INDONESIA issued mixed signals yesterday over a plan by ST Telemedia to sell its entire holdings in telecommunications giant Indosat to Qatar Telecom (Qtel), raising fresh concerns over the government's commitment towards attracting foreign investment into the country.

Barely hours after Indonesian State Enterprises Minister Sofyan Djalil said that the government would not stand in the way of Qtel's decision to pay US$1.8 billion ($2.4 billion) for the 40.8 per cent interest in Indosat, the country's anti-trust agency KPPU objected to the deal on grounds that it allegedly violated Indonesian law.

KPPU chairman Syamsul Maarif told reporters in Jakarta that the regulator 'is considering legal action to block the sale'. He did not elaborate.

The uncertainty swirling over the deal deepened late in the afternoon when Qtel announced that it would make a general offer for the shares it does not already own in Indosat, which is listed on the Jakarta stock exchange and boasts 30 million mobile phone subscribers.

ST Telemedia and Qtel executives insist that the sale, which was announced on Saturday, is legal and consistent with Indonesian laws.

ST Telemedia moved into the Indonesian market in 2002 when it paid US$634 million for the 40.8 per cent interest in Indosat. The company reorganised its shareholding in the Indonesian company early last year when it brought in Qtel as a shareholder in Indosat.

Analysts say that ST Telemedia's move to sell its interests in Indosat stems from the troubles faced by its parent holding company Temasek with the Indonesian authorities over its holdings in the country's lucrative telecommunications sector.

Temasek owns a 56 per cent interest in SingTel, which in turn holds a 35 per cent stake in PT Telkomsel, Indonesia's largest telecommunications operator.

The KPPU has alleged that Temasek's holdings through ST Telemedia and SingTel in Indonesia's two main telcos violates the country's anti-monopoly laws.

A Jakarta district court last month upheld the KPPU ruling and ordered Temasek to either give up entirely its stake in one of the two telcos or reduce its shareholdings in both by half within a year.

The Supreme Court is expected to rule on an appeal by Temasek against the lower court's decision sometime later this month.

KPPU officials told The Straits Times over the weekend that the Qtel acquisition was in violation of the district court's decision which stipulated that when divesting its interest in either Indosat or Telkomsel, Temasek can only dispose of the shares in 10 per cent blocks to unrelated parties.

The executives noted that the sale to Qtel went against the court's decision on both counts because the Middle Eastern company already had business dealings with ST Telemedia.

Several senior foreign bankers based in Jakarta say that the opposition over foreign ownership in Indonesia's telecommunications sector has raised questions over the government's commitment towards attracting foreign investment into the country.

The bankers also say that the problems faced by Temasek stem from intense behind-the-scenes competition among several cash-rich Indonesian conglomerates eager to move into country's potentially lucrative telecommunications sector.

This article was first published in The Straits Times on Jun 10, 2008

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