Jakarta. Qatar telecommunication giant Ooredoo and Hong Kong conglomerate CK Hutchison has agreed to their respective telecommunications businesses in Indonesia, Indosat, and Hutchison 3 Indonesia, in a deal worth $6 billion signed on Thursday to create a new entity that cemented its position as the second-largest telco operator in the country. 

The new entity, Indosat Ooredoo Hutchison, is expected to generate annual revenue of around $3 billion and to have a capacity to spend around $300-400 million annually in capital expenditure over the next five years. 

"Through economies of scale and the realization of synergies between these highly complementary businesses, the merged company will be well placed to deliver a higher return on investment for all shareholders and build on the outstanding growth momentum already achieved by Indosat Ooredoo," Aziz Aluthman Fakhroo, the managing director of Ooredoo Group, said in a statement. 

"Importantly, the merger will create a company with the strength and scale to accelerate Indonesia’s digital transformation and improve network performance and customer experience across the country," he said. 

Ooredoo Group presently controls 65 percent of Indosat Ooredoo through its wholly-owned holding company, Ooredoo Asia. 

Under the deal, CK Hutchison will acquire a 50 percent ownership in Ooredoo Asia by swapping its 21.8 percent stock in Indosat Ooredoo Hutchison for a 33.3 percent stake in Ooredoo Asia and will purchase an additional 16.7 percent stake from Ooredoo Group for $387 million in cash. Following those transactions, Ooredoo Group and CK Hutchison will each own 50 percent of Ooredoo Asia, which will be renamed Ooredoo Hutchison Asia.

After the merger, Ooredoo Hutchison Asia will end up with a controlling 65.6 percent stake in Indosat Ooredoo Hutchison, with the Indonesian government owning 9.6 percent, Tiga Telekomunikasi Indonesia owning 10.8 percent, and other public shareholders owning about 14.0 percent.

The deal is subject to Ooredoo Group, CK Hutchison, and Indosat Ooredoo shareholder's approval and greenlights from the regulators. The companies expect to conclude the deal by the end of this year. 

Also, depending on the shareholder's approval, Vikram Sinha would become the chief executive officer (CEO) and Nicky Lee as a chief financial officer in the new entity Indosat Ooredoo Hutchison. 

Ahmad Al-Neama, the current Indosat Ooredoo's president director and CEO, and Hutchison 3 Indonesia's CEO Cliff Woo would remain at their position until the merger is complete before joining the board of commissioners in the merged company.

JP Morgan serves as Ooredoo Group's exclusive financial advisor, with Goldman Sachs & Co. and HSBC advising CK Hutchison and Barclays advising Indosat Ooredoo. 

5G Pledge

Canning Fok, CK Hutchison Holdings' group co-managing director, expressed his gratitude for the support from the Indonesian government, which he said has the "foresight in creating an investment-friendly policy environment" to develop a sustainable mobile market in Indonesia. 

Fok also pledged the new entity's commitment to roll out 5G mobile broadband in Indonesia. "CK Hutchison invests in and operates telecom businesses in 12 markets around the world, many of which have successfully rolled out 5G networks, and we look forward to expanding innovative 5G services in Indonesia when the time is right," he said. 

Indosat launched its 5G service last month in Surakarta, Jakarta, and several other cities, becoming the second operator to do so after its rival Telkom Indonesia, the country's largest telco operator.