Telkomsel upbeat it will win Supreme Court appeal

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Mobile phone operator PT Telekomunikasi Seluler (Telkomsel) is upbeat that it will win a Supreme Court appeal against a lower court ruling that declared the firm bankrupt for debt nonpayment.

“The company is optimistic because it has a strong position and a healthy financial performance,” Muhtar Ali, a member of Telkomsel’s legal team, said.

Lawyers for the company, a subsidiary of publicly listed telecommunications giant PT Telekomunikasi Indonesia, sent on Friday a cassation appeal to the Supreme Court, asking it to overturn a decision of the Central Jakarta Commercial Court that declared the firm bankrupt for not repaying a Rp 5.3 billion (US$557,000) debt to PT Prima Jaya Informatika, which distributed its prepaid credit and subscriber identity module (SIM) cards.

Telkomsel’s lawyers have maintained that Telkomsel did not owe a debt to Prima Jaya, describing the dispute as stemming from denied purchase order agreements.

Telkomsel authorized Prima Jaya to distribute its phone credit and SIM cards for two years after signing a deal in June 2011. Prima Jaya sent a purchase order to Telkomsel for credit and cards in June 2012 that Telkomsel rejected, claiming that Prima Jaya failed to meet sales targets.

The head of Telkomsel’s legal team, Ricardo Simanjuntak, said that the lower court failed to consider that Telkomsel had the authority to review its arrangement with Prima Jaya if it did not meet the sales targets specified in the agreement.

According to Ricardo, Prima Jaya committed to sell 10 million SIM cards depicting national athletes and 120 million top-up credit vouchers and to establish a community for the special cards. However, Prima Jaya sold only 524,000 SIM cards as of June and never established the community.

“Prima Jaya sent another purchase order amounting to Rp 5.3 billion that was not approved by Telkomsel. How come the court did not see this?” Ricardo said.

Besides Prima Jaya’s claim, the court also based its decision on the existence of another Telkomsel’s debt to PT Extent Media Indonesia of Rp 40 billion

Under Indonesian law, a company can be declared bankrupt if the plaintiff can show that the company has failed to pay matured debts to two creditors, regardless of the amount of the debts and the company’s financial condition.

“Telkomsel has shown evidence to the court that it has solved its disagreement with Extent Media. However, the court ignored the evidence, saying that it was a photocopy of a document,” Ricardo said.

According to bankruptcy law, a cassation appeal process must be resolved within 74 days of its filing.

The Rp 5.3 billion debt was too small to require Telkomsel’s liquidation, given its assets, Ricardo said.

Telkomsel, which is 65 percent owned by state-run telecommunication company PT Telkom and 35 percent owned by Singapore’s SingTel, has assets of Rp 58.72 trillion and booked net profits of Rp 12.82 trillion in 2011.

One of the men appointed by the lower court to manage Telkomsel during the liquidation process was upbeat. “Telkomsel is healthy in its financial performance and runs its business as usual. We hope that it can meet its target by the year end,” Feri S. Samad said on Friday.

The lower court appointed Feri, Edino Girsang and Mohamad Solihin, to supervise Telkomsel’s debt repayments to its creditors.

The ruling that declared Telkomsel bankrupt has raised concerns on loopholes and weaknesses in the nation’s bankruptcy law.

Two prominent lawyers, Todung Mulya Lubis and Frans Hendra Winarta, have publicly declared strong opposition to the verdict.

Todung said that the nation’s bankruptcy laws had a profound weakness that was prone to abuse and might endanger businesses. He demanded that the government review the laws to ensure that they would not be used by irresponsible parties to blackmail other companies.

Meanwhile, Fitch Ratings announced that it rated Telkomsel’s long-term foreign and local-currency issuer default ratings at ‘BBB’ and ‘BBB+’, respectively, despite the verdict.

Fitch said that amounts in dispute were insignificant compared with Telkomsel’s financial resources. The agency also said that it did not expect the company’s funding banks to take any action.