Thu, 17 Jul 2003

Telkom in limbo, stock index at one-week low

Rendi A. Witular, The Jakarta Post, Jakarta

Uncertainty over what sanctions the U.S. Securities and Exchange Commission (SEC) might impose on state telecommunications company PT Telekomunikasi Indonesia (Telkom) took the Jakarta Composite Index on Wednesday to almost its lowest level for a week.

Telkom woes managed to cast negative sentiment on the index, as Telkom is the largest single item on the market, with a total capitalization of about Rp 50 trillion (US$6 billion).

With such huge capitalization, a shift of one point in Telkom shares can move the index by about 17 percent.

The index plunged on Wednesday for the second day by 1.8 percent, or 9.569 points, to 524.26 following news that the SEC had not yet announced sanctions on Telkom after it missed a deadline on Tuesday to file its reaudited 2002 financial report. Dealers said that the weak market sentiment was also caused by retreating shares in other markets in the region.

"Telkom woes give investors reason to take profit," said a dealer.

However, there was no panic selling of shares belonging to troubled Telkom as they closed slightly lower, by 1.1 percent or Rp 50, to Rp 4,650 on profit-taking.

A local stockbroker said that the absence of panic selling of Telkom shares was because only 10 percent of its traded shares belonged to speculators, while the remaining 90 percent were held by long-term investors.

"Telkom shares would not fall below Rp 4,400, even if the SEC decided to delist Telkom from the New York Stock Exchange (NYSE)," the broker said.

The broker explained that investors took into account Telkom's overall performance rather than its accounting problems, which were caused by an administrative defect.

Another broker said that Telkom shares managed to stay above water as a lot of fund managers had continued to buy Telkom because they did not want their investment in the shares crushed.

Meanwhile, Telkom head of investor relations Rochiman Soekarno told The Jakarta Post that the company had not yet received an announcement from the SEC over what sanctions it might impose on the country's largest telecommunications company.

The SEC urged Telkom to reaudit its report because the initial version had been audited by a company not affiliated with an auditing company listed with the watchdog. The SEC gave Telkom until July 15 to refile the 2002 financial report or face sanctions that may include a delisting of its American depositary receipts. The SEC would not extend the deadline.

Telkom initially had difficulty in fulfilling the SEC demand, as many major international accounting firms operating here could not audit Telkom's accounts due to conflicts of interest.

The company last week finally appointed PricewaterhouseCoopers, but the auditing process could take up to three months to complete.