Asiata divests 18% XL for Rp5 trillion

Axiata Group Berhad has accomplished the book building for placement of 18% shares in PT XL Axiata Tbk for Rp3300 per share. Axiata would bag Rp5 trillion or US$550 million from the divestment.

The placement, arranged by Goldman Sachs, CIMB Investment Bank Berhad, PT Mandiri Sekuritas, JP Morgan Securities Ltd, and Morgan Stanley Services Ltd, is oversubscribed 3-4 times. Axiata Berhad currently owns 86.5% shares in XL Axiata, wit Etisalat controls 13.3%, and public 0.2%.

The offering could also be upsized by an additional 153,144,000 XL Shares (representing 1.8% equity stake) under the option granted to Goldman Sachs (Singapore) Pte. on behalf of the initial purchasers for the Offering, in connection with price stabilization initiatives.

At Rp3300/share, XL Axiata is valued Rp28 trillion for 100% shares, right below Indosat (Rp31.24 trillion). XL has gained 71% so far this year, while Indosat gained 21.7%.

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Moody’s Revises Down Indosat Outlook to Negative

Moody’s Investors Service has revised the outlook on PT Indosat’s Ba1 corporate family ratings and senior unsecured ratings to ‘negative’ from ‘stable’. The downward revision is affecting the company’s debt securities of around US$344 million.

"The revision in outlook to negative is driven by our expectation that Indosat's adjusted debt/EBITDA will rise above 3.0x and remain there for a prolonged period, and that financing requirements during 2010 will increase the company's proximity to financial covenants," Ivan Palacios, a Moody's AVP and analyst said.

"We expect Indosat's operating performance to improve over the coming year, but the improvement in revenues, EBITDA, and resulting cash flows will not be sufficient to lower leverage to less than 3.0x during 2010," said Palacios, also Moody's lead analyst for the company.

Moody's said it expects Indosat's liquidity to “remain tight over the near to medium term, as we forecast that cash on hand and cash flow from operations will not be sufficient to cover capex, working capital, and debt service requirements alone.”

“This deficit, which we expect will be largely debt-funded, could limit Indosat's headroom under financial covenants and constrain the company's financial flexibility,” it said. As a result, the company may seek new debts to refinance its US$235 million notes due in November this year.

Indosat (ISAT) gained 0.87% to Rp5800 on Thursday. At that price, Indosat has market capitalization of Rp30 trillion. (Roffie Kurniawan)

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Indosat profit drops 20%

PT Indosat Tbk, controlled by Q-Tel, reported net profit of Rp1.88 trillion last year, dropped 20% from 2008 on squeezed margin.

Indosat reported sales revenue of Rp18.66 trillion last year, lower by 1.4%, while its operating expenses grew 9% to Rp15.18 trillion. The company's debts increased 17% to Rp25.47 trillion, while its subscribers declined 9.3% to 33.1 million.

The stock gained 3.6% to close at Rp5750 today on broader market sentiment. At that price, Indosat currently has market capitalization of Rp31.24 trillion, No. 21 on IDX below Indofood (INDF).

Q-Tel acquired 40.8% shares in Indosat in 2008, later raising its ownership to 65% in a bid to tap the growth potential in the fourth largest most populous country in the world. Indosat stock has gained 21.7% so far this year, but still below its peak last year (Rp6050).

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Alex Rusli joins Indosat

Shareholders of the second largest telecommunication company PT Indosat (ISAT) Tbk have appointed Alexander Rusli, former special staff of minister of state-owned enterprises Sofyan Djalil, as commissioner of the company. He was also special staff for Djalil when the later was minister for information and communications.

Shareholders also appoint Chris Kanter, deputy chairman of Indonesian Chamber of Commerce and Industry (KADIN Indonesia), as commissioner. Rusli and Kanter replaced Michael Latimer and Setyanto Prawira Santosa.

Indosat stock price surged 6.6% to Rp5650 today. At that price, Indosat has market capitalization of Rp30.696 trillion or about US$3.3 billion. Indosat had total asset of Rp54 trillion as of September 2009.

Mr Alexander Rusli is currently a commissioner of PT Krakatau Steel (Persero), the 100% state-owned company that produces carbon-steel products. At ICT ministry, he was involved in the formulation of policy, regulation and in overseeing the national state ICT infrastructure projects, a position he held under two cabinet ministers. Mr. Rusli has also acted as a Principal Consultant for Pricewaterhouse Coopers. He holds a Doctor of Philosophy, Information Systems, Curtin University of Technology.
As for Mr Chris Kanter, he is Chairman and Founder of Sigma Sembada Group, a major turn key contractor with transportation and logistics arms. He had been Vice President of the Indonesian Chamber of Commerce and Industry (KADIN Indonesia), continuously since 1994. In addition to his commercial interests, Mr Kanter has also held a number of roles in the Indonesian Government and has been closely involved with The Policy Package for Improving Investment Climate in Indonesia.

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Qatar Telecom, Temasek's shield for Indosat

I thought the Russians who got the shares. "No. Russia may have the money thanks to energy bonanza. But Temasek needs social & political protection for Indosat. Better to have someone from Middle East if Temasek needs shield for Indosat. Qatar Telecom fit with the requirement. With 25%, nothing they could do. Temasek still control Indosat and get the protection it wanted," an analyst said. What's the rationale?

