Indonesia’s largest telecom operator PT Telekomunikasi Indonesia (Telkom) Tbk plans to consolidate its tower operation business under its subsidiary PT Dayamitra Telekomunikasi (Mitratel).
The restructuring exercise is aimed to strengthen the state-owned tower company before Mitratel makes a public market debut eventually.
Telkom will merge one-third of its total towers owned by its cellular unit PT Telekomunikasi Seluler (Telkomsel) with Mitratel. Currently, Telkom owns 34,000 towers. Of these, as many as 18,000 towers are under the Telkomsel umbrella and 16,000 under Mitratel.
Andi Setiawan, vice president of investor relations at Telkom, revealed Mitratel will buy 5,000-6,000 Telkomsel’s towers to become one of the largest tower company in the country.
“We want to strengthen Mitratel fundamentals and valuation before it gets an IPO…. with the consolidation and IPO, we expect Mitrarel to have a higher valuation like other tower companies,” Setiawan told DealStreetAsia, even as he declined to indicate the deal size.
Currently, Mitratel’s valuation depends on that of Telkom, and therefore “we think it is undervalued,” said Setiawan.
To facilitate the transaction, the company plans to use a part of its internal accruals while it will also depend on external sources for financing. The company will merge 2,000 towers in the first stage and proceed with the transaction before the end of the year.
Setiawan stated that Mitratel is not looking at an IPO this year due to the unstable market conditions. He also said there has not been any discussion with other potential investors at the moment.
On the impact of the COVID-19 pandemic, Setiawan said the tower companies’ businesses have been resilient even as the pandemic has had an adverse impact on the economy and most business activities.
During the first half of 2020, tower players – Saratoga’s PT Tower Bersama Infrastructure Tbk (TBIG) and Djarum’s PT Sarana Menara Nusantara Tbk (TOWR) – registered a net profit growth of 33.58 per cent and 30.97 per cent, respectively. The tower lease business drives the development of telco operators.
Both companies expect a double-digit profit growth this year as they have bagged contracts for tower expansion.
Going forward, analysts believe that 5G technology implementation in 2022 or 2023 will make the tower business even more attractive. Currently, TOWR owns more than 21,000 towers, while TBIG has more than 15,000 BTS.
Other tower companies in the archipelago include PT Bali Towerindo Sentra Tbk (BALI), Northstar-backed PT Centratama Telekomunikasi Indonesia Tbk (CENT), and PT Gihon Telekomunikasi Indonesia Tbk (GHON).
According to JP Morgan’s estimates in a separate report, Mitratel’s valuation in a potential IPO could range between $2.3 billion and 3.9 billion.
“In our view, an IPO of Mitratel would benefit TLKM (Telkom) through crystallization of value of Telkom’s tower portfolio, IPO proceeds would support dividends, and relative value arbitrage,” said the JP Morgan report released on 23 September this year.
In October 2014, Telkom’s management had agreed with TBIG’s management to sell all shares of Mitratel to TBIG through share swaps. However, the commissioner had rejected the proposal and had asked Telkom to abort it on grounds that it would not benefit Telkom.