KPPU may be overruled, says Fitch Ratings

By Bryan Lee
The Straits Times, November 22, 2007


A TOP credit ratings agency says Temasek Holdings might be helped in its battle with Indonesia's competition watchdog by concerns over a possible loss of foreign investments by Indonesia.

Temasek is trying to fight potentially stiff sanctions after the watchdog, the KPPU, ruled that it had allegedly fixed prices of telecom services.

Fitch Ratings said any negative reaction by Indonesia's financial and political communities could help the Singapore investment company.

It noted that KPPU has been overruled before though such an outcome is likely to involve a lengthy process.

Fitch also said the country's telecoms sector is highly competitive and tariffs are coming down.

The agency believes the ruling is unlikely to have a near-term effect on the ratings of the firms involved.

The KPPU on Monday ordered Temasek to sell off one of its indirect investments in Indonesia's top two mobile phone operators.

It ruled that Temasek kept phone rates artificially high via minority stakes in Telkomsel and Indosat held by Temasek subsidiaries, SingTel and Singapore Technologies Telemedia.

Temasek has strongly criticised the decision and plans to appeal the ruling.

'There is a strong precedent of Indonesian courts moving to invalidate KPPU decisions,' said Fitch analyst Priya Gupta yesterday.

For instance, in March last year, the Surabaya District Court overturned KPPU's 1 billion rupiah (S$155,000) fine on cement maker Semen Gresik.

But Ms Gupta added that the Indonesian legal process tends to be protracted and that it may take a year or more before a final and binding decision is reached.

In the Semen Gresik case, a final judgment is still pending after the KPPU counter-appealed to the Supreme Court.

Ms Gupta said competition is not stifled in Indonesia's telecoms market and there is also no price fixing.

While Telkomsel enjoys good profit margins of almost 70 per cent, the market leader also has the best and most extensive network, she said.

But 'that's changing though, as other operators expand their networks', she added.