|Laman Webantu KM2A1: 3801 File Size: 8.7 Kb *|
Time dotCom's Watershed IPO
By S. Jayasankaran
16/2/2001 10:16 pm Fri
Time dotCom's Watershed IPO
Malaysia's largest initial public offer since 1997 is unique
for being fully underwritten and could be a bell-wether for
other corporate debt-workouts
By S. Jayasankaran/KUALA LUMPUR
Issue cover-dated February 8, 2001
HALIM SAAD may have more cards up his sleeve than a
conjuror. Over the last six months, Malaysia's infrastructure
baron has rejigged restructuring plans for his debt-plagued
Renong group three times and bought extra time to keep a
3.1 billion ringgit ($815 million) commitment to another
Renong affiliate outstanding for three years. The market's
reaction has been uniformly hostile: The prices of his
various listed companies have dropped 30%-50% since
But despite poor market sentiment, Halim is pressing ahead.
In what is billed as Malaysia's biggest listing since the
Asian financial crisis, next month Renong's
telecommunications unit, Time dotCom, will sell and
privately place 22% of its shares to investors for 1.89
billion-ringgit. It's a deal that could create a company worth
8.5 billion ringgit and ranking among Malaysia's top 10.
With creditors baying at his heels, Halim may have had little
choice--the listing had been delayed three times already.
Nevertheless, it is being carefully scrutinized as a
bell-wether for corporate restructuring in Malaysia as it has
implications for future asset listings by indebted
conglomerates--including Halim's Renong, which plans
another giant listing later this year.
It also presages more competition in the crowded telecoms
business, which already has five big players. And finally, it
will remove one huge headache for bankers: Together with
the listing proceeds and other sources, close to 4 billion
ringgit in debt owed by Time Engineering, Time dotCom's
parent, will be paid off.
Analysts are bracing themselves for a disappointment. An
unenthusiastic public reception that pushes the share price
below its offer price could spell trouble for other asset
listings contemplated by companies seeking to prune debt.
It would certainly affect Plus, a toll-highway operator that is
Renong's only cash cow. Its listing, expected later this
year, is slated to raise 4 billion-5 billion ringgit that would
go toward retiring more group debt, estimated at more than
25 billion ringgit.
Analysts maintain that such an outcome would make
underwriters leery of participating in future listings by
indebted companies. Indeed, a lacklustre performance by
Time dotCom would entail potential losses to its
underwriters, the banks and sundry government agencies.
That could provoke a selldown of banking stocks which, in
turn, would further depress sentiment on a bourse that's
dropped almost 20% over 2000.
To be sure, Halim has no immediate worries. In November,
10 banks led by Commerce International Merchant Bank
fully underwrote the issue. It was the biggest such
agreement in Malaysian corporate history which says much
for Halim's clout. But it also means the businessman will,
indeed, raise the 1.89 billion ringgit whether or not the
shares have takers. That has implications for the telecoms
industry as a whole. After its listing, Time dotCom will be
Malaysia's only telecoms unit with zero debt and "at least
900 million ringgit in cash," according to Halim. The clean
balance sheet will allow Time to embark on a price war to
gain market share that could prove bruising to the industry.
It's a war that's already begun: Time dotCom has begun
offering subscribers 50% discounts, while investors in its
shares have been promised 80% discounts. "In 1999, we
had about 400,000 customers," says Halim. "The [share]
valuations were done on the basis of 850,000 customers.
Right now, we have 1.6 million. We're growing
In fairness, Time dotCom has one major asset that none of
its competitors possesses--5,200 kilometres of fibre-optic
cable that wires most of Peninsular Malaysia. It's only about
15% utilized, which means Time dotCom can wholesale
bandwidth, or capacity, to other telcos, or phone
companies. Most Malaysian telcos piggyback on either
Telekom Malaysia, which has a mainly copper wire grid, or
Listing will mean the network will be paid for completely,
which for Halim translates into a "tremendous competitive
advantage." Time dotCom's business model is simple:
aggressive customer acquisition and the provision of new
services. "The future is all about data transmission, not the
voice business," says Halim. "With our network, we can
promise greater speeds, more broadband access. And a
network is 70% of costs. We don't have to borrow or spend
as much as the others to deliver the same services."
Michael Greenall, research head at BNP Paribas Peregrine
in Kuala Lumpur agrees: "Without debt, they can compete
effectively on cost. They can afford to undercut."
Time dotCom's position owes largely to the help given by
the government to Halim, a protégé of Finance Minister
Daim Zainuddin and a favoured son of the ruling United
Malays National Organization. When Mahathir axed
Singapore Telecommunication's bid to buy a stake in Time
dotCom, Khazanah Nasional, the federal government's
investment arm, stepped in as partner. Post-listing,
Khazanah will own 30% of Time dotCom's enlarged capital
for 2.1 billion ringgit. That, together with 1.3 billion ringgit
from the listing proceeds and another 850 ringgit term loan
from a bank, will clear close to 4 billion ringgit in overdue
loans owed by Time Engineering.
CAUSE FOR CONCERN
Meanwhile, Time dotCom will garner close to 500 million
ringgit from the listing proceeds. That's in addition to the
250 million ringgit it has in retained earnings. Finally, it is
owed over 150 million ringgit by another, unrelated,
company--which makes up the 900 million ringgit Halim
says it will have at the end of the day. That's quite
remarkable for a Malaysian telco; most have debt ranging
from 500 million ringgit to 10 billion ringgit. Indeed, an
October 2000 report by independent consultants Arthur D.
Little concluded that Time dotCom's business model was
"feasible." An earlier report by Rothschilds concluded
Why then the unease? It stems from Halim's aggressive
revenue projections for a company that expects to lose 2.6
million ringgit for the year ended December 2000. In
essence, the businessman insists that he can do in six
years what took Telekom Malaysia, the country's national
utility, more than 25 years. In its prospectus released on
January 22, Time dotCom forecasts a net profit of 151
million ringgit for 2001 and sharply escalating figures
thereafter--376.4 million ringgit for 2002, 523 million ringgit
for 2003 and 1.14 billion ringgit by 2007.
Moreover, the shares are being offered at 3.30 ringgit
apiece. That values the shares at over 50 times 2001's
projected earnings, compared with Telekom Malaysia's
27-28 ringgit. Moreover, 3.30 ringgit was determined in
early 2000 when the tech-heavy Nasdaq composite index
was moving within a range of 3,000-4000. It was also the
price SingTel, the republic's national utility, had agreed to
buy into Time dotCom. Indeed, SingTel's bid boosted
Halim's credibility no end.
But the Nasdaq has since corrected downward by more
than 40% and telco prices globally have come off. That's
why firms like KAF Seagroatt Campbell in Kuala Lumpur
actually advised investors not to subscribe to the listing. "If
he could get a credible strategic partner like SingTel, there
would be no problem," says Amar Gill, the head of CLSA
Securities in Kuala Lumpur. "Investors are looking at
technology and management expertise."
"Wait and see," Halim told the REVIEW in an interview,
implying there was, indeed, a strategic partner in the offing.
For all that, however, the businessman's biggest bugbear
may be what analysts now call the "Halim factor"--his lack
of market credibility that translates into poor share prices.
For example, United Engineers Malaysia, a Renong affiliate
once an institutional favourite, trades at a 60%-70%
discount to its net asset value. What if Time dotCom tanks
on listing? "OK, fine, then investors can expect dividends,"
says Halim. "I assure you they will get good dividends."