A woman demonstrates a smart city monitoring system supported by Indosat in an event in BSD City in Tangerang, Banten in December 2018. (B1 Photo/Mohammad Defrizal)

Indosat, Hutchison 3 Indonesia Confirm Merger Plan

BY :FARID FIRDAUS

DECEMBER 29, 2020

[Updated at 10:30 a.m. on Tuesday, Dec 29, 2020, to say that Indonesia Stock Exchange has allowed Indosat shares trade to resume after a suspension on Monday]

Jakarta. Doha-based telecommunications company Ooredoo and Hong Kong's multinational conglomerate CK Hutchison Holdings have signed a memorandum of understanding on Monday to study the potential merger of their mobile operators in Indonesia, namely Indosat and Hutchison 3 Indonesia, kicking off a plan that would cement the surviving entity's position as the second-biggest mobile operator in the Southeast Asian country. 

Eyas Naif Assaf, Indosat's director and chief financial officer, said the agreement was exclusive but not legally binding. "The MoU exclusivity period is valid until April 30, 2021," Eyas said in a statement. 

Eyas, however, did not explain the two companies would proceed with the merger plan. "There is no further information that can be disclosed at this time," he added.

Indosat's share price has more than doubled since the news about the merger leaked to the press last week. The increase prompted Indonesia Stock Exchange (IDX) to suspend the shares trade on Monday before allowed it to resume on Tuesday.

Ooredoo is Indosat's largest shareholder, currently holding 65 percent shares in the company. CK Hutchison controls 66.7 percent shares in Hutchison 3 Indonesia through its unit Hutchison Asia Telecom.

Indosat is currently the second-largest mobile operator with more than 59 million users, about a third of Telekomunikasi Selular's (Telkomsel) 171 million users, data from Dutch research company Statista showed. Hutchison 3 Indonesia is the country's fourth-largest operator with 30.5 million users. XL Axiata has close to 57 million users in third place, Statista data showed. 

The Telecommunication and Information Technology Ministry has encouraged local telecom operators to merge in the past few years to improve the country's connectivity.

Today, only Telkomsel, partly owned by the state-controlled Telekomunikasi Indonesia, has an extensive presence throughout the archipelago. Other operators lack the scale to expand beyond population centers in Java, Bali, or Sumatra. 

Ahmad Ramli, the director-general of postal service and information technology, said on Dec 15 that the country's mobile operators need to invest in network development and quality of services regularly. But that needs a strong balance sheet, which many smaller operators lack. 

Indosat ended in the red in three of the last six quarters, while its close competitor XL Axiata had barely recovered from a Rp 3.3 trillion ($224 million) loss two years ago. 

"In my opinion, there are too many players competing in Indonesia. We encourage consolidation; it's better that there are just a few players, but all are strong," Ahmad said. 

 

 

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