Indosat units merger plan approved
Rendi A. Witular, The Jakarta Post, Jakarta
The country's second largest telecommunications company, PT Indonesian Satellite Corp. (Indosat), has secured approval from its shareholders for a plan to vertically merge three of its telecoms subsidiaries this year.
Indosat president Widya Purnama said that 98 percent of Indosat's shareholders had approved the plan, which would pave the way for the company to start the merger process on November 20.
"This approval is an important step forward for us. The next step will be to sign the merger deed at the end of November, after the Investment Coordinating Board approves the plan," said Widya during a press briefing on Tuesday.
The three subsidiaries to be merged were two cellular providers, PT Satellite Palapa Indonesia (Satelindo) and PT Indosat Mobile Multi Media (IM3), and telecommunications operator PT Bimagraha Telekomindo.
Indosat would integrate them as a division of the company instead of separate subsidiaries, with the integration process itself scheduled to be concluded in 2005, Widya said.
He explained that all business operations, assets and liabilities would be transferred to Indosat as the parent company, and that there would be no changes in capital or the composition of the company's shareholders.
According to Widya, the merger will allow Indosat to save 15 percent on its operational costs and 20 percent on capital expenditure over the next five years.
The merger would also allow Indosat to consolidate the debts of its three units, help the company develop its cellular business and integrate its marketing and sales strategy.
Analysts said the merger was part of Indosat's efforts to catch up with its arch rival, PT Telekomunikasi Indonesia (Telkom), in the cellular business.
They said Indosat was lagging behind in developing its cellular business because of its huge debt, which prevented the company from allocating adequate investment for its telecommunication facilities.
As of September, Indosat's consolidated debt amounted to a total of Rp 8.81 trillion (US$1.03 billion).
The merger was also part of Indosat's strategy for facing increased competitive pressure with the entry of Telkom into its international direct dialing market, which is expected by the end of 2003 or early 2004.
International long distance is mostly controlled by Indosat, while local and domestic long distance is controlled by Telkom.
Elsewhere, Indosat's cellular marketing director Hasnul Suhaimi said that by the end of this year, the company's cellular subscribers would reach around 5.5 million, up from 3.5 million last year, with market share to reach around 31 percent.
Indosat was expecting its cellular subscribers to increase by around 2 million next year, along with the company's plan to allocate around $400 million for investment in its cellular business, said Hasnul.
He explained that investment in the cellular business would account for 75 percent of the company's total capital expenditure next year. The remaining expenditure would be allocated to the fixed line and multimedia business.
Meanwhile, Indosat shares ended down Rp 500, or 4 percent, at Rp 11,950 on profit-taking by investors after the announcement of the merger's approval. Indosat shares had risen as much as 57 percent since the company announced its merger plan in August.