Saudi Telecom Co (STC) has begun steps to sell its Indonesian business, banking sources said on Monday, as the state-owned firm posted a 41-percent drop in second-quarter profit.

Saudi Telecom has invested heavily in its Indonesian unit but competitive pressure has dragged on earnings. Indonesia has 10 operators vying for mobile phone subscribers, making it one of the most competitive markets in Asia after India.

Saudi Arabia's biggest telecoms operator took a non-cash charge of 1.1 billion riyals ($293.30 million) in the quarter to write down the value of its investments in Indonesia's Axis Telekom and Indian mobile phone operator Aircel.

STC has moved its 84-percent majority stake in Axis to a "held for sale" category, it said in a statement late on Sunday.

A sale process for Axis was ongoing, two banking sources said on Monday, adding that the business may generate interest among existing operators in the country. The sources spoke on condition of anonymity as the matter was not publicly disclosed.

"We are looking into rationalization of STC's international portfolio," said STC Group Chairman Abdulaziz Al-Sugair. "Management is evaluating options for some of these investments in order to take appropriate actions in the best interest of the shareholders."

Profit for the second quarter dropped to 1.4 billion riyals ($373.29 million) from 2.4 billion in the same period last year.

Annual profits at STC have fallen 43 percent from their 2006 peak. The company, with operations spanning much of the Muslim world, has spent billions of dollars to buy foreign assets, but competitive pressures closer to home may force it to focus more on the domestic business.

The Saudi market still accounts for about two thirds of STC's sales and opened up to other players including Etisalat affiliate Mobily in 2005 and Zain Saudi in 2008.

Unrealised foreign exchange losses for the quarter were 505 million riyals due to sharp depreciations of the Turkish Lira, Indian rupee and Indonesian Rupiah, STC said.

Its shares closed 0.3 percent lower on Monday. They have fallen 7.2 percent in the year to date. – Reuters