Telkom Prepares New Management Funds Worth 7 Trillion Rupiah

PT Telekomunikasi Indonesia Tbk (Telkom Group) is preparing a new managed fund this year. Deputy Minister of State-Owned Enterprises Budi Gunadi Sadikin said the funding capacity was around US$300-500 million or Rp.4,2 trillion-7 trillion (exchange rate of Rp. 14.000/US dollar).

Budi said at the Digital Economy Summit 2020 event by Microsoft Indonesia, the Telkom Fund or the first stage of managed funds has channeled investment to 35 startups, both local and global.

The second phase of the Telkom Fund is prepared to support the digital transformation of the Telkom Group in the future. One strategy is to invest in startups. "The telecommunications sector has a very high capital expenditure, so there needs to be a change from digital infrastructure to digital platforms," ​​he said in Jakarta.

As is known, Telkom Fund is an investment managed by MDI Ventures as a corporate venture capital (CVC) under the auspices of Telkom. At its inception in 2015, MDI Ventures received a first round of $100 million in funding.

Then in May 2019, Telkom again injected a follow-up investment of $40 million for the investment sub-unit Telkomsel, that is Telkomsel Innovation Partners (TMI). The investment is still managed by MDI Ventures.

It was only in September 2019, MDI Ventures made its fundraising debut with investors outside Telkom of $100 million or equivalent to Rp1,4 trillion. One of limited partners (LP) involved is Kookmin Bank. In December 2019, Telkom through MDI Ventures and KB Financial Group from South Korea formed a new managed fund called Centauri Fund.

Previously, Head of Investor Relations & Capital Raising MDI Ventures Kenneth Li revealed, there will be two additional new managed fund This year. The focus of funding is for the segment growth stages and later stages. In other words, this is the second phase of the Telkom Fund mentioned earlier.

Kenneth himself has confirmed an investment capacity of IDR 7 trillion for new managed funds. "It's still a work in progress. But we can't yet confirm [whether looking for another LP or purely from Telkom]," he said in a short message to Mr DailySocial.

Disrupted telecommunications industry

For the first time in history, based on data from the All-Indonesian Telecommunication Providers Association (ATSI), the Indonesian telecommunications industry recorded a growth of minus 6,4 percent in 2018.

Chairman of ATSI and President Director of Telkom Ririek Adriansyah revealed, throughout 2018 the telecommunications industry in the country is estimated to only be able to pocket revenue of Rp. 148 trillion. This value is down from the achievement of the previous two years of Rp158 trillion.

"This decrease is due to a decrease in service Voice and SMS which are now being replaced by new services from Over-the-Top (OTT) players, data tariff wars between operators, and SIM Card registration regulations," he said as quoted from Indonesian CNN.

Meanwhile, Telkom recorded revenue growth of 3,5 percent or Rp. 102 trillion compared to the same period the previous year in the third quarter of 2019. Telkom's EBITDA margin also grew only 3,4 percent on an overall basis. year-on-year (YoY).

In recent years, telecommunications operators are trying to find the right business model to develop digital businesses. This transformation is expected to boost revenue growth and EBITDA. Unfortunately, most operator-developed digital business fails.

Therefore, inorganic growth is considered to be one of the right steps to accelerate the company's growth. In this case, Telkom formed a new entity as an investment extension for startups from various business verticals.

Strengthen the synergy and capital gain

In a fairly close period of time, Telkom has delegated Telkomsel to form a new investment unit, namely TMI. Then continued with the synergy of Telkom and KB Financial Group to establish the Centauri Fund.

With the plan to add two new managed funds--it seems that there could be more--shows how aggressive the government is to encourage synergies to strengthen Telkom's digital business transformation in the next few years.

Of course, with the increasing number of opportunities to invest in startups, it can create synergies, both in terms of technology and business knowledge transfer, which can be absorbed by all Telkom's subsidiaries, especially Telkomsel as the largest revenue contributor.

On the other hand, MDI Ventures as an extension of Telkom's investment arm has now spent the initial stage of investment by funding 35 portfolios. Over the span of four years after its founding, MDI Ventures has proven its success under the captain of Nicko Widjaja who is now anchored to BRI Ventures.

With a large fundraising target of IDR 7 trillion and an increasingly selective investment climate in the digital ecosystem, Telkom will open up opportunities for local and foreign investors to enter more into the next investment bag.