Qatar Telecom acquired 25% shares of Asia Mobile Holdings, STT Telemedia (Temasek's subsidiary) controls the remaining 75%. Asia Mobile owns 41% shares of Indosat.
"Well, some government officials including VP Jusuf Kalla & SOE Minister Sugiharto raised the issue of buyback Indosat. But with Qatar Telecom as indirect shareholder of Indosat, the issue will die out," the analyst said.
What do you mean actually?

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People on the move

State-owned pharmaceutical company PT Indofarma Tbk appointed M. Syamsul Arifin as CEO replacing Danny Pratomo. Mr Arifin is former finance director at PT Kimia Farma Tbk (also a SOE).

Ahmad Fuad Afdhal and Rhenald Khasali were also replaced as commissioners at Indofarma.
Meanwhile PT Excelcomindo Pratama Tbk has appointed Hasnul Suhaimi, former PT Indosat Tbk, as the new CEO. Bisnis Indonesia reported Evan Ball has been replaced as managing director of PT Kaltim Prima Coal, a subsidiary of PT Bumi Resources Tbk. Mr Ball is replaced by Mr Endang Ruchijat, previously former managing director at PT Arutmin Indonesia, also a subsidiary of Bumi Resources.

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People on The Move

Ignasius Jonan, former CEO of Bahana Pembinaan Usaha Indonesia (BPUI), a state-owned holding company of investment bank PT Bahana Sekuritas Tbk, has been appointed the head of investment banking at Citicorp in Indonesia.

Meanwhile Hasnul Suhaimi, former CEO at PT Indosat Tbk, the second largest cellular operator in Indonesia, has been appointed an advisor for Telekom Malaysia, the parent company of Indonesia's third largest cellular operator PT Excelcomindo Pratama Tbk. Hasnul is predicted to fill the position temporarily before assuming a new job as Excelcomindo's CEO. Both Jonan and Hasnul resigned from their posts for different reasons.
Other promotion, Dennis Firmansyah, secretary general of Indonesia Multifinance Companies Association (APPI) has been appointed the CEO of PT International Factors Indonesia (IFI)---a subsidiary of International Factoring Singapore (85% shares). He was president director of PT Saseka Gelora Finance.

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Executive salaries & bonuses

This is an ongoing work on salaries and bonuses for Indonesian executives. Competitive enough to shopping frequently at the up-coming high-class Harrods store in Jakarta.



1) Arwin Rasjid, CEO of TELKOM: Net salary for 2006 = Rp108 million/month (USD12,000). Bonus for 2005 = Rp1.58 billion (US$176,000). Other members of BOD/BOC of Telkom get salary and bonus with the following formula: Deputy CEO = 95% of CEO, directors = 90%, president commissioner = 40%, other commissioners = 36%. You can calculate yourself of how much Mr Tanri Abeng (president commissioner) get or commissioners such as economist Arif Arryman.

2) Dwi Sutjipto, CEO of SEMEN GRESIK: Net salary : Rp95 million/mo (USD10,500) and bonus = Rp1.068 billion (USD118,000). Other members of BOD/BOC as follows: Deputy CEO = 100% of CEO, directors = 90%, president commissioner = 40%, deputy = 40%, and commissioners = 36%. Total management bonus = Rp14.31 billion (inc for subsidiaries).

3) Saiful Imam, CEO of ADHI KARYA: Net salary: Rp42 million/mo (USD4,600). Bonus = Rp220 million. Directors = 90% of CEO, president commissioner = 40%, commissioners = 36%. Total management bonus = Rp1.459 billion.

4) President commissioner INDOSAT : Rp1.7 billion (total package)/year; commissioners (average): Rp1.567 billion/year. Name of commissioners: Roes Aryawijaya (deputy minister of SOEs), Eva Riyanti Hutapea (former INDOFOOD CEO), Setyanto P. Santosa (former TELKOM CEO), and Soeprapto (former assistant to Army Chief of Staff).

5) Dedy Aditya Sumanagara: CEO of Aneka Tambang (ANTAM): Salary: Rp47 million/mo plus bonus (2005 FY) = Rp983 million (USD108,000). Formula of salary + bonus for BOD and BOC is similar to ADHI KARYA.

Remember that the actual amount of money these guys take home might well above that.
But the above list could answer my previous question of why Harrods eager to open its outlet in Jakarta while it failed in Singapore.

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Telkom management reshuffle

Government as the largest shareholder will likely to reshuffle the management of PT Telkom Tbk, the largest company at Jakarta Stock Exchange by market capitalization, at the meeting scheduled June 30, Antara news agency reported today.

