Qatar Telecom to Acquire Indosat Stake from Temasek Unit

STT and Qtel over the weekend (7 June) announced that their jointly held subsidiary, Asia Mobile Holdings (AMH), will sell its entire 40.8% stake in Indosat to Qtel for a cash payment of S$2.4 billion (US$1.8 billion). Following the transaction, STT will no longer have any involvement in Indosat. STT will continue to own 75% of AMH, while Qtel will maintain a 25% stake in the joint venture. "We are very delighted to increase our strategic stake in Indosat," Qtel chairman, Sheikh Abdullah al-Thani said in the statement. He added: "The transaction demonstrates Qtel's commitment to Indonesia and its rapidly developing infrastructure. With this transaction, the group will service nearly 44 million customers in 16 countries."

STT's decision to sell its stake in Indosat follows a legal dispute which began last November, when Indonesia's antitrust regulator, KPPU, ruled that Temasek violated the country's anti-monopoly laws by holding indirect stakes in Indonesia's two biggest mobile operators, Telkomsel and Indosat. Temasek indirectly holds 35% of Telkomsel through its 56%-owned unit SingTel. KPPU ordered Temasek to divest its holdings in either Indosat or Telkomsel. An Indonesian district court upheld KPPU's ruling last month and Temasek has filed an appeal against the ruling with the country's Supreme Court (see Indonesia: 22 May 2008: Temasek Appeals against Indonesian Court Ruling on Anti-Monopoly Practice). The 40.8% Indosat interest remains subject to the ruling by the Supreme Court. Qtel said today it will respect any ruling by the Supreme Court which may impact its plan to buy the 40.8% stake in Indosat. "We will wait and see what the Supreme Court ruling is," said the Qtel chairman, adding that his company will bear any legal responsibility which could be raised after the Supreme Court issues its verdict.

Outlook and Implications

• Legal Battle May End: It is no surprise that STT has eventually decided to exit from Indosat, although the deal may have come earlier than expected, as Temasek had just filed an appeal with the Supreme Court a couple of weeks earlier. If Temasek and its subsidiaries continued to contest the KPPU ruling, they could face a much more lengthy legal battle, possibly even reaching the international arbitrage stage. If they eventually lost the appeals, they may have to sell a stake at a lower price. Now, with the Qtel deal, they can cash in from the Indosat stake, while still holding on to the 35% stake in Telkomsel, the largest mobile operator in the country, controlling more than 50% of the market.
• Qtel's Increased Exposure: The Middle Eastern company, already a strategic partner of STT, is also a natural choice for acquiring the Indosat stake, as it diversifies away from home to maintain current profitability levels. The company has been seeking further acquisition opportunities after its US$3.72-billion purchase of Wataniya in March 2007. Indonesia's mobile market, with a population of nearly 240 million and a mobile penetration level of about 40%, remains an investment hotspot. Qtel has stated it will invest significantly in Indosat to support its growth and help achieve its full potential. Qtel could also leverage its experience operating in its home market in Indonesia, given the cultural similarities between the two Muslim-majority countries. In December 2007, U.A.E.-based Etisalat also entered Indonesia, through the purchase of a 16% stake in the country's third-ranked mobile operator Excelcom.