Telkomsel customer base grew 25%

The largest cellular provider PT Telkomsel, controlled by PT Telkom and SingTel, reported 25% growth in customer base to 81.6 million last year. SingTel owns 35% shares in Telkomsel.

According to SingTel, Telkomsel controls 49% market share in Indonesian mobile market. In the third quarter of financial year 2009/2010, Telkomsel reported profit before tax of S$238 million, increased 43% from the same quarter of 2008/2009 (Oct-December 2008).

SingTel also controls 32.01% effective interest in Bharti Airtel, the largest GSM operator in India, with 118.9 million customers, surged 39% from 2008. SingTel also owns 47.34% stake in Globe Telecom in the Philippines which has 23.2 million customers, declined from 24.7 million in 2008. In Thailand, SingTel owns 21.35% shares in Advanced Info Service (AIS), which reported total customer base of 28.77 million last December, inched up from 27.47 million in Dec 2008.

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Sebastian Paredes resigns from Danamon

Juan E. Sebastian Paredes M has tendered his resignation letter as chief executive officer (CEO) of Bank Danamon. He has been in the position since May 2005. Danamon had total asset of Rp100 trillion as of Sept 2009, while its market capitalization surged 112% since April 2009 to Rp44 trillion.

People close to Bank Danamon confirmed the rumor that Sebastian Paredes resigns as the CEO of the bank. "There will be a media briefing on Monday about that," one source at Danamon said Friday night. It is not clear why Sebastian resigns.

Danamon told IDX Monday morning that his resignation will be effective after the bank's shareholders meeting scheduled in April 2010.

Sebastian was appointed CEO of Danamon in May 2005. An Ecuador citizen, Sebastian born in 1961. Graduated with bachelor of science from California State University, Sebastian (his full name is Juan Eugenio Sebastian Paredes Muirragui) got his MBA from Instituo de Empresa, Madrid, Spain. He was managing director of Citigroup for South Africa before the Danamon job. 

Danamon is indirectly controlled by Singapore's Temasek Holdings. Danamon is the fourth largest bank in Indonesia in terms of market cap, behind BCA, Mandiri, and BRI, but the sixth in terms of asset behind Mandiri, BRI, BCA, BNI, and CIMB-Niaga.

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Danamon profit drop, loss category loans double, etc

Bank Danamon is the first bank to publish full year 2006 audited financial performance (because the bank will issue bond Rp1.5 trillion in April) with profit dropped a third while assets in loss category more than doubled and high investment in marketable securities & government bonds.

Looking at the bank's balance sheet, asset grew from Rp66.76 trillion to Rp79.59 trillion of which around Rp40.8 trillion as loans to third parties and Rp23.91 trillion as marketable securities/government bonds or grew 15% and 43% respectively.
While the bank's net NPL is well below 5%, loans on loss category have jumped from Rp367 billion to Rp871 billion (137%), resulting in significant cut of net profit (as allowance for possible losses in assets in 2006 was Rp976 billion).
On the other hand, operating expenses increased significantly by around 20% mainly due to increases in salaries/employee benefits and administrative costs. As a result, Danamon booked net profit of Rp1.32 trillion, dropped 33.8% from 2005.
Temasek is the largest shareholder of Danamon.

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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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The Richest Indonesians & The Ironies

What a coincidence! Out there, Dow Jones quoted Forbes Asia's rich list, naming Sukanto Tanoto (owner of Raja Garuda Mas/RGM) as its Indonesia richest. At home, newspapers quoted SOE Minister Sugiharto pledge his support for state bank PT Bank Mandiri Tbk to take legal action toward recalcitrant debtors. Mandiri had named RGM as one of the debtors with no good faith.