Muhammad Said Didu, secretary of the ministry of state-owned enterprises (MSOEs), said besides the replacement of BOD and BOC, number of directors would also be added three to make it 10.
The reshuffle has also something to do with the prosecution of two members of BOD in a VoIP scandal that led to corruption charges. But others simply on political reasons.
Antara quoted parliament member Syafrin Romas (National Awakening Party/PKB) saying he heard of the plan to oust Arwin Rasyid and Tanri Abeng, both president of BOD and BOC at Telkom. Arwin was appointed Telkom CEO in a shareholders meeting June 2005 along with other BOD members such as Garuda Sugardo (deputy president), Rinaldi Firmansyah (finance), Abdul Haris Matondang (infrastructure & network), Aris Yahya (corporate and wholesale), Guntur Siregar (consumer), and John Welly (human resources and development). Police detained Welly early this year on VoIP scandal. Siregar has been named a suspect in the case as well.
In the last few weeks, some groups have been bussy to launch maneuvers to reshuffle Telkom's management. Some political parties are reportedly not happy with the current officers and working hard to install their guys at the company including to push additional positions at directorship level.
Telkom's Workers Union had warned shareholders not to lift the risk management to director level as that would only add bureaucracy in the company. But political parties love the idea so they could share the directorships between them.
Seminars have been conducted in the last few weeks to pressure government to reshuffle Telkom management, including Arwin, an outsider at the company. (Arwin, a banker, was president director of Bank Danamon and vice president of BNI---the state owned bank).
Appointment of BOD and BOC at SOEs have always been subject to political pressures. During Soeharto years, it's he himself who appoint the BOD/BOC and the appointees only need to loyal to him. But 1998 reform has changed the political landscape in the country with nobody has clear power in hands and as a result they share the positions in SOEs as part of political calculations and games. And to maintain a position in the BOD/BOC, people have to have loyalty to some powerbrokers.
So, who will be the new CEO at Telkom? Some mentioned Garuda Sugardo and Abdul Haris Matondang. "People close to the State Place wanted Garuda to replace Arwin, while Arwin will be appointed Indosat CEO after Hasnul resigned this month," people close to the issue said. Garuda is reportedly close to president SBY's inner circle.
How about BOC?
The current Telkom BOC is consisted of Tanri Abeng (Chairman), Anggito Abimanyu (government economist), Gatot Trihargo, P. Sartono, and Arif Arryman (economist from Econit).
Tanri is a close friend to Vice President Jusuf Kalla and coordinating minister for people's welfare Aburizal Bakrie. Tanri has been named a suspect in a corruption case but managed to maintain his position at the company. No names tipped so far, but we'll know in the next few days.

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Hasnul in Singapore vs Malaysia

Hasnul Suhaimi has tendered his resignation as CEO at second largest telecommunication company PT Indosat Tbk this morning amid poor performance in first quarter 2006 and the rumor of his sub-standard authority in the company. Everybody speculates of his move to be the new CEO at PT Excelcomindo Tbk, the third largest cellular company, which is left vacant today after the shareholders meeting approved Manuel de Faria's resignation. Is it something to do with latent competition between Malaysia & Singapore at play?

Singapore is obviously the largest international telecommunication player in Indonesia through ST Telemedia's majority shareholding in Indosat, SingTel's 35% shares in Telkomsel (the largest cellular provider), and SingTel's 45% shares in PT Bukaka SingTel Indonesia (the largest fixed line provider in eastern part of Indonesia under a cooperation contract with PT Telkom Tbk).
Meanwhile, Malaysia has two major telecommunication investments through Telekom Malaysia's controlling ownership in Excelcomindo and Maxis Communication's investment at Natrindo (JV with Lippo Group).
Singapore's are clearly bigger than Malaysia's, but the competition is intensified recently. Today, for example, Excelcomindo announced its plan to invest US$500 million this year to broaden coverage and expand customer base. If approved, Hasnul will be Excelcomindo's CEO in three months time.
"I don't think Hasnul decides to move to Excelcomindo because of his knowledge about ST Telemedia's plans at Indosat. Indeed he has a good relationship with Malaysia's politicians and Telekom Malaysia wanted him," said a source close to Hasnul.
How good is he?
"He could complained about the limited authority given by ST Telemedia, but Indosat's performance has been decreased in the last few months," said an executive at Indosat.
Hasnul is tightlipped about his resignation. But Minister for SOEs Sugiharto praised Hasnul's decision to resign at the time of poor result recorded in Q1 2006. Whatever! One thing is clear, Sugiharto is bussy to groom someone to fill Hasnul's position at Indosat. Another friend?

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Market crash, hot money & our choices

I'm worried of my fellow journalist's too-much attention on writing articles about the movement of stock market index. More often we see the headlines like this...New record high for stock market index...while so little attention on how much people have been kicked out of job market.
We, the media, keep telling wrong direction to people about the economy...we're too bussy discusing world oil price, the fall of Dow Jones, the rise of The Fed rates...so when the Jakarta Composite Index lost more than 10% in only one week, we're bussy to ask comments from the ministers about what's going on...and then we get the same old answers like this...it's just a temporary shock, it's just the impact of Dow Jones etc...The sad thing is that we know exactly what's wrong with the economy, and what should we do, but we do the opposite instead. And the media missed the question: Do the government make the right decisions?

