Indonesia's Telkomsel has successfully fended off a legal bid to have it declared bankrupt.
SingTel, which owns a 35% stake in the mobile operator, yesterday announced that the Indonesian supreme court has granted Telkomsel's appeal against a lower court's ruling having it declared bankrupt.
The court has now rejected the bankruptcy petition from PT Prima Jaya Informatika, a prepaid voucher distributor for Telkomsel.
The petition alleged that Telkomsel still owed the operator around $550,000 under the voucher contract. But Telkomsel had terminated its contract with Prima Jaya, alleging that its partner failed to meet the deal's conditions.
Under Indonesian law, a company can be declared bankrupt if it has at least two creditors, and debts to at least one are still outstanding. Thus Telkomsel was declared bankrupt on September 14, despite earning a profit of around $5.6 billion for the financial year ending in September 2012.
Telkomsel appealed the decision on September 21, and in November the Supreme Court agreed to overturn the bankruptcy. But the verdict was not formalized until January 10.
Commenting on the verdict, Moody's lead analyst for Telkomsel and Telkom Indonesia Nidhi Dhruv said Telkomsel's win is a credit positive - although it does not have any impact on the Baa1 credit rating for it or 65%-owner PT Telkom.
“[While] the disputed amount was small...the bankruptcy, if upheld, could have resulted in the acceleration of repayment of some of Telkomsel's bank loans, and which could have triggered a cross-default at Telkom Indonesia,” she said.
An unfavorable ruling would have immediately put downward pressure on both companies' ratings, she said, but the Supreme Court's verdict removes these risks.
The verdict also comes just in time for Telkomsel to secure more 3G airwaves in an upcoming spectrum auction. Operators have until January 31 to apply, and bankrupt companies are prohibited from participating under Indonesian law.