While it's difficult to verify the exact figures, Sukanto's wealth according to Forbes reached US$2.8 billion, well above Putera Sampoerna (2.1), Eka Tjipta Widjaja (2), Rahman Halim (1.8) or R. Budi Hartono (1.4) and Aburizal Bakrie (1.2). In the previous list, Forbes named Halim as Indonesia's wealthiest while Sukanto was not even in the top five list. Wondering how the Forbes list has changed so significantly in the last few months.
Detik.com reported Sukanto is still in the police's fugitive list. But I'm not sure whether he is listed there still.
It's true that Sukanto once named a fugitive. His name also linked closely with Unibank which was closed down in 2001 but none held responsible for third party liabilities in the bank. The case isn't closed yet.
Sukanto's wealth mainly derived from palm oil business. He has pulp & paper empire, and recently oil and gas as well.
Surprisingly, no Sjamsul Nursalim in the top 10 list. Riady family, Tommy Winata, and Mum'in Ali Gunawan are out of top 10 as well. Riady family is partnering with Forbes for Indonesian edition, scheduled early next year.
Like it or not, agree or disagree, Forbes list could help Indonesia's tax officers chasing their tax payments or Bank Mandiri's bargaining position on bad loans. The list also useful for politicians, regent, governor candidates, or hopeful president candidates.
If you follow years of Forbes’ rich list, there is no significant change on the names of Indonesian richest. The difference is only on the amount of wealth & the rankings. The wealthy Indonesians could be categorized in several groups based on how they got their fortunes.
First, cigarette groups. We have Sampoerna family (even though they sold out the cigarette business to Phillip Morris), Wonowijoyo (Gudang Garam), Hartono (Djarum), and Peter Sondakh (Bentoel).
Second, forestry & plantation groups. We have Eka Tjipta Wijaya family (Sinar Mas Group), Sukanto Tanoto (Raja Garuda Mas), & Prajogo Pangestu (Barito).
Third, consumer goods. We have Salim and Wings Group.
Fourth, energy & engineering groups. We have Bakrie family, Panigoro (Medco), Kris Wiluan (Citra).
Fifth, property group. In this group we have Tan Kian (Dua Mutiara), Haliman Trihatma (Podomoro), Tommy Winata-Sugianto Kusuma (Artha Graha), Riady Family (Lippo).
Sixth, manufacturing. In this group we have Nursalim (Gajah Tunggal) for example.
So, mainly they got the fortunes from Indonesia’s rich & cheap resources (natural & human).
While most of these groups have expanded overseas (mainly China, India, or Brazil), Indonesian operations are still their main source of wealth. Most of these conglomerates were hurt by financial crisis, with the exception of cigarette groups.
But they have recovered in the last few years, thanks to the generosity of Indonesian people, the taxpayers. The state bailed out their bad debts. Some surrendered assets, but others managed to escape the financial responsibility easily.
Salim Group, for example, surrendered assets in 107 companies to pay around Rp56 trillion (US$6 billion) debt following the turmoil at Bank Central Asia (BCA). Government sold almost all the pledged assets with recovery rate of around 35%. Nursalim also did the same to pay his Rp28 trillion (US$3 billion) debt, with lower recovery rate.
Government also spent almost US$2 billion to bail out Bank International Indonesia (previously owned by Eka Tjipta’s Sinar Mas, currently controlled by Temasek).
That’s why there is almost no significant change in names listed in Forbes, the latest edition and in 1990s. The fact that Sukanto & Eka Tjipta are listed as number one and third in the ranking sparked criticism about how they created the wealth.
Both Sukanto & Eka Tjipta have strong pulp/paper & plantation (mainly crude palm oil) businesses through APRIL (RGM) Holdings & Asia Pulp & Paper (APP) respectively. Both groups have been the subject of continues allegation of environmental groups over massive deforestation in Sumatra Island.
WWF report few months ago said that APRIL and Asia Pulp & Paper (APP), the Indonesian paper producers, are accelerating the deforestation of Sumatra's jungles in spite of a bid to portray themselves as green.
According to the report, APP has been responsible for about 80,000 hectares of natural forest loss every year, equivalent to roughly one-half of the Indonesia province of Riau's annual forest loss since 2002. As of 2005, the company controlled nearly one-fifth, or 520,000 hectares, of the natural forests left on Riau's mainland. All these forests are under threat, as are any additional forests that APP acquires in its quest to fill its wood supply gap and expand pulp production.
WWF didn't publish the same press release on APRIL. But WWF Monitoring Brief June 2006 elaborated the organization's analysis on APRIL's activities.
Jikalahari (Riau NGO alliance) investigators have found evidence that APRIL's mills accepted wood from legally questionable third party source as late as May 2006. WWF admitted in the report that it calls APRIL to stop sourcing timber from this area until completion of the government legal verification process.
One NGO leader wrote cynically in Indonesian media recently that if you want to be rich, do the forestry business in Indonesia like Sukanto & Eka Tjipta. Other names listed in the Forbes report also have been regularly accused of various illegal practices such as fraud on reforestation funds or involvement in drugs & narcotics trading, gambling operation, or fishy deals with government and the military. But none of them convicted or worse various interest groups make huge chunk of money from the allegations on these richest men.