I'm not saying that stock market index is not important. There are 336 companies listed at Jakarta Stock Exchange (JSX)with market capitalization of more than US$100 billion, but there are only slightly above 1 million people work in these companies. I just can't understand that with daily trading of less than US$200 million of shares, we should miss the big picture of investment. We have to remember that average floating stocks of listed companies is below 20%. It's true that capital market crash would make listed companies difficult to raise funding for investment.
But even if the index jump by 100% per year, we can't expect the 336 companies and another hundreds of companies issuing bonds to create enough jobs and boost export to a level that strong enough to keep the economy healthy and grow faster.
In fact, last year when Jakarta Composite Index (JCI) grew 17%, second best in Asia behind Japan's Nikkei, the new jobs created by listed companies grew by less than 1%. More than half of listed companies cut number of employees for the sake of efficienty and sexier stock price.
We desperately needs new direct investments, domestic or foreign (FDI). In fact, government (president, VP, and ministers) had conducted countless roadshows and state visits to potential investors overseas to lure them in. We got so many promises. China promised and in fact signed MoUs to invest US$7 billion, another US$6 billion from Middle East, billions from Japan, South Korea, London major even promised UK's new investment of US$1 billion, Iran with US$3.5 billion, and just recently I posted the possibility of US auto giant to invest US$1.4 billion.
But so far, these investment commitments are just too good to be true. If we look at Central Bank's statistics of net foreign flow of capital, the numbers are well below that. In four quarters last year, only Q2 recorded unusual big amount of net FDI at US$2.17 billion. I'm not sure what was the reason as the other quarters were completely different. Q1 with net of US$393 million, Q3 net US$56 million, and Q4 of net outflow of US$366 million. Still, thanks to the Q2, the whole year was ended with a total of more than US$2 billio, doubled the year earlier. But still, it's not enough to create enough jobs.
We also know why the gap between commitments and realities is so wide. Rampant red tape and corruption, hefty bureaucrazy, poor infrastructure, legal uncertainty, and long-list of problems. We, and especially our scholars, experts, and well-educated ministers, know exactly what to do. But we don't make decisions. Worse, we, most of the time, take the opposites or careless on opportunities right in front of us such as the underspent budget and the reluctance of SOEs to implement their investment budget for being afraid of legal prosecution.
Government wanted to buyback Indosat shares from Temasek (at crazy high price), looking for loans to buyback Semen Gresik shares, or buy additional shares in Freeport Indonesia. I'm not saying such buybacks have no financial grounds because these companies are making profit and government would get bigger dividend with more shares in hand, right? May be I'm wrong, but I have two concerns:
First, we will give out US$2.6 billion (experts: capital outflow). Let say we get back 49% shares of Indosat at US$1.2 billion. The company may give out dividend of US$100 million a year, government will get additional US$49 million per year. It takes decades to payback the buyback investment. In the case of Freeport, I believe the issue at stake is not the amount of shares per se, but more importantly is a better revenue sharing scheme, stronger supervision and audit measures (really mean this) and fairer share of benefits for Papuans.
Second, buybacks will not create new jobs or increase capital expenditures. With more shares in hands, in the event of commodity price crash, investment would be a hell of pain. Even in good times like this time around, more shares in hands have nothing to do with more investment to come.
I wonder if our experts (with paychecks from SOEs, sometimes way too much) really did the math when they give suggestions to decision makers. But I do worry these experts are too busy counting their own steps to a higher position.
Government, in my view, should pay more attention on pushing investment commitments into reality and spending the budget properly to create more jobs and earn more foreign exchange from export activities for the economy to grow healthier.
Even if you hate so much the foreigners like Cemex, Temasek or Freeport, the least you should do is to have your fellow citizens to invest here, if that's what the natinalism sentiment is all about. But if local business people are also uncomfortable, can the state, including the SOEs provide enough jobs and create demand that push higher the economic growth?

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Danareksa's poor performance

State-owned investment bank PT Danareksa (Persero) reported net loss of Rp182 billion (US$18.5 million) for financial year 2005 against net profit of Rp32.5 billion the previous year.
According to its financial report published Saturday (April 29), Danareksa booked total revenue of Rp225 billion, dropped sharply from Rp416 billion in 2004.
Why? The company recorded net loss of Rp18 billion in securities trading against net profit of Rp107 billion in 2004. The company's revenue from services also reduced significantly. Not to mention the heavy drop in revenue from issuance fee from Rp53 billion to Rp3.6 billion.
One may argue that Danareksa has huge debts. But the company's interests payment actually decreased last year to Rp128 billion (against Rp143 billion).
Bad loans chanelled in the past also cost the company huge allowance of losses at Rp111 billion. But even without that, Danareksa would still in red.
So, it is a combination of poor loans management in the past and poor performance of its operation last year. Danareksa's president Lin Che Wei, a confidante of state-owned enterprise minister Sugiharto, might has better explanation on why public will not get the dividend from the company this year.
An analyst, and one of the panelists at the presidential candidate debate in 2004 election, Che Wei surely has to proof that he has the capability to turn the state-owned company around.
With total assets of almost US$200 million, people can't afford to live with the loss-making state-owned companies.
Minister Sugiharto moved his office to Danareksa building since late last year for undisclosed reasons. He occupy the office previously for Danareksa's CEO. As a result, Danareksa had refurbished and built new office for Che Wei. Just like when then SOE Minister Tanri Abeng (during BJ Habibie administration) moved to Indosat building.
So, the problem is right in front of Sugiharto's nose. Should be easier to fix. At least the CEO could have been easier to make appointments with the minister, right?

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Observers: Mind your words & paychecks!

A friend told me few days ago that one of the largest telecommunication companies in Indonesia had retained two media 'observers' as lobbyist with monthly fee of US$8,000 per month. What's the job? To defend the company's policies in public, lobbying regulators or parliament. Nothing wrong with that. But I hate to see media quoted these guys as 'observers'. Blame the journalists? Sure, because they're too lazy to do little research on who's talking. But these paid observers should tell the truth to public at large too.

