Two telecom giants, Qatar-based Ooredoo and Hong Kong’s CK Hutchison, have inked a $6 billion deal to merge their Indonesian businesses PT Indosat Ooredoo and PT Hutchison 3 Indonesia.

The new entity, PT Indosat Ooredoo Hutchison, would be the second-largest telecommunication company in Indonesia with almost $3 billion in annual revenue and could spend $300 million to $400 million in annual capital expenditure over the next three to five years, the companies announced on September 16.

Indosat Ooredoo chief operating officer Vikram Sinha was nominated the CEO of PT Indosat Ooredoo Hutchison, while CK Hutchison Holdings Ltd finance head Nicky Lee would serve as chief financial officer of the new entity.

Indosat Ooredoo president director Ahmad Al-Neama and Hutchison 3 Indonesia president director Cliff Woo are to keep their positions until the merger is completed, and both are to join the board of commissioners of the new company.

Ooredoo Group managing director Aziz Aluthman Fakhroo said in a statement: “The merged company will be well placed to deliver a higher return on investment for all shareholders and build on the outstanding growth momentum already achieved by Indosat Ooredoo.”

The long-awaited merger comes after the government announced plans to push the country’s telecom firms into consolidation, with the limited frequency spectrum for wireless communication cited as one of the main reasons.

Telecommunication companies in Indonesia have started a race to offer 5G services. Telkomsel, Indosat and XL Axiata have begun implementing the new technology.

“With a larger scale, wider network spectrum and more efficient financing, Indosat Ooredoo Hutchison will be able to expand its network and improve service, quality and speed,” CK Hutchison group co-managing director Canning Fok said in the same statement.

Through the merger, CK Hutchison would receive newly issued shares in Indosat Ooredoo amounting to 21.8 per cent, while PT Tiga Telekomunikasi Indonesia would receive 10.8 per cent of the merged Indosat Ooredoo Hutchison business.

CK Hutchison would exchange its 21.8 per cent stake in Indosat Ooredoo Hutchison for a 33.3 per cent stake in Ooredoo Asia. It would also acquire an additional 16.7 per cent stake from Ooredoo Group for a cash consideration of $387 million.

By doing so, CK Hutchison would acquire 50 per cent in Ooredoo Asia. As a result, Ooredoo Asia would be renamed Ooredoo Hutchison Asia.

The above would enable Ooredoo Group and CK Hutchison to jointly control the newly merged company through Ooredoo Hutchison Asia that is owned by both parties with 50 per cent each.

Ooredoo Hutchison Asia will control 65.5 per cent of PT Indosat Ooredoo Hutchison, followed by public shareholders with 14 per cent, PT Tiga Telekomunikasi Indonesia with 10.8 per cent and the Indonesian government with 9.6 per cent.

Samuel Securities estimated the number of subscribers of the merged company at 104.3 million based on data from the first half of this year. That figure would bring them closer to Telkom, which holds the Telkomsel brand and has some 169 million subscribers. XL Axiata is expected to fall further behind with only around 56.7 million subscribers.

“The consolidation will relax competition in the telecommunications industry, alleviating price competition and strengthening [telecom companies’] finances,” Samuel Securities said in a statement on September 17.

In a statement released on the same day, RHB Securities said the merger would enable the two companies to benefit from cost and capex synergies thanks to highly complementary infrastructure.

“We are still overweight on the sector, as the merger should improve the competition landscape,” RHB Securities said.

THE JAKARTA POST/ASIA NEWS NETWORK