/Named a Suspect/
Apart of environmental concerns, the Forbes report has also been responded by Indonesia’s largest lender (by asset), Bank Mandiri, which happens to be the largest lender to Sukanto’s RGM. The bank has, several times, classified RGM as the debtor without good faith in settlement of almost US$500 million debts. Mandiri demands an increase in debt installment following the huge jump in pulp prices worldwide.
The day Forbes announced the rich-list, Indonesian minister for state-owned enterprises (Mandiri’s shareholder) pledged his support for Mandiri’s plan to take legal action against recalcitrant debtors, especially RGM. RGM denied all the charges arguing it follows the debt restructuring agreed upon few years ago.
A director at Mandiri was quoted by Indonesian newspapers saying, “You may rich, but pay your debts,” responding the list.
But it’s the police who surprised many when it announced the plan to reopen the investigation on Sukanto, not for the alleged environmental crime or his debts at Mandiri, but on a suspected banking crime that almost untouched in five years.
Just days after Forbes published the list, Indonesian police announced that it has resumed the investigation on Sukanto, named a suspect in a banking crime few years ago. Police declared that the case, involving Unibank---a bank initially owned/controlled by Sukanto and his wife Tinah Bingei, has been reopened after five years of almost no significant progress in investigation despite the fact that Sukanto had been named a suspect.
Unibank was closed down in 2001 leaving the state paying all third party liabilities (Rp3.9 trillion, almost US$400 million) with no shareholders held responsible. Sukanto was named a suspect on irregularities of export L/C worth US$230 million.
"Based on a meeting between Police Chief and Attorney General in August 2006, Sukanto's case has to be reopened and his status is still as suspect. The case is being handled by police team for corruption crime (Tipikor)," Paulus Purwoko, chief of public relations division at National Police Headquarter as reported by Indonesian media.
The sudden announcement failed to surprise the media at the time of eroding trust on the country’s campaign to fight corruption. Many raised the question, would the police be serious this time? Why the police reopen the case after so long? Could this be just part of ‘political’ game?
"Whatever the results might be, the reopening of the case has made Sukanto, well-known for his generosity overseas, shivering," a journalist from respected magazine commented the move. So far, police has not confirmed yet on when they would summon Sukanto for investigation.
The fellow journalist mentioned about Singapore-INSEAD's Tanoto Library or Carnegie Mellon's Tanoto Professorship. The owner of Raja Garuda Mas (RGM) also established Tanoto Foundation, which provide scholarships.
It’s not about his donations that make people doubt the investigation, but mainly the power politics in the country’s corrupt-legal system. Police might finalize the investigation, but state prosecutors may drop the case like what’s happened with the recent corruption allegation on Eddie Widiono (state-owned electricity company PLN).
Other intriguing issue is the unavailability of legal cooperation between Indonesia and Singapore. While Sukanto normally come to Indonesia, he stays in Singapore. “The problem, we have no bilateral agreement on this,” sighed the deputy attorney general Basrief Arief, who is also the Chief of Corruptors Hunting Team.
Besides, the five-year time lag since the Unibank’s closure in October 2001 is critical especially when it comes to witnesses. That’s why Attorney General’s Office said they would start the investigation all over again. This is clearly a big test for the country’s tattered image on corruption eradication campaign. Without serious efforts to end bad governance in Indonesian business, we can’t expect a cleaner sheet in the future rich lists.

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Telkom buyout Bukaka-SingTel

Investor Daily reported that PT Telkom Tbk has concluded the negotiation on the acquisition of telecommunication assets developed and owned by PT Bukaka SingTel Indonesia at US$200 million.

The newspaper quoted Arwin Rasjid, Telkom CEO, admitting the negotiation has been done and both parties are drafting the agreement to be signed next month.
Bukaka SingTel is a JV between Bukaka Group, a company controlled by VP Jusuf Kalla's family and SingTel--a company controlled by Singapore-government's investment arm Temasek Holdings.
For backgrounds, read my previous post: Telkom & Bukaka SingTel buyout.
See, that's why Telkom squeeze customers all the time, keep increasing the tariff and block the competition. Wake up!

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Indonesia banking consolidation

A decade ago, Indonesia had 240 banks. Financial crisis in 1998 had cut significantly the number to 131 banks at the moment. It was the crisis that forced the consolidation in the country’s banking industry. But with per capita income of below US$1,500, the number is way too big and it cost the country a huge inefficiency of banking operations.

