Indosat stake more likely to be sold, say analysts

Both Telkomsel and Indosat are good investments, but the latter's less valuable

By Chua Hian Hou The Straits Times, November 27, 2007


ANALYSTS believe that if push comes to shove and one of Temasek Holdings' subsidiaries had to sell its stake in an Indonesian telco, Singapore Technologies (ST) Telemedia's stake in Indonesian Satellite (Indosat) will likely be divested.

Both Indosat and Telekomunikasi Selular (Telkomsel) - which is 35 per cent owned by SingTel - are good investments, say market observers, but Indosat is seen as the less valuable entity and a more expedient divestment.

The prospect of a forced sale arose on Monday when Indonesia's competition watchdog, the Business Competition Supervisory Commission or KPPU, ruled that Temasek had breached antitrust laws and must sell its deemed stakes in one of the two telcos within two years.

Telkomsel is Indonesia's top mobile operator with more than 68 per cent of the market; Indosat is No.2 with about a 20 per cent share.

The ruling also called for phone tariffs to be reduced by 15 per cent, and Temasek, SingTel and Telkomsel were each fined $4 million.

Temasek owns 54 per cent of SingTel, which in turn owns 35 per cent of Telkomsel. SingTel bought a 22.3 per cent stake in Telkomsel in 2001 for US$602 million (S$872 million). It paid another US$429 million for an additional 12.7 per cent in 2002, bringing its investment to $1.93 billion.

Telkomsel is not listed, but 'no one will dispute it has been a good buy', said OCBC Investment Research senior investment analyst Winston Liew. Telkomsel, he added, had been SingTel's 'key earnings driver' for the last few years. SingTel's results for the quarter ended Sept 30 showed that Telkomsel contributed $193 million, or almost 20 per cent, to its bottom line.

The Indosat holding is held through ST Telemedia, a wholly owned unit of Temasek. It bought 41.9 per cent in 2002 for 5.6 trillion rupiah (S$868 million) - it was one of two bidders for Indosat. Its stake is now about 40 per cent.

Indosat shares closed at 8,250 rupiah yesterday, valuing ST Telemedia's stake at about three times what it paid five years ago.

If an appeal against the KPPU ruling fails, analysts at Citigroup and OCBC believe Indosat will be the one to go.

A Citigroup report said Telkomsel was a 'more attractive asset'.

Mr Liew cited another reason: Temasek and SingTel will face opposition from non-Temasek shareholders of SingTel who will not wish to lose Telkomsel, given how valuable it is. However, if the Indosat stake is sold, Temasek will not face such issues since it wholly owns ST Telemedia, he said.

The Citigroup report said Indosat should fetch a good price, 'given the high level of interest in these assets. Moreover, Temasek is given a two-year window to divest' and so has time to shop for a buyer.

But Mr Liew noted that the conditions imposed could temper interest and pricing. And any buyer would be wary, given the background to the original Indosat sale - the Indonesian government had initially invited investors to buy the stake but is now forcing a sale.

So 'a buyer might try to play hardball to get a better price'.

SingTel shares were up 10 cents at $3.78 yesterday.