PT Mitra Global Telekomunikasi

cancelled

PT Mitra Global Telekomunikasi (MGTI) was granted a 15-year concession agreement for the provision of fixed local phone services in Central Java (division IV) in 1995. The company was one of the five international consortia that were granted such agreements when the country was divided in seven regional areas in 1995. Those regions were Sumatra (division I), Jakarta and the surrounding area (division II), West Java (division III), Central Java (division IV), East Java including Surabaya (division V), Kalimantan (division VI), and East Indonesia (division VII). The state-owned company PT Telkom kept the management and operators of the two most profitable regions (Jakarta and East Java). Each of the remaining five regions were awarded to one international consortia under a joint operating scheme (Kerja Sama Operasi or KSO) in 1995. Under the arrangement, each KSO was treated as a division of PT Telkom and was managed and operated by the KSO consortium on behalf of PT Telkom for 15 years staring in 1996. Collectively, the KSO investors were charged with the planning, engineering, financing, and constructing of a minimum of 2 million lines by 1999. Of that amount, PT Mitra Global Telekomunikasi committed to install an additional 400,000 lines. In addition, the company took over the management of the 372,267 existing fixed lines from PT Telekom in Central Java in January 1996. At the end of the 15-year period, all lines constructed had to be transferred to PT Telkom for a nominal payment. As part of the agreement, each KSO consortium had to give PT Telkom three principal types of payments during the term of the KSO - an up-front fee for joining the KSO scheme, which was US$10 million for PT Mitra Global Telekomunikasi; a monthly payment for the annuity-like "Minimum Telkom Revenues"; and an annual "Distributable Telkom Revenues" (a percentage of the KSO's unit revenues after deducting certain allowable operating expenses). The average annual payment was estimated around 30% of the total revenues. PT Mitra Global Telekomunikasi was created as a joint venture between PT Widya Duta Informindo (31.31%), PT Indosat Tbk (30.55%), Telstra Global Ltd (20.37%), Nippon Telegraph & Telephone Corporation (15.27%), Itochu Corporation (1.25%), and Sumitomo Corporation (1.25%). On September 24, 2003, PT Alberta Telecommunication, a subsidiary of Indonesian investment firm PT Saratoga Investama Sedaya, agreed to purchase 100% of MGTI's shares for US$266 million. The total cost of the network expansion was estimated at US$550 million. Mitra Global Telekomunikasi closed financing for US$95 million through a domestic loan in February 1996. In addition, the company secured a US$480 million non-recursive project finance facility in October 1996, becoming the third of Indonesia's 5 regional KSO telecom projects to seal a loan agreement. The company was seriously affected by the financial crisis in the country during the late 1990s. Telstra had written down its investment in the company to zero. The company, as the other KSO arrangements, was unable to meet the deadline of March 1999 to finish its build out commitments. The company tried to renegotiate its contract with the government and restructure its foreign debt by end of 1998. In order to assist the KSO partners in meeting their obligations and to maintain the continuity of the KSO Agreements, all of the KSO partners entered into a Memorandum of Understanding with TELKOM on June 5, 1998 which reduced the minimum line construction obligations of the KSO partners, decreased TELKOM's share of KSO revenues for 1998 and 1999 and cancelled TELKOM's option to purchase the assets of the KSO before the end of the KSO period. Beginning January 1, 2000, the parties reverted to the terms of the original KSO agreements with respect to MTR and DTR payments. In January of 2004, Saratoga Investama Sedaya closed on a five-year, US$215 million syndicated term loan facility through Singapore's DBS Bank and PT Bank Mandiri. Proceeds from the loan were to be used by Saratoga Investama Sedaya finance the purchase of MGTI and refinance its existing debts which it assumed. By the close of 2003, PT TELKOM had reacquired and consolidated all of the KSOs except division IV (MGTI) and division VII (Bukaka Singtel). On January 20, 2004, however, TELKOM and MGTI entered into an agreement to amend and restate the KSO Agreement with respect to Regional Division IV. Under this amendment agreement, for the remaining KSO period, TELKOM was to be entitled at its sole discretion and expense to construct new telecommunications facilities in Regional Division IV and MGTI was to receive fixed monthly payments derived from revenues generated by the Regional Division IV operations. These monthly payments to MGTI were expected to be between US$5.4 million and US$6.8 million until the expiry of the contract in 2010. TELKOM thus obtained the right to manage KSO Unit IV and assume the risk and rewards of the KSO operation. MGTI was to receive the fixed monthly payment regardless of the performance of KSO Unit IV. Information request sent to Sutrisman, President Director, Mitra Global Telekomunikasi Indonesia, FAX NO.: 62 24 830 2338 on August 5, 2003 Alberta Telecommunication is a subsidiary of PT Saratoga Investama Sedaya which is in turn controlled by Edwin Soeryadjaya and a number of financial investors.