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Billionaire brothers in Indonesia chase telco assets

With the growth in number of smartphone users and big e-commerce firms, prospects in telecoms are bright


INDONESIAN billionaire brothers Michael and Budi Hartono, who built their fortunes by selling cigarettes and providing banking services, are now turning their focus on telecommunications.

Sarana Menara Nusantara, backed by the brothers' Djarum Group, is open to acquisitions to consolidate its leadership position in the cellular tower business, said vice-president director Adam Gifari.

Sarana has cash or cash equivalent of about 2.3 trillion rupiah (S$219.5 million) for any purchase, he said.

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Indonesia's rising number of smartphone users and the emergence of e-commerce unicorns such as PT Tokopedia and PT Go-Jek Indonesia are driving demand for high-speed data in the world's fourth-most populous country.

The archipelago lags behind countries such as China and India in tower density, offering growth opportunities for local companies. Sarana bought smaller rival PT Komet Infra Nusantara last month, its second purchase in two years.

Mr Adam said in a recent interview: "We're open to more deals like that, as we are supported by a strong base of shareholders, the Hartono family. You will likely hear our name if there's an opportunity to buy tower companies or a tower portfolio in Indonesia."

Djarum Group owns more than 50 per cent of Sarana; the Kudus-based company also counts T Rowe Price Group and Lone Pine Capital as shareholders.

The Hartono brothers, through their holdings in PT Bank Central Asia and the tobacco business, are together worth almost US$25 billion, reported the Bloomberg Billionaires Index.

Sarana will pay 1.4 trillion rupiah to Komet Infra, which will add about 1,400 towers and 2,000 tenants, the company said on March 26. The company acquired the tower business of PT XL Axiata two years ago.

Tower businesses in Indonesia offer earnings margins of more than 85 per cent before interest, taxes, depreciation and amortisation, the result of a ban on foreign direct investment in the sector and typically long-term tenancy contracts with mobile phone service providers, according to PT Ciptadana Sekuritas Asia.

The outlook for tower companies remains positive, as demand for mobile Internet services will continue to grow, said Niko Margaronis, an analyst at Ciptadana.

Internet users in South-east Asia's largest economy will swell to as much as 70 per cent of the population by next year, from almost 55 per cent, or 143 million users in 2017, going by data from an association of Internet service providers.

The country has about 100,000 towers for its more than 250 million people; China has 1.95 million units for its 1.4 billion people, said Indra Gunawan, chief sales and marketing officer at Profesional Telekomunikasi Indonesia, a unit of Sarana.

"Mathematically, the ratio should reach that level. But we need to take into account the geographic features of Indonesia. In some mountainous areas and with the number of islands, we might need more towers to cover our population," he said.

"The demand for mobile data will drive requirement for capacity, and therefore, our growth into the future." BLOOMBERG