I read an advertisement this morning about a seminar about telecommunication and corruption. One of the speakers would be the lobbyist but claimed himself in the ad as media and telecommunication law expert. The other guy would be the moderator of the panel discussion and claimed himself a public policy observer. I smell something.

So I decided to tell my reporters to be careful with these guys, not because they're paid observers but because they didn't tell public that they're representing the telecommunication industry.

That's also my standpoint when it comes to observers like Umar Juoro and Aviliani, both serve as commissioners at Bank Internasional Indonesia (BII) and Bank Rakyat Indonesia (BRI) respectively. They have the rights to be commissioners, but when they make statement, journalist should tell public that these guys are also work for a company that might related to the statements. On the other hand, these paid economists should frankly tell public that they said so representing a company's view.

Journalists should also make it clear to readers on some economists turns legislators. I just can't understand that guys like these mix up things easily and keep the readers in the dark on whether they talk as economists or legislators paid to serve people's interests.

Observers should also tell the truth when submitting op-ed to newspapers. We often see an expert staff for the state-owned enterprises minister and also commissioner in a state-owned bank, under the state payroll, wrote op-ed about SOE policies in newspapers as a lecturer. Or the president of a state-owned investment bank wrote an op-ed with the title as SOE observer.

So, I decided to list down economists or observers currently under the payroll of some companies/agencies:

- Umar Juoro: Economist, commissioner at Bank International Indonesia (BII)

- Aviliani: Economist from INDEF, commissioner at Bank Rakyat Indonesia/BRI (state-owned bank)

- Drajad Wibowo: Economist, legislator from Partai Amanat Nasional (PAN), former commissioner at Bank Negara Indonesia (SOE).

- Sunarsip: Economist, commissioner at BRI

- Didik J. Rachbini: Economist, legislator from PAN

- Pradjoto: Banking law expert, commissioner at Bank Mandiri (state-owned bank) and Bank Internasional Indonesia (BII)

- Arif Arryman: Economist from Econit, commissioner at Telkom (state-owned)

- Setyanto P. Santosa: Economist, commissioner at Indosat
- Muhammad Ikhsan: Economist, expert staff for Coordinating Minister for the Economy, former commissioner at PT Bakrie & Brothers Tbk (owned by Bakrie Family)
- M. Chatib Basri: Economist, advisor to government, commissioner at PT Astra Otoparts Tbk
- Sjahrir: Economist, advisor to president Susilo Bambang Yudhoyono
- Anggito Abimanyu: Economist, Executive at the Ministry of Finance, Commissioner at PT Telkom
- Kurtubi: Economist, staff at Pertamina (SOE)
- Prof Subroto: Economist, advisor to PT Medco Energi Internasional Tbk (oil and gas company); Commissioner at PT DBS Bank Indonesia (a subsidiary of DBS Singapore).

- Prof Sadli: Economist, commissioner at PT Sepatu Bata Tbk
- Sutrisno Iwantono: Economist, commissioner at PT Bank Bukopin Tbk.

- Raden Pardede: Economist, commissioner at PT Bank Central Asia Tbk

- Cyrillus Harinowo: Economist, commissioner at PT Bank Central Asia Tbk

- Prof Roy Sembel: Management expert, commissioner at PT Bank Niaga Tbk
- Prof Din M. Syamsuddin: Chairman of PP Muhammadiyah, chairman of Syariah supervisory board of PT Bank Danamon Tbk (a subsidiary of Temasek Holdings)
- Rijanto: Bank observer, commissioner at PT Bank Panin Tbk

Imagine how much money a commissioner at a state-owned bank could get?

According to the financial report of BRI in 2005, bonus for the management was Rp19 billion with stock option of Rp35 billion. The state-owned bank didn't disclose the salary for both directors and commissioners. Bank Mandiri disclosed it better. Total salary for Mandiri's commissioners was Rp13.8 billion, stock option of Rp169 billion for the management, and bonus of Rp26 billion for the financial year 2005.

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Audit problems at Telkom

PT Telekomunikasi Indonesia Tbk, the largest company by market capitalization (USD12 billion), announced two weeks ago that it would not meet the deadline of 2005 financial report which is tomorrow.

Why?

Because it has audit problem due to the changes in the accounting standard imposed in the country which pushed the telecommunication giant to re-adjust its assets.
"While the adjustment would not influence the income statement for 2005, we can't afford to have serious auditing problem at the company, especially if Telkom follow stock market regulator's suggestion to revise the report later on," said one analyst.
Surprisingly no detail information available for public investors about what's going on exactly. But it seems the asset swap between Telkom and Indosat (the second largest telecommunication player) back in 2002 is at the center of the audit issue.
The year 2005 auditor and 2002 auditor are from different accounting firms. KPMG for 2005, PricewaterhouseCoopers for 2002. The problem, none of these auditors willing to restate the 2002 report.
This is not the first time Telkom experienced audit problem. Telkom was pushed to reaudit the 2002 financial year.
Anyway, nobody expects Telkom would be like Enron, right?

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Indosat profit slightly down

The second largest telecommunication provider PT Indosat Tbk recorded slightly reduced profit at Rp1.62 trillion last year against Rp1.63 trillion in 2004. In US dollar term, Indosat's net profit actually slowed down 5 .7 percent to US$165 million from US$175 million.
Indosat's revenue increased 11 percent from Rp10.43 trillion to Rp11.589 trillion, mainly due to significant increase in cellular segment of 17.7 percent amid the competition and consumer cut their communication expenses.
While the company's operating expenses grew by 9.7 percent last year, Indosat's operating income improved by 14 percent in rupiah. The company's financing cost increased significantly last year by 20 percent.
So with lower profit, is it a sign that Indonesian cellular market has been off the peak? Where Indosat would go with the new players increasingly aggresive to bite the market?

