Telkom, Indosat end their cross-ownerships worth $1.5b

JAKARTA (JP): In a US$1.5 billion landmark deal, state telecommunication firms PT Telkom Indonesia and PT Indonesia Satellite Corporation (Indosat) agreed to end their cross- ownerships in three of their subsidiaries to simplify restructuring efforts.

Under the deal, Telkom would spend $945 million, and Indosat $599 million in exchanging ownerships of their subsidiaries, a joint press statement of the two state companies said on Thursday.

Telkom would acquire Indosat's 35 percent interest in the country's biggest cellular phone operator, PT Telekomunikasi Selular (Telkomsel), for US$945 million, thereby raising its stake to 70 percent.

Indosat would spend $186 million for acquiring Telkom's 22.5 percent stake in cellular operator PT Satelit Palapa Indonesia (Satelindo), the second largest, and $38 million for Telkom's 37.66 percent holding in PT Aplikanusa Lintasarta (Lintasarta).

Telkom also sold to Indosat its assets in its joint operation scheme (KSO) region IV in Central Java and Yogyakarta run by PT Mitra Global Telekomunikasi Indonesia for $375 million.

The statement added that after the completion of the deals, Telkom would hold a 77 percent interest in Telkomsel and Indosat would increase its stake in Satelindo to 30 percent from 7.5 percent at present.

"Indosat will also hold a 70.3 percent interest in Lintasarta, a leading player in the Indonesian data communications market," the joint statement said.

In addition, the deal would leave Indosat with a net cash of $346 million.

Telkom is the country's only fixed line operator, and Indosat is one of two long distance call operators. Both are publicly listed companies.

The joint statement said that Telkom and Indosat expected to obtain shareholders' approval on the deal by April.

But it added that the ending of the cross-holdings between Telkom and Indosat was in line with the Telecom Law No 36/1999.

"We are very pleased with the resolution of the key cross- shareholding between Telkom and Indosat, and the resulting controlling ownership of Telkomsel," said Telkom president Muhammad Nazif in the statement.

Indosat president Hari Kartana said "In line with Indosat's 4- in-1 strategy, this is a groundbreaking transaction for Indosat as part of its transformation from being primarily an IDD (international direct dial) operator into a full network service provider."

He was referring to Indosat's expansion plans in the cellular, Internet, telecommunication infrastructure and fixed line industries.

Indosat's acquisition of the KSO IV assets would allow the company to enter the fixed line business, which is still under Telkom's monopoly.

But under the 1999 telecom law, Telkom and Indosat must relinquish their monopolies by the year 2002 and 2003 respectively.

Analysts said that ending the cross ownership structure would encourage foreign investment in Telkom and Indosat.

The government has long been offering Indosat and Telkom's shares and their telecommunications subsidiaries to foreign investors in an effort to raise state revenues.

But cross ownerships in their promising cellular subsidiaries made it difficult to assess both companies' values.

Telkomsel and Satelindo are the country's two largest cellular operators, with Telkomsel ranking first.

Indosat has earlier estimated that the number of cellular users in Indonesia is expected to hit 5 million this year, up from an estimated 3.7 million last year.

The entrance of foreign investors would be a major boost for both companies in meeting their expansion plans.

According to BNP Prime Peregrine analyst Manoch Nanwani, Telkom benefits more from the deal, as it gained control over Telkomsel.

"Basically Telkom gets the crown jewels," Manoch was quoted as saying by newswire AFX-Asia.

He said that on top of having posted strong profit last year, Telkomsel was also debt free.

On the other hand, he said, Indosat did not gain a controlling stake in Satelindo.

He added that the small investment return in the fixed line business would generate little revenue from Indosat's KSO IV operation in Central Java.(bkm)