Under Indonesia Banking Architecture (API) launched in 2004, entry to the market has been tightened with minimum capital of Rp3 trillion (US$335 million) to open a new bank. Besides, banks, including the banks established by regional administrations, should have minimum capital of Rp100 billion by 2010.

In June 2005, Bank Indonesia (the central bank) launched the banking consolidation policy to anticipate the implementation of Basel II Accord by 2008. Under the policy, banks should have minimum core capital of Rp100 billion (US$11 million) as of 2010 and a minimum of Rp80 billion by the end of 2007. Those who failed to meet the requirement will be punished with limited operation such as maximum amount of third party funds at 10 times of core capital and maximum loans of Rp500 million (US$550,000).

The central bank actually hoped for voluntary mergers before 2007. But there are only few voluntary mergers and acquisitions so far. Some small-medium banks have tried to raise capital through stock market, but the progress has been slow. The latest major merger was back in December 2004 when three banks (CIC, Danpac & Pikko) merged. Last year, two banks (Arta Graha & Inter Pacfic) merged and Sinar Mas reentered the banking business with the acquisition of small bank PT Bank Shinta. But overall, the consolidation has been too slow.

Currently total capital of 131 banks is Rp120.8 trillion or average of Rp916 billion. It seems bigger than the requirement of Rp100 billion. But the Top 20 banks contributed to most of the capital and leave others with big question mark. There are way too many banks that serve one or two customers only, sometimes related to the owners or related parties/families with core capital less than US$10 million.

According to financial report as of June 2006, the Top 20 banks has combined capital of Rp114 trillion which leaves another 111 banks with combined capital of only Rp6 trillion or average of Rp54 billion. Most foreign-owned banks in the country have core capital above Rp100 billion with Bank of America as the only exception, raising the question of its future in Indonesia.

Profitability is also a big issue in Indonesian banking industry. As of May 2006, total assets in Indonesian banking system is Rp1514 trillion (around US$165 billion) while total profit is Rp15 trillion, reflecting a return on asset (ROA) of 1%. But why these banks don’t want to merge?

Central Bank and bankers argues that banking consolidation needs tax incentives, the authority of government. But no such incentives provided.

Desperate on the bank’s owners to merge voluntarily and the slow progress in banking consolidation through capital requirement, Bank Indonesia then launch the single presence policy, which practically forbid a company or someone owns more than a bank. But the policy most likely would only consolidate big banks, not the small banks. For example, Temasek-related banks (Danamon, BII & DBS Indonesia), Khazanah (Bank Niaga & LippoBank), Panin Group (Panin & Victoria), Standard Chartered (Standard Chartered Indonesia & Bank Permata), or Rabobank (Rabobank Indonesia and two banks it acquired recently—Bank Haga and Hagakita, from Djarum Group which controls Bank Central Asia/BCA) and ANZ-ANZ Panin.

If the central bank fair enough to implement the policy, state-owned banks should be merged or consolidated as well. But in normal situation, it’s difficult to merge state-owned banks. Efforts to merge PT Bank Negara Indonesia (BNI) Tbk and PT Bank Tabungan Negara (BTN) collapsed last year on political maneuvers from the proponents and opponents.

Vice President Jusuf Kalla indirectly opposed the idea to merge state-owned banks arguing they have different functions in the economy. Strong resistance has always been at the state-owned banks themselves, especially workers and the management, something the government can’t just neglect.

This is great dilemma and political test for Indonesian government as neglecting the consolidation based on single presence policy would be discriminative and against the fair competition law.

Confronting such dilemma, Central Bank has softened its stance on single presence policy. Instead of forcing the owners to divest or merge the banks, they’re given option to establish a holding company to manage the banks.

Some banks have responded the move in different ways. Djarum Group, who owns the largest private bank PT Bank Central Asia (BCA) Tbk with Farallon Capital, for example, decided to sell two other banks (Haga & Hagakita) to Rabobank last month. But this had leave Rabobank with further question, whether it will merge its subsidiary with the two banks. Singapore’s OCBC has decided to merge OCBC with NISP.

Singapore’s Temasek is yet to decide the future of its banking ownership in Indonesia (Danamon, BII & DBS Indonesia). Malaysia’s Khazanah has repeatedly denies speculation about merger of its Indonesian banks (Niaga & Lippo). While market has speculated the possible offloading of Niaga and keeping LippoBank, Khazanah has option to merge Niaga & Lippo or establish a new holding. The same would apply to Stanchart or Rabobank.

How about the small local banks?

