Telkom seeks substantial market capitalization

Telkom seeks substantial market capitalization

JAKARTA (JP): The planned initial public offering of PT
Telkom, the state-owned domestic telecommunication firm, will
contribute substantially to the Jakarta Stock Exchange's (JSX)
market capitalization.

Minister of Tourism, Post and Telecommunications Joop Ave said
last week that with assets totaling four times those held by PT
Indosat, the state-owned international telecommunications firm,
Telkom is expected to generate more from the capital market than
Indosat.

Telkom, which is expected to make its capital market debut in
the near future, registered total assets of about Rp 7 trillion
(US$3.15 billion) as of last December and a net profit of Rp 418
billion last year.

With total assets of Rp 772.31 billion (US$340 million) at the
end of 1993, Indosat raised some US$800 million from the sale of
25 percent of its 1.03 billion ordinary shares through the New
York Stock Exchange last October. It raised around Rp 650 billion
from the sale of another 10 percent through the domestic market.

The shares sold in New York were mainly government shares,
while those sold at home were new shares.

As of last July 31, the telecommunication sector, which is
represented only by Indosat, ranked sixth in market
capitalization on the JSX with Rp 8.85 trillion. Total market
capitalization on the JSX reached Rp 121.42 trillion as of last
July.

The cigarette industry ranked first in market capitalization
with Rp 17.37 trillion, followed by the customer goods and
beverages sector with Rp 16.78 trillion, the banking, finance and
insurance sector with Rp 15.03 trillion, the cement sector with
Rp 11.8 trillion and the plywood, pulp and paper sector with Rp
11.13 trillion.

With Telkom planning to enter the JSX, the telecommunication
sector could become the largest market capitalizer.

There has been no official disclosure of how many shares
Telkom plans to float. However, as explained by Minister of
Finance Mar'ie Muhammad last June, the public offering scheme of
Telkom will be similar to Indosat's, including the divestment of
government shares and the sale of new shares.

Government officials, as well as private analysts, expect that
Telkom's planned cross-listing on the New York Stock Exchange and
the JSX will follow the success story of Indosat's cross-listing
given Telkom's large-scale businesses.

Telkom has a monopoly franchise over fixed telecommunications
in the key regions of Indonesia as well as equity interests in
all of the country's mobile telephone operators, including PT
Satelindo, PT Telkomsel and PT Telkomindo.

Attractions

"It can be seen that for investors, the Indonesian
telecommunications industry has many attractions on the basis of
fundamentals alone," said a report on the Indonesian
telecommunications industry, compiled by PT Jardine Fleming
Nusantara, PT Bahana Securities, PT Danareksa Sekuritas and PT
Makindo -- all of which are prospective participants in Telkom's
domestic offering.

The government recently appointed three U.S. investment banks,
Merrill Lynch, Goldman Sachs and Lehmann, as well as S.G. Warburg
of Britain, as global coordinators for the overseas sales of
Telkom's shares.

In addition to its own prospective business, the report said,
Telkom will also benefit from the joint operating scheme, locally
known as KSO, between Telkom and various domestic and foreign
private telecommunications companies.

Last June, Telkom entered into KSO agreements with five
consortiums with a number of foreign partners such as Telstra,
NTT, France Telecom, US West, Telekom Malaysia and Singapore
Telecom.

The five consortiums will take over the operations of
approximately 40 percent of Telkom's existing lines in Sumatra,
West and Central Java, Kalimantan, Bali and East Indonesian
provinces, where they will employ ex-Telkom personnel. Telkom
itself will concentrate its operations in Jakarta and East Java.

To compensate Telkom for the use of existing and new lines,
the investors will pay Telkom an initial payment plus a
predetermined minimum revenue and give a share of distributable
revenues.

"The scheme offers Telkom a riskless cashflow as well as
access to the technology and know-how of the respective
international partners," said the report.

The report added that the telecommunications industry has a
bright future because it is both an important contributor to, and
a major beneficiary from, economic growth.

"The shift in the Indonesian economy away from the
traditionally dominant sectors of oil and agriculture towards the
service sectors is clearly of significance for the
telecommunications industry," the report said. (rid)