'No buy-back of STT's shares in Indosat'

Move would not be in line with country's aim of attracting foreign investments

by Salim Osman, Indonesia Correspondent The Straits Times, July 21, 2007

JAKARTA - AN INDONESIAN parliamentary hearing has concluded that it would be counter-productive for the government to push for a buy-back of ST Telemedia's shares in telecommunications company Indosat, despite rising opposition to the purchase.

Commission chairman Theo Sambuaga says such a move could hamper the development of Indonesia's telecommunications industry.

'It is also not in line with the country's aim of attracting foreign investors into the country,' he said, at the end of a meeting with telecommunications chief Basuki Yusuf Iskandar on Wednesday.

The meeting also concluded that Indosat must improve its services to the public while the government must ensure that there is legal certainty for the company to continue operating.

The session was called by the parliamentary commission on defence, foreign affairs and telecommunications, amid rumours in the market that the government is being pressured to push for a buy-back of ST Telemedia's 41.9 per cent stake in Indosat.

The Singapore company, which is a subsidiary of Temasek Holdings, acquired the stake in Indosat in December 2002 for US$631 million (S$950 million) as part of a wider privatisation of the telco undertaken by the Megawati administration.

But nationalist-oriented politicians and other interested parties have been demanding that the government buy back the shares because Indosat is a strategic national asset.

Politician Marwan Batubara, a former Indosat manager, has been trying to dislodge ST Telemedia from Indosat since the shares were bought in 2002.

Just last week, Mr Marwan and his group of anti-Indosat activists stormed the office of the Corruption Eradication Commission (KPK) to demand an investigation into the company's tax payments.

On June 19, he filed a police report against Indosat, alleging that the company's management had manipulated its accounts for the past three years to avoid paying taxes.

'It has been manipulating its accounts since 2004 that caused the state to lose 323 billion rupiah (S$54 million),' he was quoted as saying in the Republika daily.

The tax office has said it will investigate why Indosat's tax payments have dwindled in the past three years while the anti-monopoly watchdog, KPPU, is looking at complaints of monopolistic practices, including price fixing between Telkomsel and Indosat and their cross ownership by Temasek Holdings.

ST Telemedia and Temasek Holdings have consistently denied any wrongdoing - even going so far as to take out a full page advertisement in the Investor Daily on June 20 and another in the Jakarta Post on July 10 - a day before Mr Marwan stormed the KPK office - to map out the company's commitment to developing Indosat and telco services.

ST Telemedia has always maintained that it is a long-term investor in Indosat.

But assuming that ST Telemedia agrees to sell, the government is at present unable to fork out the US$1.9 billion or so needed for a buy-back, based on the current value of the shares at 7,600 rupiah each.

Commenting on Wednesday's hearing, ST Telemedia spokesman Melinda Tan said: 'This prudent decision will certainly send a strong signal to foreign investors that the Indonesian government is committed to creating a conducive environment where there is business certainty and the law of the land is upheld...

'As a long term investor in Indosat, we remain committed to its business growth and will continue to fulfil our social responsibility towards the community.'

The latest position taken by the Indonesian parliamentary commission is a fresh turn in a saga which came to light earlier this year when a Russian conglomerate Altimo was reported to have mounted an aggressive campaign in its bid to take over the ST Telemedia shares in Indosat.

The company has denied having such a takeover plan.

Commission member Andreas Pareira told The Straits Times after Wednesday's meeting that the Indosat issue had been politicised by 'certain quarters under the guise of being nationalistic'.

'We have to stop this talk about buying back as it would only damage the investment atmosphere here,' added the politician from the Indonesian Democratic Party of Struggle (PDIP).

Another legislator, Jeffrey Massie of the Prosperous Peace Party (PDS), said that the government could not resort to political pressure to buy the stake back because such a move 'can boomerang and hamper the flow of investment into the country'.

Analyst Ferry Latuhihin of Bank International Indonesia (BII) said that the parliamentary commission's position on the buy-back issue would be a positive signal for foreign investors.

Any move to take back the shares from the Singapore company would affect the government's plan to sell off many of its entreprises to foreign investors, he added.