Some small-medium banks have entered the stock market to raise capital. There are some, which plans to float their shares in the coming months. But most of them are being the targets of acquisition by bigger groups. There are around 20 banks in this category. And we will see more mergers and acquisitions to come.

Further consolidation is subject to Central Bank’s firm decision to implement the architecture it drafted. Under the architecture, there will be three categories of banks operating in Indonesia. First is international bank, those with capital above Rp50 trillion (US$5.6 billion); second, national bank (capital from Rp10 trillion to Rp50 trillion); and focus bank (Rp100 billion to Rp10 trillion). None of the banks operated in Indonesia falls into the first category. A merger of state-owned banks could create one. And only three existing banks are eligible to get the national bank status with nation-wide operation.

Such categorization would consolidate further the banking industry and streamlining the operation of many banks which then boost average assets per customer in most banks and reduce significantly the banking operational costs. We will see more the merger of small-to-medium size banks to get the status as national banks.

Those who will be affected by single policy

Group Indonesian Banks

OCBC OCBC Indonesia
Bank NISP
UOB UOB Indonesia
Bank Buana
Khazanah Niaga
Lippo
Temasek Danamon
BII
DBS
Stanchart Stanchart Indonesia
Permata
Rabobank Rabobank Indonesia
Haga
Hagakita
Panin Panin Bank
ANZ Panin
State-owned banks Mandiri
BRI
BNI
BTN
BEI

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Bad loans cut Temasek banks profit

PT Bank Danamon Tbk and PT Bank Internasional Indonesia Tbk, both affiliated with Temasek Holdings, reported significant drop in net profit for first half 2006 mainly due to increasing operational costs and assets write-off.

Danamon booked Rp558 billion net profit, axed by 56% from Rp1.28 trillion in H1 2005. BII recorded Rp352 billion, reduced 11.3%.
Danamon actually reported 16% growth in net interest margin (NIM), but the company had to write-off Rp533bn assets while operating expenses increased significantly.
BII also reported better NIM, but it had to write off Rp196bn assets.
Both banks reported significant increase in loss category (V) and special mention loans (II). Danamon's V category loans at Rp733bn, doubled from Rp331bn in H1 2005 while BII's increased from Rp322bn to Rp487bn.
Danamon's special mention loans at Rp3.8 trillion (against Rp2.9 trillion in H1 05), BII at Rp2.37 trillion (Rp1.09 trillion).

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Cargill-Temasek restructure PT Hindoli

CTP Holdings Pte, a plantation joint venture between US-based Cargill Inc and Singapore government control Temasek Holdings, restructured loans to PT Hindoli, a company previously controlled by Cargill.

CTP Holdings decided to convert the loans to equity of PT Hindoli. The company was started inthe early 1990's, and was acquired by Cargill in 1995. Found on the island of Sumatra, Cargill directly operates 10,000 hectare oil palm plantations.
Last year, CTP Holdings acquired CDC Group plc’s palm plantation interests in Indonesia and Papua New Guinea. These include a plantation in Kalimantan (Indonesia) and a majority shareholding in four other plantations in the region. One of these plantations is located in Sumatra (Indonesia), with the other three in Higaturu, Milne Bay and Poliamba (Papua New Guinea).
Cargill is the majority shareholder of CTP and will assume managerial and operational responsibilities. Cargill’s existing palm plantation in Sumatra then became part of CTP.

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Single presence policy delayed further

Indonesia's central bank decided to postpone the implementation of single presence policy to as early as 2008-2010, behind its initial schedule of second half 2006.

Under the single presence policy, someone or a company will not be allowed to own shares in two or more banks. Should the central bank implement the policy, companies like Singapore's Temasek Holdings, UOB, OCBC, Malaysia's Khazanah, Standard Chartered, and some local business groups should merge the banks or divest and exit.
Koran Tempo quoted Burhanuddin Abdullah, central bank governor saying there are three options available. First, the central bank will 'politely' ask bank owners to merge. Second, bank central will give direction to bank owners on what to do. Third, bank central will instruct bank owners to merge within two years starting 2008.
So, the central bank barks louder than its bite, as usual.

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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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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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DBS posts 103% profit increase in Indonesia

PT Bank DBS Indonesia, a subsidiary of The Development Bank of Singapore (DBS), booked net profit of Rp114 billion last year, jumped 103% from Rp56 billion it booked in 2004.

According to its financial report published this morning, DBS Indonesia also recorded almost 100% growth in total assets from Rp5.23 trillion to Rp10.67 trillion, surprisingly due to massive growth of rupiah denominated deposits. The bank's rupiah and foreign currency loans also increased significantly last year.

