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share-swap deal between state-run telecommunications company PT Telekomunikasi Indonesia (Telkom) and tower operator PT Tower Bersama Infrastructure is on the rocks after intervention from legislators.

Just a day after Telkom and Tower Bersama announced an extension to the due date of their conditional share-swap agreement, a majority of the House of Representatives demanded that the state company cancel the deal.

'€œIt'€™s already clear that Telkom'€™s board of commissioners and major shareholders have asked for the cancellation [of the transaction]. So why is the company still looking to forge ahead with the plan?'€ asked House Commission VI deputy chairman Azzam Azman Natawijaya during a hearing with Telkom on Thursday.

Previously, State-Owned Enterprises Minister Rini Soemarno, who holds the controlling stake in the firm representing the government, said she had been informed by Telkom'€™s commissioners that they had agreed to cancel the share-swap deal, under which Telkom was to gradually release its stake in tower business PT Dayamitra Telekomunikasi (Mitratel) in exchange for a 13.7 percent stake in Tower Bersama.

During Thursday'€™s hearing, Telkom president director Alex Sinaga admitted that Telkom'€™s board of commissioners had, in a limited meeting between the commissioners and the firm'€™s directors on Dec. 23, 2014, advised Telkom to cancel the deal.

His company, he went on, had not immediately canceled the deal because the meeting required Telkom to request an investigative review from the deputy attorney general for the State Administrative Court, with the report issued in February this year. At the same time, the Supreme Audit Agency (BPK) was also investigating the company on other grounds.

The Corruption Eradication Commission (KPK) is also now investigating the company'€™s financial situation, including potential state losses from the share-swap deal.

In compliance with good corporate governance values, Alex said, his firm had decided to wait until the commission had finished its investigation before asking for approval for the deal from Telkom'€™s commissioners.

Meanwhile, the company has reached an agreement with Tower Bersama to extend the due date for closing conditions for the share-swap agreement until March next year.

Under the deal, signed in October last year, the state enterprise was also to receive cash of up to
Rp 1.73 trillion (US$129.6 million) from Tower Bersama.

A number of market analysts have argued that the transaction would benefit both firms, as Telkom would be able to unlock the potential value of its Mitratel towers amid hypercompetition in the tower industry, while Tower Bersama could strengthen its tower business.

Alex explained that the share-swap deal was actually aimed to increase the value of Mitratel through a backdoor listing through Tower Bersama, rather than through an initial public offering.

He also stated that Telkom would have an option to become a simple majority in Tower Bersama by acquiring up to 50 percent shares in the independent tower company in the future.