Telkom Corruption Investigation
I was not happy reading this Jakarta Post story as TLK is one of my major holdings and has done quite well for me lately:
"The government-sponsored interdepartmental corruption eradication team is intensifying its investigation into corruption allegations at state telecommunication company PT Telkom, following initial evidence of graft allegedly committed by the company's management."
"under the new contract Telkom should pay an annual payment to MGTI within the contract period totaling US$517 million, aside from assuming full responsibility to build and finance new telecommunication facilities in the two provinces"
"All MGTI shareholders, including Telkom's rival state telecommunications firm PT Indonesian Satellite Corp. (Indosat), Widya Duta Infotel, Telstra Global Ltd, NTT Finance and Sumitomo Corporation agreed to sell their entire stake to PT Alberta Telecommunication (Alberta) for a total of $266 million in January last year"
"Aside from the MGTI deal, the anticorruption team is also probing allegations of kickbacks during the construction of network infrastructure for Telkom's latest cellular technology Telkom Flexi."
It appears that TLK has massively overpaid for MGTI. Although some financing issues were alleged to have blocked the $266 million deal last year, I am sure that TLK could have financed it in the international debt markets. TLK is profitable, growing and in a leadership position in India. Somebody would have purchased bonds at a reasonable rate of return so TLK could have financed the deal. I am concerned about the kickback allegations. I am going to hold onto my TLK shares for the moment as I still feel that they are way undervalued (assuming any possible corruption can be eliminated) but that does not mean I am happy about this. Perhaps if TLK falls back below 20 based on continued reaction to this news I will buy more shares. My future decision to remain a TLK shareholder hinges upon the elimination of any corrupt management going forward.
Disclosure: I am long TLK
Another recent TLK related story (on a more positive note):