PT Telekomunikasi Indonesia (Telkom), the nation's biggest telecommunications firm, has submitted a bid to buy Asia's leading undersea cable operator Pacnet, in a deal that could be the start of a wave of outbound M&As by Southeast Asian telecom companies.
Reuters on Tuesday quoted sources as saying that Telkom had submitted its bid last week after reviewing Pacnet's business over the past few months. The deal is expected to value Pacnet at about $1 billion including debt.
Rob Bratby, managing partner at Olswang Asia, said he expected to see more acquisitions in the telecom space in SE Asia, particularly Indonesia, in the near future. “There are a number of factors - the first is the growth of companies in their national markets – with Indonesia being a prime, but not the only example – giving them the financial ability to invest abroad and a realisation that future growth needs to come from international expansion,” he said. “The American telcos were the first internationalise, followed by the European and more recently Indian companies like Tata Communications and Bharti have invested outside their home markets. The next wave on international M&A is likely to come from SE Asian telcos.”
State-owned Telkom, which has a market value of about $18.2 billion, hopes the deal will be completed by the end of the second quarter, although the valuation has not yet been agreed and could be a stumbling block, one of the sources told Reuters.
Seeking to expand overseas as its home market in Southeast Asia's biggest economy matures, Telkom last year tried to buy Cambodia's biggest mobile operator CamGSM but the deal fell through over a valuation issue.
Pacnet, which is owned by groups including Ashmore Investment Management and Clearwater Capital Partners, put itself for sale last year after its IPO plan was hit by choppy markets. But the sale stalled after it received lower-than-expected offers in the initial round of bidding, Reuters said. The company, which owns over 46,420 km of submarine cable infrastructure across Asia and the Pacific Ocean, has been battling intense competition and falling prices, and the company is expected to face significant competitive pressures this year, rating agency Moody's Investors Service said in a recent report.
However, Bratby said he could see the strategic logic of a bid for Pacnet from the Indonesian company. “It would give Telkom a regional presence from which to build an international business,” he said. "It is also an opportunity for them to deploy capital outside Indonesia.”
Pacnet's mooted sale comes at a time when the undersea cable unit of India's Reliance Communications is planning a $1.4 billion IPO in Singapore. According to Bratby, as sub-sea cables are a very capital intensive cyclical business, the continued growth of data traffic means that they are currently in a capital investment phase.
"We continue to invest in fibre optic as it will help our customers to get faster internet data," Rinaldi Firmansyah, Telkom's chief executive, told Reuters. However, he declined to confirm the bid for Pacnet. ALB
Ranajit Dam is Southeast Asia Editor at ALB. Follow him on Twitter: @RanajitDam_ALB.