DBS owns 99% shares in Bank DBS Indonesia, while the remaining shares owned by businessmen Edwin Soeryadjaya and Sandiaga Uno.

Temasek Holdings is listed among the ultimate shareholders of the bank. Temasek is also the ultimate shareholder of Bank Danamon and Bank Internasional Indonesia (BII). Temasek controls Danamon through Asia Financial (Indonesia) Pte Ltd (69.6%), and BII through Sorak Financial Holdings Pte Ltd (56.78%).

Danamon booked net profit of Rp2 trillion last year with total assets of Rp66.76 trillion, while BII's profit was Rp725 billion with total assets of Rp47 trillion.

Indonesia's central bank would issue new regulation on single presence in which one ultimate shareholder won't be allowed to own shares in two or more banks. This prompted speculation of merger between DBS, Danamon, and BII which would create a bank with combined asset of Rp123 trillion or around US$14 billion.

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Poor performance of sharia unit in Indonesian banks

In the last few years, almost all major banks in Indonesia established sharia units. It's rather a kind of euphoria if we take a serious look on their performance.

Sharia unit at Bank Danamon, the second largest private-owned bank in the country, for example, booked net loss of Rp31.98 billion last year against net profit of Rp615 million in 2004. Temasek Holdings is the majority stakeholder of Danamon.
At Bank Tabungan Negara, a state-owned bank, the unit posts net loss of Rp1.17 billion. The sharia unit of Bank Negara Indonesia (BNI), the second largest state-owned bank, managed to book net profit of Rp6.8 billion, but heavily dropped from Rp32.94 billion in 2004.
Bank Permata, controlled by Standard Chartered, also recorded net loss of Rp6 billion at its sharia unit.
Bank Niaga posts net loss of Rp1.23bn from sharia unit despite huge jump in revenue. BII, also controlled by Temasek Holdings, managed to cut the loss at sharia unit from Rp30bn to Rp14.7bn, but revenue slightly reduced.
But Bank Muamalat, a bank with full sharia principle in its operation, managed to book net profit of Rp156 billion, doubled from Rp74 billion in 2004. Islamic Development Bank (IDB) owns 28% shares of Muamalat, followed by Boubyan Bank Kuwait (21.28%), and Atwill Holdings Limited (15.32%).
BRI, the second largest state-owned bank, recorded impressive revenue growth in its sharia unit, but the net profit of Rp1.96bn is surely too small for the unit with total assets of Rp663.93bn, right?
Sharia banking in Indonesia was formally introduced in 1992 by the issuance of Act Number 7 on dual banking system. To support network expansion and to better encourage the development of Sharia banking in the country, Act No.7 was further amended through Act No.10/1998. An important change in this Ac is the opportunity for conventional banks to open Sharia unit and implement the dual banking system.
It seems that these conventional banks should wait few more years to reap the benefit of the Sharia principle as proved by Muamalat even though some banks might have established the unit simply for 'political protection' or marketing gimmick in the world's most populous Moslem country.
But that's not going to stop Abu Dhabi Islamic Bank (ADIB) to enter the sharia banking business in Indonesia. ADIB announced recently its plan to acquire Indonesian bank and transform it to a full sharia bank.

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Govt to offload Permata and BII shares

PT Perusahaan Pengelola Aset, a state-owned company established to manage the assets previously controlled by Indonesia Bank Restructuring Agency (IBRA), would offload the remaining shares in two listed banks, Permata and Bank Internasional Indonesia (BII), Tempointeraktif.com reported yesterday.

Raden Pardede, PPA vice president director, said the company had secured government approval early this month. Govt through PPA holds 26.16% shares in Bank Permata and 5.52% shares in BII. PPA is about to appoint financial advisor for the divestments scheduled in second semester.
PPA also has shares in six other banks, 5.04% of Bank Central Asia (BCA), 10.5% of Danamon, 5.25% of Niaga, 2.64% of Lippo Bank, 28% of BTPN, and 6% at May Bank. PPA plans to divest these shares until 2008.
Government controlled majority shares of these banks through a massive recapitalization program that cost tax payers Rp660 trillion (US$70 billion) during 1998-2001 period. Government started the divestment with BCA to Farallon & Djarum in 2001, followed by Niaga to Commerce Berhad (Malaysia), Danamon and BII to Temasek Holdings (Singapore), Permata to Standard Chartered (UK) and Lippo to Khazanah (Malaysia).

