Indonesia’s telecom industry stares at consolidation, M&A deals likely

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A host of telecom tower companies in Indonesia are in talks to sell their assets as they stare at an impending consolidation in the sector gripped with financial issues.

DealStreetAsia reported a slew of prospective transactions that are waiting to be closed over the past few months. Protelindo, a telecom tower company backed by Djarum Group, and state-owned Telkom Group, are understood to have evinced interest in acquiring a few telecom tower assets of Indosat Ooredoo. If talks fructify, the deal is expected to be finalised this year. Other companies that have put their telecom towers on the block are Centratama Telekomunikasi, Solusi Tunas Pratama and Inti Bangun Sejahtera, among others.

Even as a significant number of telecom tower assets have been up for sale, investor response has been rather tepid primarily due to the stringent rules pertaining to foreign ownership restriction in the telecom tower business in the country, said experts. According to Indonesia’s Presidential Decree no 44/2016, the provider, manager as well as the provision for telecom tower service must be 100 per cent domestic.

The regulation of Indonesia’s Information and Communication Ministry stipulates that the telecom tower industry is closed for foreign investment.

In November 2018, the Indonesian government reviewed the possibility to remove nine business fields related to the telecom sector from the Negative Investment List (DNI). The relaxation of DNI would have allowed foreign investors to own a stake in local businesses.

However, the proposal did not see the light of the day as 2019 marked the election year for Indonesia. “There must be more discussions between the concerned parties,” Danny Buldansyah, general secretary of Indonesia’s Telecommunication Operators Association (APTSI) told DealStreetAsia.

The current restriction on foreign ownership in the sector has kept buyers away, thus prompting telecom tower owners to offer assets at depressed prices, three industry players said on condition of anonymity.

The abolition of foreign ownership restriction is imperative to support the telecom tower industry, Buldansyah said. “This sector was included in the DNI because it was driven by local businessmen, but the regulation may need to be reviewed as years have passed. In consideration of capital inflow into the country, it will be good for the telecom tower industry.”

Echoing the same sentiment, Etta Rusdiana Putra, telecom sector analyst of Kresna Securities, added data security in the industry is also emerging as a concern.

However, what’s ironic is that despite stringent rules, some of the existing telecom tower players are backed by foreign investors through layered investments wherein they hold a stake in local players, one of the industry players said.

It is a public knowledge that Centratama Telekomunikasi is backed by Singapore-headquartered PE firm Northstar Group, while STP is backed by two foreign PE firms Carlyle and Southern Capital.

Consolidation wave

Rumor has it that Protelindo, the subsidiary of listed Sarana Menara Nusantara (SMN) had almost agreed to acquire Solusi Tunas Pratama’s (STP) stake in early 2018. However, the sale did not fructify due to disagreements over valuation. Protelindo, in turn, ended up acquiring Komet Infra Nusantara (KIN) mid last year.

“STP’s shareholders asked for too high a valuation, so Protelindo stepped down from the deal and turned their eyes to KIN,” said one of the industry players mentioned above.

The current situation signals an emerging trend on how buyers are currently calling the shots and determining the price to the sellers. It is understood that some deals in the market have been currently put on the back-burner due to valuation issues.

Three big local players in the telecom tower sector that are likely to emerge as potential buyers in the future are Protelindo; Saratoga-backed Tower Bersama Infrastructure; and Dayamitra Telekomunikasi (Mitratel) – a subsidiary of the state-owned company Telekomunikasi Indonesia.

Protelindo is believed to have the strongest financial power at this point in time because it is backed by Djarum Group, a conglomerate owned by Robert Budi Hartono and Michael Hartono – Indonesia’s richest tycoons according to Forbes since 2009 to date.

There are various reasons why telecom players are looking at an industry consolidation. While Centratama and STP’s stake sale are being driven by PE shareholders who are looking to monetize their investments, in case IBS, shareholders are to looking to dilute their ownership.

Meanwhile, Indosat Ooredoo has put as many as 3000 tower assets on the block as it wants to focus on developing its service as a telecom operator.

The need for consolidation is becoming more real these days due to factors such as high operational costs, non-network sharing in a highly competitive market.

“There is only little organic growth possibility because it is difficult to find operators as tenants too,” one of the industry players said.

Today, the average stock prices that Indonesia’s telecom tower companies are trading at are 9 to 10 times of EBITDA, which is lower than 13 times of EBITDA around three years ago.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.