 Indonesian state companies would be offered to the investing public through the domestic and international stock exchanges. After all, it is sometimes difficult to follow the way of thinking of Habibie, who is perhaps the country's most notable futurologist and visionary.

Such a cynical reaction was caused not by any sense of opposition to that idea itself but more by its seeming impossibility at least within the foreseeable future. First of all, even the domestic investing public does not consider most state companies investment-grade corporations.

President Soeharto himself took a cautionary stance when he instructed late in May, 1993, that the finance minister see to it that state companies fully met all the listing requirements before any public offerings were made on the international exchanges.

But thorough preparations, combined with the careful selection of the right state company to be floated and of the lead underwriter, prove that international privatization is not impossible at all. In fact, the reaction to the initial public offering by PT Indosat on the New York stock exchange in the middle of this month proves that such a move can be highly successful.

The great success of Indosat's IPO in New York is quite significant in many respects. The waters have been tested. Indosat's issue, as the first step in the international privatization of state companies, not only is raising the overall investment profile of Indonesia, whose own capital market is still in the early stages of development, but also is paving the way for similar listings by other top-notch state enterprises.

The selection of Indosat as the first state company to be floated overseas is quite apt indeed. A former unit of American International Telephone & Telegraph, which was acquired by the government in 1980, Indosat has from the outset established an excellent management system. Even though Indosat was the monopoly of Indonesia's telecommunication services up to this year, the nature of its operations has always exposed it to stringent requirements for international customer satisfaction.

But of most importance to investors who have bought Indosat's shares is that the company operates in one of the fastest growing industries in Indonesia. Even though its monopoly was broken this year by a rival company -- PT Satelit Palapa Indonesia, which is controlled by private investors -- the rapidly growing market will still be large enough for the two companies to generate handsome return on investments for shareholders. The export-led growth strategy of Indonesia's economic development will generate high increases in the demand for international phone calls, so far the largest source of its incomes. The installation of more than five million new phone lines within the next five years will significantly expand the market.

Indosat, besides pioneering the going international move for other state companies, has created a new alternative for the government in raising foreign capital either for repaying its foreign debts or for financing infrastructure development. It is imperative, though, for the finance minister, as the nominee shareholder for the government in all state companies, to maintain the trust of international investors by ensuring that the next listings will also be investment-grade enterprises.

We see another great benefit from the privatization. State companies which go public either through the domestic or international stock exchanges will have to meet full disclosure requirements and will therefore become much more transparent.