Edhi Pranasidhi, Jakarta – Indonesia's senior economic minister Kwik Kian Gie said the government plans to sell majority stakes in state-owned PT Telekomunikasi Indonesia (TLK) and PT Indonesia Satellite Corp. (IIT) next year, a plan that surprised and impressed the market.
Speaking in Singapore Monday, Kwik said the government must seek to minimize the country's financial burden by accelerating the privatization of state-owned enterprises and the recovery of assets acquired by the Indonesian Bank Restructuring Agency.
As part of this plan, he said, the government will divest majority stakes in state telecommunication companies next year. "Next year, we hope to divest majority ownership in our state telecommunication firms," he said, without providing further details.
The market was quick to welcome the surprising comments: Shares in domestic phone monopoly Telkom ended up 3.7%, or 125 rupiah ($1=IDR7,255), at IDR3,525, while shares in international call provider Indoast gained 3.4%, or IDR350, to end at IDR10,750.
The two companies are two of Jakarta's main blue chips, and the gains by their shares helped lift the broader market index 1.8%.
"The statement came at a time when investors ran out of fresh leads in the telecommunication sector," said Widyakanusapati, research director at Sigma Batara, a joint venture securities company.
He said although the statement was scant on details, buying sentiment in the telecom shares is set to remain strong until the government clarifies its plans.
"The only thing that the government has to do now is to convince the parliament to approve the sale," he added. It may not be easy to convince the legislators. The previous government already ran into some flak when it sought to sell control of cement maker PT Semen Gresik (P.SGK) to Mexico's Cemex SA (CMXBY).
After a group of protesters from Padang, in West Sumatra, complained about selling control of the company to a foreign party, the government gave in and said it would retain control of Semen Gresik. Cemex ultimately bought a minority stake. If it seeks to sell control of Telkom and Indosat, the government could run into similar problems.
With both companies, the previous government argued it couldn't sell majority stakes because they were strategic assets, but the new government has already sent signals it will drastically speed privatization and sell off companies that the state doesn't need to own.
Telkom and Indosat are the crown jewels of any privatization program and the sale of a large chunk of either could generate handsome returns for the state coffers.
They are viewed as solid blue chips and at least one of them would feature in the portfolio of most foreign institutional investors that hold Jakarta stocks. The government owns 66% stake in Telkom and 75% stake in Indosat.
The previous government sold a 9.6% stake in Telkom in April to international institutional investors, bringing in about $404 million. The B.J. Habibie government also sought to sell a stake in Indosat though similar avenues, but failed to drum up enough interest at the right price.
This is the first time the government has expressed an interest in selling majority stakes in both companies. Telkom and Indosat are listed in Jakarta and New York.
Agung Prabowo, an analyst with Danareksa Securities, said investors should view Kwik's statement cautiously, adding the government still has to reveal details of the plan.
"We have to know at what price the shares will be sold and who is going to buy them," he added. He said if the government is going to sell majority control, it would have to do so via a tender offer on the market.
A more likely means of selling off a major stake could be to a strategic investor, analysts reckoned. Possible suitors named by the previous government for stakes in either company include British Telecommunications PLC, France Telecom SA, Deutsche Telekom AG and Australia's Telstra.
Kwik's comments also took the companies involved by surprise. Telkom investor relations manager Setiawan Sulistyono said it's still waiting for further details on the government's plan.
Budi Prasetyo, investor relations manager at Indosat, said the plan, although surprising, would make sense. "The government's plan to sell majority stakes is in line with its aim to make the two companies nationwide operators," ahead of the deregulation of the market for domestic and international calls that begins in the middle of the next decade, he said.
Indosat is set to lose its monopoly in 2004, while Telkom will start to lose its monopoly in 2005 and lose it completely in 2010. Telkom has argued in favor of a merger with Indosat, arguing that a merger is necessary ahead of the planned market liberalization. Indosat is against the idea and says it would bring no value for its shareholders.