Telkom fails to complete plan to buy Ariawest

Telkom fails to complete plan to buy Ariawest

Dow Jones, Jakarta

State-owned telecommunications company PT Telkom said Monday
it has failed to close a US$370 million deal to buy out its
foreign partners - including AT&T Corp. - in a fixed-line project
in West Java.

In May, state-owned domestic call operator Telkom said it will
pay $184.5 million to buy 100 percent of PT Ariawest
International, and will assume its debt.

Telkom expected the final deal to cost between $360 million
and $370 million, including Ariawest's debt.

But Ariawest - which is 35 percent owned by AT&T - wasn't able
to get shareholders and creditors to restructure its debt before
an Aug. 30 deadline.

"The buyout can't be completed as Ariawest International
failed to reach a debt restructuring deal," said Setiawan
Sulistyono, Telkom's investor relations manager.

Indonesia is trying to reach agreements with a number of
foreign telecommunication companies that set up fixed-line
projects in the 1990s. Under the agreements, Telkom received 70
percent of any revenue from the projects in return for granting
operating licenses.

Telkom formed a joint operating partnership with Ariawest in
1995. Under that deal, Ariawest paid the state-owned company
revenue in return for a 15-year monopoly in West Java.

But after the Asian financial crash of 1997, which pushed the
rupiah sharply lower, many of the companies, including Ariawest,
complained their revenues were barely enough to cover investment
costs.

Indonesia's decision to open its telecommunication business to
free competition also meant Telkom had to find a way out of its
partnerships with foreign companies.

Of the five projects with foreigners, Telkom has already
reached agreement to buy out three.

Both Telkom and Ariawest had filed international arbitration
suits before the agreement in May. Failure to implement the
agreement means more wrangling is likely.

"Telkom intends to vigorously pursue its claim and defenses in
the arbitration," said Kristiono, the company's president, said
in a statement.

Telkom had filed a Rp 1.5 trillion arbitration clause, while
Ariawest is claiming $1.3 billion against the Indonesian state-
owned company.