Telkomsel deal to finance Telkom expansion

The Jakarta Post, Jakarta

State-owned local call operator PT Telkom said it would use most of the US$429 million from the sale of a stake in its cellular unit on new investments, while also paying debts it owes to state-run international call operator PT Indosat.

Telkom sold on Wednesday a 12.72 percent stake in cellular operator PT Telkomsel to Singapore Telecommunication Ltd (Singtel) for $429 million.

The deal would reduce Telkom's stake in the country's largest cellular operator to 65 percent, while inflating Singtel's stake to 35 percent.

Telkom's finance director Mursyid Amal said on Thursday much of the proceeds would go to financing its capital expenditures.

Capital expenditures at Telkom cover investment on new businesses, infrastructure development, and other facilities.

Falling under capital expenditures is Telkom's phone-mobile- view-Internet service (PMVIS).

PMVIS is a relatively new business Telkom has been developing to expand its scope of services, and comes ahead of Telkom losing its monopoly over the local call market starting next August.

The "mobile" in PMVIS, however, will no longer exist as Telkom plans to integrate its wireless business into Telkomsel.

In the first half of last year, Telkom spent Rp 900.3 billion ($92 million) on capital expenditure.

More than half of that amount was spent on its PMVIS, with another Rp 287.41 billion on infrastructure development and Rp 158.7 billion on supporting facilities.

For this year, Mursyid said, Telkom would also issue bonds to bolster its capital expenditure.

Telkom has said it would issue local bonds worth Rp 1 trillion and international bonds worth $150 million later this year.

Mursyid did not say how much of Telkom's proceeds would be used as capital expenditure, but added the company would need to set aside some of it for Indosat.

According to estimates by UBS Warburg's analysts, Telkom owes Indosat some $160 million to cover the rest of its payment for a 35 percent stake in Telkomsel Telkom purchased from Indosat last year.

Mursyid said another portion of Telkomsel's proceeds would be used to buy out assets belonging to its partners operating fixed lines in various provinces.

But he added the amount was "insignificant" as most of the payment would come from Telkom's share of the revenue that its partners made.

Nonetheless, Telkom expects to pay in cash for assets owned by its partner PT AriaWest in a deal worth around $300 million.

Mursyid, however, said Telkom would not use the proceeds from its Telkomsel deal to finance AriaWest's buyout, relying instead on internal funding.