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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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Single presence to be implemented Q3

Central Bank governor Burhanuddin Abdullah confirmed the implementation of single presence policy in Indonesia to be started in third quarter this year in a bid to consolidate the banking sector, Investor Daily reported today.

Under the new policy, an individual or enterprise is not allowed to be the controlling shareholder or beneficiary owner in two or more banks. With that, some banks should merge if the controlling shareholders decides to maintain ownership or should sell the stakes to other parties.

For example, R. Budi Hartono (owner of Djarum Group, ranked second behind PT Gudang Garam Tbk owner Rahman Halim in Forbes rich list) is listed as controlling shareholder at PT Bank Central Asia (BCA) Tbk, PT Bank Haga, and PT Bank Hagakita. BCA is the largest listed private-owned bank in Indonesia where Farindo (a joint venture between Farallon Capital and Djarum Group) controls 51% shares. It's not clear which option Budi Hartono would take.

Bisnis Indonesia reported that some bank owners have responded the plan with merger plans. "There are some who plan to merge their banks," said Rusli Simanjuntak, director at Bank Indonesia. He didn't disclose the names though.

Some bank owners have previously pledged their support and plan to merge under the single presence policy. Panin Group, for example, is ready to merge PT Pan Indonesia Bank Tbk with PT ANZ Panin Bank. Singapore-based OCBC is also considering the merger of its last year acquired PT Bank NISP Tbk with Bank OCBC Indonesia. Another Singapore-based bank UOB would also merge PT Bank Buana Tbk with PT Bank UOB Indonesia.

Meanwhile Temasek Holdings, the beneficiary owner of three banks in Idonesia---PT Bank Danamon Tbk, PT Bank International Indonesia, and PT Bank DBS Indonesia---is yet to respond the possible merger.

Standard Chartered Bank, the owner of wholly owned subsidiary PT Standard Chartered Bank and 31.55% shares in PT Bank Permata, is similar to Temasek. No respond. Malaysia's Khazanah National Berhad, beneficiary owner of Bank Lippo and Bank Niaga, is also tight-lipped on the issue.

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Bimantara takeover, how serious?

UBS is seeking to help finance the takeover of two Indonesian companies, PT Bimantara Citra Tbk, the conglomerate which owns four major television channels in Indonesia, and toll-road operator PT Citra Marga Nusaphala (CMNP) Tbk, according to individuals in Indonesia familiar with the transaction.

Global Crown Capital, a special purpose vehicle, owned by the Salim family, Peter Gontha (former shareholder and executive at Bimantara), and Indra Rukumana (former President Suharto’s son-in-law) is seeking to acquire controlling stakes in Bimantara and CMNP. In order to obtain the funding, the three parties have pledged shares they have in Bimantara and CMNP to UBS in order to obtain a loan of up to US$350m, said individuals in Indonesia.

Few details were available about the goings on, but Bimantara last week issued a denial stating that the conglomerate had not been approached by GCC to acquire the assets. Salim also denied the plan to acquire Bimantara and CMNP.

But Bimantara wrote to Jakarta Stock Exchange (JSX) authority on Friday that recently it recieved a proposal from one of its shareholders (Almington Assets Limited) which represents 5% shares of the company that it want to pledge the held shares to UBS AG Singapore Branch.

JSX suspended the trading of both Bimantara and CMNP shares on Friday. No information so far on when JSX will lift the suspension.

Individuals in Jakarta said there were definite signs that the consortium had already obtained funding from UBS in their attempt to take over the assets. Investor Daily on claimed on Friday that it got a document showing the financial support from UBS Bank to GCG to acquire Bimantara and CMNP. In exchange GCC will pledge to UBS some marketable securities, cash, and shares of Bimantara and CMNP. Under the loan proposal to UBS, GCC needs funding of US$250 million to US$350 million.

According to the document, before it acquires Bimantara and CMNP, GCC would takeover shares of PT Televisi Pendidikan Indonesia (TPI, a TV station under Bimantara) and CMNP Manila (toll road operator in Manila).Under the loan proposal to UBS, GCC needs funding of US$250 million to US$350 million.

Meanwhile, IFR Asia reported an official who acts as custodian of shares traded on the Jakarta Stock Exchange said UBS has recently requested that a large shareholding of Bimantara shares be blocked under the Swiss bank’s name.

“If that’s so, then that’s a sign that the GCC conglomerate has already pledged shares to UBS,” said one banker in Indonesia.

