Indonesia’s telco market is set for an exciting year of mergers and acquisitions and the country’s largest service provider Telkom has amassed a war chest of US$2 billion to fund expansion. Simon Kearney reports.
Indonesia has 11 telecoms companies and is on the verge of a large round of consolidation as both outside investors and large players position themselves in one of the fastest growing markets in the world.
PT Telekomunikasi (Telkom) has announced that it will devote US$107 million to acquisitions and is raising a further US$214 million in the first half of the year through a bond issue. “We are holding a beauty contest with more than six securities companies. We are searching for a good company, which understands telecommunications,” Telkom president director Rinaldi Firmansyah said.
Telkomsel, Telkom’s mobile operator is expecting to gain a further 12 million subscribers this year and is the company’s biggest revenue contributor. Telkomsel has been allotted the lion’s share of the war chest with US$1.4 billion. Telkom already has more than a US$1 billion in cash and will fund the remainder from the debt market.
We reported last year that Telkomsel was already sniffing around Bakrie Telecom, the country’s fourth largest mobile operator and the fastest growing in terms of subscriber numbers.
Justiro Abi, Bakrie Telecom’s CFO said that it was inevitable Indonesia’s Telco market would go through a round of mergers and acquisitions this year. Eddy Kurnia, Telkom’s investor relations manager told Reuters last week that acquisitions would initially focus on IT services and media companies.
The firm is due to sign a deal with a local IT service firm in coming days and has begun talks with others. The move is aimed at strengthening its non-core businesses.
Telkom president director Rinaldi Firmansyah added last week that the company was eyeing to purchase three telecommunication application service providers this year. Telkom plans to use one of the acquisitions to develop an online healthcare practice.
Telkom will also spin off its subsidiary - PT Dayamitra Telekomunikasi – with an IPO. The spin off will buy all Telkomsel’s nearly 30,000 base stations and operate them separately.
Telkom plans to become the biggest information technology provider in Indonesia. Last November the company unveiled, Mojopia, an online shopping, content and communications business although the website could take another year before it is operational.
Indonesia's economic strength has been underpinned in recent days with the upgrading of its foreign and local currency credit by Fitch Ratings to BB+.
The country is now South-East Asia’s largest economy and the third biggest democracy in the world. It avoided the global recession and its economy expanded by more than 6 percent between 2006 and 2008.
On top of that, its foreign exchange reserves have risen to US$69 billion, according to Bank Indonesia Deputy Governor Hartadi Sarwono.
The Indonesian Government has promised to spend US$140 billion on infrastructure over the next five years and its economy is expected to grow by at leat 5.2 per cent this year, according to Bank Indonesia (President Susilo Bambang Yudhoyono thinks it will be 6 per cent a year over the next five years). President Yudhoyono's re-election has been a confidence boost for foreign investors in particular and the local currency, the Rupiah, has had a strong run against the US dollar, rising 17 per cent against the dollar in 2009.
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