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Opposition to Exxon, how strong?

Hours after state-owned oil and gas company PT Pertamina and US-giant ExxonMobil announced the deal on the operation of oil-and-gas-rich Cepu block (located in Bojonegoro and Blora regencies of East Java and Central Java provinces), opposition movement started to fire criticism and protests. The same old names, for sure, and the same old arguments.

Below are some of their statements:

- The new CEO of Pertamina Ari H Soemarno should resign or be fired for giving the operatorship of Cepu to Exxon.

- The deal was a welcome gift for the visiting US Secretary of State Condoleeza Rice.

- The government was under heavy US pressure. US Vice President Dick Cheney once raised the issue of Cepu settlement to Indonesia president Susilo Bambang Yudhoyono in a Washington meeting last year.

- The deal could result in losses to the national interests.

- There is always the possibility that Exxon may understate the block's oil production while overstating its production costs, without Indonesia having any authority whatsoever to cross-check this, leaving Pertamina with almost nothing left after the production sharing contract ends.

- Government is giving away the nation's sovereignty.

- Government is telling public lies, pointing the decision as a mere business-to-business deal between Exxon and Pertamina.

For all of these, they waged a 'war' against Exxon (and US government) and Pertamina (and Indonesia government). What will they do?

- Make another statements

- Political maneuver in the House of Representative (DPR) to use the rights to investigate (hak angket) or other rights.

- Stage a protest, probably at the front of US Embassy or the places to be visited by Condi Rice or government offices.

This is not entirely new or something extraordinary. Back in 2003, when government sold majority shares in state-owned telecommunication company PT Indosat Tbk to Singapore government's company Temasek, the situation was even lot worse than this time around. Similar in political maneuvers and arguments (anti-foreigners, anti-capitalism, nationalism sentiment etc), but different in the scale of protest.

How strong the opposition to ExxonMobil?

Well, if the talking heads appeared in the media could be considered valid to make a political calculation, I would say this movement will end up like the one on rice import policy. Why?

Here is the list of the talking heads:

- Drajad Wibowo, member of House Commission XI from National Mandate Party (PAN).

- Tjatur Sapto Eddy, member of House Commission VII from Naitonal Mandate Party (PAN).

- Marwan Batubara, member of Regional Representative Council (DPD) representing Jakarta.

- Fadhil Hasan, economist from INDEF, a think-tank closely related to PAN.

- Ramson Siagiaan, member of House Commission VII from PDI-P.

- Sonny Keraf, member of House Commission VII from PDI-P

- Rama Pratama, from PKS.

- Sri Edi Swasono, lecturer from University of Indonesia, allegedly the founder of Bojonegoro Institute (in competition with Winners Center) to grab community development program in the area.

- Kwik Kian Gie, former coordinating minister for the economy, PDI-P.

PDI-P, PKS, and PAN were the main sponsor for DPR's maneuver to investigate government's policy on rice import. But they failed to get full support from DPR in a voting. PAN was not solid in the voting and PDI-P and PKS coalition lost the battle. I don't see DPR is solid enough on every issues they raised. Even one single party can't agree on one big issue simply because most parties don't have strong ideology. PDI-P probably the most solid opposition party, even though sometimes half-hearted, but that's it.

Just like the opposition to divestment of Indosat, massive protests were staged on rice import policy. That's not even the case on this Cepu debacle. So, I would say this opposition is even weaker than the rice import and Indosat.

I believe in one thing, once they cut a deal with either new board of directors of Pertamina, government, or ExxonMobil, they'll stop. They will not get the checquered flag!

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Injury-time in Indonesia: A lucrative business