Investor Daily reported today that Almington Assets had pledged its 11% shares through GCC to UBS AG with the address at Temasek Boulevard 18-00 Suntec Tower Five, Singapore. GCC also planned to acquire 14% shares of CMNP owned by Heffernan International Limited, Delta Equity Assets Ltd, and Commonshare Investment Ltd, all are special purpose vehicle companies registered in British Virgin Island.

Another banker said to AFR Asia: “UBS private banking has been shopping the local market to finance the rupiah-denominated portion of the deal. One of the parties approached was Sinar Mas Securities, so we know something big is going on.”

The battle for the Bimantara assets will be a lively one, said investment bankers in Indonesia, given that Bhakti Investama, another Indonesia company, now holds a stake of around 40% in Bimantara and 10% indirectly.

“It therefore will be very difficult for GCC to gain a controlling stake in Bimantara,” said an investment banker to AFR Asia.

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Indosat buyback: What the heck?

Ever since Indonesia government officers announced the plan to buyback shares of telecommunication giant PT Indosat Tbk from ST Telemedia, a subsidiary of Temasek Holdings, its price has been jumped significantly at the Jakarta Stock Exchange (JSX). In the last few days, the shareholders have gained almost 8% increase. And that would make the buyback even costlier for the state.
The cost estimation was 12 trillion rupiah (almost US$1.25 billion) for 40.77% shares owned by ST Telemedia, doubled the government's income of 6.6 trillion when it sold the shares to ST Telemedia three years ago. It means that in three years, ST could make profit of 6 trillion rupiah, while Indonesian government would incure loss of the same amount.
The 12 trillion rupiah budget was for 5,300 rupiah per shares of Indosat. As the price goes up to above 6,000 rupiah, government would need additional 1 trillion rupiah. Bisnis Indonesia reported on Saturday that investment bankers in Singapore even heard of a possible buyback price at 6,400 to 7,000 rupiah per shares. That would translate to an additional of 3 trillion rupiah that the government should pay.
ST Telemedia surprisingly rejected the offer saying it would maintain the shareholding in Indosat. Responding the rejection, government officers went on with another statement that it would buy the shares from public investors on top of its 14% shares in Indosat.
Why in the first place would the cash-strapped government willing to sacrifice such huge amount of loses ahead of a plan to sell majority shares of flagship carrier Garuda Indonesia?
The simple answer was that Indosat is a strategic company from various aspects, including the national security of information. Indosat is seen as a profitable company as well. Buying back the shares would resume government's control over the company.
I remember government's reason behind Indosat divestment three years ago about the company's huge debt and hungry of fresh capital. In fact, the company's debts to equity ratio increased significantly from 41.5% in September 2004 to 51.2% in September 2005. Debts to EBITDA ratio also jumped from 178.6% to 224.5% as the margin slightly reduced to 57% from 59% in the same period.
As of December 2005, Indosat's cellular subscribers totaled 14.4 million, exceeding its 2005 target of 14 million. "Indonesia's cellular market has tremendous growth potential because of the low penetration level," Hasnul Suhaimi, president director of Indosat said.
Only 19% of Indonesia's population of 220 million own cellular phones, providing considerable room for growth. Analysts expect penetration this year to increase to 25% in 2006 and 35% in 2007. Even with such growth potentials, the profit margin of the business would significantly shrinking due to stiff competition.
Two major telecommunication player from Malaysia have entered the market. Maxis Communications acquired Natrindo and Telekom Malaysia controlled Excelcommindo, the third largest cellular player. Other groups, Sampoerna Family and Sinar Mas Group, are also preparing big investment in the sector.

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Indonesia govt to buyback Indosat from Temasek

Indonesia government had sent a letter to Temasek Holdings to buyback 41.8% shares of telecommunication provider PT Indosat Tbk from the Singapore government-owned company.
Source at the ministry of state-owned enterprise (MSOE) said the letter was sent in December 14, 2005, almost two years after Temasek, through its wholly-owned subsidiary ST Telemedia, acquired 41.8% shares of Indosat, that time was state-owned company, at the cost of US$650 million.
It is not clear why Indonesia government decided to buyback Indosat or whether Temasek is willing to sell it back.
But even if Temasek is willing to sell Indosat back to Indonesia government, the price would likely be double the price it paid two years ago.
Indosat is the second largest telecommunication company in Indonesia behind PT Telkom Tbk, a state-owned company. Temasek has significant stakes in PT Telkomsel, a subsidiary of Telkom, through SingTel. Telkomsel is the largest cellular operator in Indonesia.

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