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)