Few years ago, members of the Nation Awakening Party (PKB) East Java chapter gathered in a hotel in Surabaya the night before the East Java governor election to ensure all PKB members in the East Java local legislature (DPRD) vote for Abdul Kahfi with the incumbent Imam Utomo as the contender.
"As most of DPRD members from PKB are ulemmas (Moslem clerics), the organizer of the event asked all of them to have Sumpah Pocong (swear to God and would be punished in hell) if they vote other candidate in the election," said a friend journalist who attended the event.
Former presdient and key patron of PKB Abdurrahman Wahid led the ceremony.
Kahfi was also formally endorsed by Golkar Party. Utomo, meanwhile, got PDI-P as the main sponsor with the smaller parties rally behind him. PKB had 33 seats at DPRD, slightly above PDI-P (31 seats). With Golkar's 11 seats, plus another 6 votes from other parties, Wahid and Kahfi side believed they could could 50 votes to make it draw.
Surprisingly Kahfi got only 34 votes in the election, consisted of 31 votes from PKB and 3 from Golkar, meaning two PKB members breached Sumpah Pocong. Utomo won the election unanimously with 63 votes. "That's because of some members finally put a price for their votes, and the closer the time to election, the higher the price. And minutes to injury-time, rumors said the price for one vote reached US$250,000," the journalist said.
That's how I start to think about the business of injury-time in Indonesian politics. Especially when I heard this week the CEO of a state-owned enterprise gave US$300,000 to a publication company only to 'protect' him from a possible indictment in a corruption case as other directors have been detained.
How about the mid-week move by five members of Regional Representative Council (DPD), five members of the House of Representatives (DPR), economists and students grouped in what they called Coalition to Save Cepu? Well, the group condemn government's signal to award ExxonMobil Corporation's subsidiary the right to operate the giant oil and gas field in Cepu, East Java. They urge government to give it to Pertamina instead. This weekend is the deadline for Exxon and Pertamina to settle the operatorship issue, an injury time.
The newly established group led by Marwan Batubara, a former staff at telecommunication company PT Indosat Tbk. Marwan is a DPD member representing Jakarta residents. Why all of a sudden Marwan speak out loud on Cepu issue while he should raise the issue of worsening traffic jam in Jakarta or other issues concerning Jakartans? Was it something to do with his close relationship with Widya Purnama, Pertamina's president director and Marwan's boss at Indosat?
Drajad Wibowo, DPR member from National Mandate Party (PAN) also join the group and rally behind Pertamina's directors. He would have better use his constitutional rights to summon government officers on the issue than join such group, I think.
And Fadhil Hasan, director of INDEF, a think tank established by some economists including Wibowo and Didik J. Rachbini (currently member of DPR). Did INDEF conduct a research on Cepu or simply took the secondary data from Pertamina? Why they simply believe? Had they try to get data from Exxon as well, a standard procedure for a group claimed itself a think-tank? Why now, not then? Where were all these guys during the four-year of public debacle over the Cepu issue and only shown up at injury time?
"Indonesia is in the transition period still and there are rooms for money politics still. But talking about money politics, it's everywhere, even in countries like US. Pressures groups are mushroomed, and it's a huge business. Some doing the business hit and run, others for a longer term and survive, but overtime they would levelling off in terms of the price tag," a friend consoling me.
I remember in the last few years some companies were established to organize public protest or demonstrations for certain issues. These companies could organize wide range of protests from those who just sit and raise the protest banners or the noisy ones. Some put the price tag at Rp50,000 per head count. Don't laugh. These guys could even offer package of media coverage. TV shoots were normally expensive, could reach millions of rupiah for two minutes display. Photo shoots could be Rp500,000 or less.
I didn't see much these days though. I'm not sure whether it's because of declining demand or oversupply. But media seems to have learnt something, knows what's genuine, and fewer journalists willing to cover such activities. And that could be the end of their businesses as the customers didn't get what they want anymore. Market mechanism works perfectly.
And that could be the case for those who run the injury time businesses with comments published in the media.
Anyway, just like in the football game, sometimes the coaches makes important decision, say replace one or two players with fresh ones from the bench, at injury time with the hope to score a winning goal. It's precious.

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Slowdown in Indonesian economy, anti-graft campaign, and the upcoming social unrest

Indonesian currency rupiah gained almost 7% in the last few months. But it can't help people to get jobs, neither to stop companies send more people out of the job market. And further slowdown in the economy combined with higher production cost will surely push industries to cut the easiest, the overhead, and that would lead to an even bigger unemployment and social upheavals.

Even the so-called healthy companies like PT Indofood Sukses Makmur Tbk have to cut thousands of workers. Last year alone the company sent home almost 4,500 workers as the consumer goods company trying to survive from the slowing demand.

Late last month, thousands of workers at PT Dieng Jaya (a mushroom producer) in Wonosobo, Java, went on strike demanding massive lay-offs because the company had failed to pay salary in 19 months.

Wood-based industry might be the worst as companies are increasingly difficult to get raw material. PT Surya Dumai announced late last month that as of February 1st, the company will close down the wood panel production facility and send home 1,000 workers. Wood-based industry in South Kalimantan planned to lay-off 11,800 workers by first half 2006 and could reach 19,000 by the end of the year.

In Aceh, last month shareholders of PT Asean Aceh Fertilizer had decided to liquidate the fertilizer company and that would means 1,400 workers will be unemployed. The state-owned enterprises ministry voted in favor of the liquidation of AAF and supported the crazy buyback programs of Indosat and JICT.

Look at textile industry. In Semarang, Central Java, 5,832 workers in the textile plants had been laid off last year. PT Dan Liris in Sukoharjo, Central Java fired 1,200 workers last year and another 434 workers early last month. Minister of Industry Fahmi Idris fired back at manufacturers for the recent rejection of electricity tariff amid threats of massive lay-offs.

This is just the start of a possible 2 million people kicked out of the job market for the whole year. And then we got the news about Indonesia's Economy Expands 4.9% in Fourth Quarter from Bloomberg.

Indonesia's economic growth slowed to 4.9 percent in the fourth quarter as higher borrowing costs curbed consumer spending.
The expansion in Southeast Asia's largest economy, the slowest in six quarters, followed a revised gain of 5.6 percent in the three months ending September from a year earlier and compared with the median forecast of a 4.2 percent rise in a Bloomberg survey of 13 economists.

``The slowing down of global exports combined with a local fuel price increase last month and the increase in interest rates,'' Choiril Maksum, director of the Central Statistics Bureau, told a briefing in Jakarta today. ``The decline of the rupiah in the third quarter,'' also contributed to slower growth.

