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Indonesian spectrum auction hit by bankruptcy ruling

Indonesia’s spectrum auctions have been hit by a fourth delay, despite the original intention for them to be held in June 2012. The auction has reportedly been postponed due to legal issues surrounding the involvement of market-leading operator Telkomsel.

Telkomsel was this month declared bankrupt after it was unable to pay a debt of US$0.5 million to the SIM and top-up firm PT Prima Jaya Informatika. This effectively prohibits the operator from bidding on new frequencies under the current regulatory framework of Indonesia.

While the Jakarta Commercial Court has reportedly requested liquidators be assigned to the case, it has come under fire from corporate lawyers who claim that the Telkomsel ruling ignores the operator’s “financial strength”, and instead reflects “a substantial shortcoming in the nation’s bankruptcy law” that puts well-known firms at unnecessary risk.

Any firm – regardless of its financial health - can be declared bankrupt in Indonesia as long as it “can be shown to have at least two creditors, and the debt owed to one of them is due and payable”, according to Reuters.

The decision is unlikely to go unchallenged, with national press already reporting that analysts and shareholders consider the ruling to be “one of the quirks of the country's legal system... [that will] almost inevitably... be overturned when Telkomsel appeals to the country's Supreme Court”.

Telkomsel’s debt to Prima Jaya reportedly arose following the cancellation of a two-year distribution deal between the two companies which was signed in 2011; Prima Jaya claims that it has suffered losses as a result of the agreement’s annulment.

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