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.