Friday, June 08, 2007 Vincent Lingga, The Jakarta Post, Jakarta
The logic of sound financial management dictates that a company whose long-term debts and capital expenditures are denominated mostly in U.S. dollars but whose revenues are mostly in rupiah should hedge a good portion of its foreign currency exposure to minimize losses from exchange rate fluctuations.
But what should have otherwise been regarded as simply normal derivative transactions have turned into another wave of utterly bad publicity against PT Indosat and caused negative market sentiment for the country's second largest telecommunications company, with US$3.8 billion in assets and $585 million in foreign debts.
The headline stories of several major newspapers on Tuesday -- the day Indosat held its annual shareholders meeting -- screamed as if "financial scandals" related to hedging transactions had occurred within Indosat between 2004 and 2006, allegedly causing cumulative losses of Rp 653 billion (US$72.5 million).
The front-page stories were based on statements made by Dradjad H.Wibowo, a member of the House of Representatives finance commission, at a working session with the government on Monday.
The meeting was also attended by Finance Minister Sri Mulyani Indrawati, Bank Indonesia senior deputy governor Miranda Goeltom and chairman of the capital market watchdog Fuad Rahmany.
Even though what Wibowo referred to as potentially scandalous hedging transactions had been fully disclosed in Indosat's semester and annual financial statements over the past three years, many reporters still snapped at the statement as completely hot "revelations".
Given his integrity, Wibowo's remarks might have simply been motivated by his great concern for the good of Indosat. He might have simply been exercising his right to scrutinize the company.
After all, the government holds about 14 percent of Indosat, with Singapore's Temasek owning through its subsidiary Singapore Technologies Telemedia almost 42 percent and the investing public the remaining 44 percent.
But in light of the string of bad publicity against Indosat and Temasek over the past few months and the rumors about a conspiracy between national vested interests and a Russian company planning to take over Singapore's shareholding in Indosat, one cannot help but wonder why Wibowo made a big issue out of the derivative transactions only now.
The details of the derivative transactions (cross currency and interest rate swap contracts) have always been fully disclosed in the company's financial statements since 2004, which are audited by a local affiliate of Ernst & Young.
Why did Wibowo not first thoroughly analyze Indosat's annual reports and, if necessary, check the documents of the company's derivative transactions before he blew the matter out of proportion?
Given his position and since Indosat is listed on the Jakarta and New York stock exchanges and is thus subject to tough disclosure requirements and auditing standards, Wibowo could have easily obtained all the necessary information from Indosat's investor relations department to verify the transactions.
Certainly, all officials, including tax director general Darmin Nasution and chief of the capital market watchdog Fuad Rahmany and government representative in the Indosat board of commissioners Roes Aryawijaya, when asked to comment on Wibowo's allegations, said they would look into the issue.
Their replies might have been made simply to appease the inquisitive mass media. But even if they went ahead with special investigations and eventually found nothing legally wrong with the transactions, the damage had been done to Indosat and its management.
On Tuesday, for example, the price of Indosat shares fell almost 3 percent.
The news stories on the alleged derivative transaction "scandal" simply added to the seemingly endless string of bad publicity and public-opinion harassment of Indosat.
The anti-monopoly watchdog (the Business Competition Supervisory Commission or KPPU) is now investigating Indosat for monopoly practices it allegedly committed in collusion with Telkomsel in cellular services.
Temasek owns 56 percent of the SingTel Group, which in turn holds a 35 percent equity stake in the government-controlled Telkomsel, the country's largest mobile phone operator.
Late last month, the University of Indonesia's Institute for Economic and Social Research announced the findings of its study on cellular services in Indonesia, which essentially said that the market mechanism had not optimally functioned in the cellular business.
This industry has been dominated by Telkomsel and Indosat.
Even though the institute asserted that none if its findings had solidly proved any collusion between the two mobile operators, the Post and Telecommunications Directorate General seemed to have joined the fray.
Earlier, in April, political analyst Mochtar Pabottingi came out with a 29-page analysis concluding that Temasek's acquisition of Indosat's shares caused the government billions of dollars in losses and jeopardized the secrecy of the country's defense and security sectors.
What a crowd of investigators Indosat is now dealing with: The anti-monopoly watchdog, the telecommunications regulatory body, the Tax Directorate General, the capital market watchdog and a special audit committee.
Now that all the allegations have been made public, the controversy cannot simply be allowed to die down and quietly disappear by itself from the mass media agenda.
The capital market watchdog should see to it that all investigations now underway on Indosat be conducted properly according to schedules and their conclusions -- whatever the findings may be -- should be immediately announced. Otherwise the devastating allegations will continue to linger on and loom over Indosat, damaging its corporate image, credibility and the trust of the investing public.
Letting the controversy linger on without any final clarification once and for all for those allegations would also erode the public's trust in the integrity of the Jakarta stock exchange, the Indonesian Business Competition Supervisory Commission and even Ernst & Young, one of the world's major accountancy firms.
The investing public would be worried that if all those bad things alleged to have been committed by Indosat did really occur at such a blue-chip company, which is subject to such tough disclosure requirements and auditing standards, what would then be the quality of corporate governance at other listed companies?