Indonesia's central bank raised its key interest rate six times from August to December to a three-year high of 12.75 percent to stem inflation after the government more than doubled fuel prices, and to help the rupiah recover from a four-year low on Aug. 30. Higher borrowing costs have prompted consumers to delay buying products including motorcycles, cars and homes.

``The banking industry has been concentrating their efforts on lending more to consumers for the past year or two, so the rise in interest rates has affected consumer sentiment,'' Tomo Kinoshita, an economist at Nomura Securities Co. in Singapore, said before the announcement. That's been ``bad for purchases of automobiles and housing.''

Indonesia's private consumption rose 4.2 percent in the fourth quarter from a year earlier, less than the 4.4 percent increase of the previous three months. Manufacturing expanded 2.9 percent in the quarter to Dec. 31 after a gain of 5.6 percent in the third quarter.

Government spending surged 30 percent in the final three months of last year after a previous rise of 16.2 percent. Investment grew 1.8 percent in the period, the slowest pace in two years.

To help counter a decline in domestic consumption, Indonesia wants to attract about $10 billion of foreign direct investment this year, about 12 percent more than last year. President Susilo Bambang Yudhoyono said the government will need about $430 billion of overseas investment by 2009 to help the economy expand by an average 6.6 percent.

Well, that's our problem. The real foreign direct investment (FDI) recorded by Central Bank is far below the numbers announced by Investment Coordinating Board (BKPM). Forget about FDI. In the last few days we heard some Indonesian businessmen announced their plan to invest in China (Lippo Group and Sinar Mas) or the latest from Sampoerna who put a bid to buy a London Casino at 115 million poundsterling.

Indcoup said,

Sampoerna made his fortunate by exploiting millions of smokers in Indonesia and now he wants to buy a business overseas! Wouldn’t it be better for him to invest the money in Indonesia (around 2.4 trillion rupiah!) – where many people still live below the poverty line - and create jobs here rather than see such a huge amount of money flow out of the country? Isn’t this the least this dollar billionaire could do?

On top of all of these, local lenders, especially the state-owned banks, are reluctant to disburse loans afraid of prosecutions should the debtors default on payments. And even if they managed to give new loans, companies, especially the state-owned companies are reluctant to invest in new projects as they're afraid of corruption charges. The second article of Law on Anti-Corruption is clearly frightening.
A write-off may be a usual practice in the world of banking and under the Indonesian banking law it's allowed. But under the Article 2 of Anti-Corruption Law any banker could be sentenced to 20 years behind the bars for such write-off as it could be interpreted as easing the debtor's pain, giving the benefit to others (debtors).
The haircut is a normal practice in the banking industry if a debtor failed to service the debts for acceptable reasons. But that could be considered a crime too.
A bad debt of US$ 1 in the state-owned bank is currently translated into a loss to the state of US$1, so that's a corruption and a crime. This is clearly a false interpretation of what is the state money in a state-owned bank and how a bank works. From my point of view, the state money in a state-owned bank is the portion of equity of the bank. While others are depositors money the bank pass-on to debtors as loans. We can't charge bankers in the state-owned banks of corruption simply because the loans turned out to be bad loans. Surprisingly police and prosecutors sometimes buy such argument if you're lucky, politically strong, and couldn't boost the anti-corruption image.
An investment banker described the anti-corruption campaign as something really good but at a price, the slowdown of the economy, and that could means an invitation to another evil, unemployment and social unrest.

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Indonesia wants to buyback container port from Hutchison

Bisnis Indonesia reported yesterday that state-owned port operator PT Pelindo II was exercising the buyback of 52% shares in PT Jakarta International Container Terminal (JICT) from Grosbeak Pte Ltd, a subsidiary of Hutchinson Port Holding (HPH) of Hongkong. Pelindo II owns 48% shares in JICT.

Grosbeak paid US$215 million for the government shares in a open tender in 1999 and provided US$ 28 million worth of software for it container terminals in Tanjung Priok. Grosbeak is given a concession to operate the terminals for 20 years.

Why Pelindo wants to buy back? Who'll finance that? Is it serious? How if Hutchison don't want to sell the shares?

According to Abdullah Syaifuddin, Pelindo II president director, the state-owned company rejected Grosbeak's proposal to extend the build, operate and transfer (BOT) contract amid declining terminal handling charge (THC). Transportation Minister Hatta Radjasa supported Pelindo. But Mr Syaifuddin didn't come with details of how Pelindo could buy the shares back.

So far, Syaifuddin's plan is just like state-owned enterprises ministry's plan to buyback Indosat shares from ST Telemedia, Temasek's subsidiary.

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Telkomsel, Indosat, & Excelcomindo wins 3G

Indonesia government awarded 3G licenses to three telecommunication providers PT Telkomsel (a subsidiary of PT Telkom Tbk, 35% owned by SingTel), PT Indosat Tbk (majority owned by ST Telemedia), and PT Excelcomindo Pratama Tbk (majority owned by Telekom Malaysia) today.

These companies submitted the highest offers in an open bidding while two companies (PT Bakrie Telecom and PT Telkom for Flexi) failed.

The winners should pay upfront fee and cost of frequency usages at Rp160 billion in the next 30 days. The previous holders of 3G lincese, PT Natrindo Telepon Seluler (owned by Maxis Communications, Malaysia) and PT Cyber Access Communications (owned by Hutchison-Whampoa), should also pay the same amount.

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