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AWSJ: Time dotCom Leaps Ahead With a Controversial IPO
By Chris Prystay
16/2/2001 9:07 pm Fri
Source: The Asian Wall Street Journal
30th January 2001
Time dotCom Leaps Ahead With a Controversial IPO
By CRIS PRYSTAY
Staff Reporter of THE WALL STREET JOURNAL
The telecommunications unit of listed Time Engineering Bhd. is plowing
ahead with Malaysia's largest -- and most controversial -- initial
public offering since Asia's 1997 financial crisis.
The new listing will come to market at a time when investor appetite
for technology and telecommunications stocks has soured. In addition,
many securities analysts say the price is based on overblown profit
Waiver Is Expected
Moreover, critics say Time dotCom's parent, Time Engineering, is
skirting a key Malaysian listing rule that says a holding company must
have a viable business of its own before it can spin off a subsidiary.
Once Time Engineering sells its 20% stake in an affiliated company,
Renong Bhd., a deal announced in October, its main asset will be Time
dotCom. Nonetheless, Malaysia's Securities Commission is expected to
grant Time Engineering a waiver allowing the IPO to proceed, according
to analysts familiar with the company. A Securities Commission
representative said the body wasn't immediately prepared to comment.
A series of high-profile government bailouts of struggling companies
has already tainted the Kuala Lumpur market and the Time dotCom
offering is likely to deepen investors' cynicism. Still, a debt
workout for Renong is vital for Malaysia's banking system, analysts
say. "In sense, it's a Catch 22 for regulators. There's a broad
realization that if things don't work out with [Renong's]
restructuring, there are wider, far-reaching negative implications for
the banking system, and the whole economy," says T.S. Pong, head of
research at Jupiter Securities.
A Time dotCom spokeswoman declined to comment on the IPO. She said the
company planned to hold a briefing on the offering in the next few
Time dotCom's main asset is its extensive fiber-optic network, which
serves as a platform for fixed-line telephones and will provide an
array of other Internet and telecom services, company officials say.
Under the offering, 572 million Time dotCom shares, or 23% of its
expanded equity, will be sold through public and private placements at
3.30 ringgit (87 U.S. cents) per share. Totaling 1.89 billion ringgit,
Time dotCom's IPO will be the largest to hit the Malaysian market in
According to Time dotCom's prospectus, the proceeds will be used to
finance its telecommunications business and to pay off Time
Engineering's debts. After the IPO, Renong Executive Chairman Tan Sri
Halim Saad, who is also Time dotCom's managing director, will control
55% of Time dotCom through his shareholding in Time Engineering.
State-owned investment company Khazanah Nasional Bhd. will hold 20%.
On Monday, Time Engineering stock gained 5.9%, or 16 Malaysian sen, to
close at 2.87 ringgit as investors anticipated government support for
the IPO. Time dotCom is expected to begin trading on the Kuala Lumpur
Stock Exchange in March, but a date for its listing hasn't been set.
In its prospectus, Time dotCom predicted it will have net profit of
150.6 million ringgit for the year ending Dec. 31, 2001 and 376
million ringgit for the following year. The company, which has been
unprofitable in each of the last five years, said it will post a 2.6
million ringgit net loss for the year ended Dec. 31, 2000.
Some analysts question Time dotCom's rosy profit projections. One
foreign analyst says the projections are based on fixed-line and
cell-phone subscriber numbers tallied last year and targeted for this
year. Time dotCom has recruited many of those subscribers with heavily
discounted services. But, the analyst contends, the company will have
to stop discounting in order to secure the cash flow it needs to for
the capital investments envisioned in its business plan. He reckons
Time dotCom should be valued at about two ringgit a share.
Other analysts simply say that Time dotCom, which currently has just
8% of Malaysia's cellular-phone market and 0.7% of the fixed-line
market, is setting unattainable targets. For example, the company
predicts that by 2006 it will be earning as much as state-backed
fixed-line operator Telekom Malaysia Bhd. earned in 2000. According to
consensus estimates, Telekom Malaysia will report 2000 profit of about
894 million ringgit. But several analysts say they doubt Time dotCom
can compete with Telekom in the fixed-line market in such a short
time, citing other Malaysian fixed-line operators that have failed to
make a dent in Telekom's market share.
Despite such criticism, the debt woes of Time Engineering and its
parent, Renong, left Time dotCom little room to maneuver on the IPO,
analysts say. For example, Time Engineering owes 3.9 billion ringgit
on redeemable promissory notes issued in December as part of its own
"Their pricing was done many months ago and they've stuck to it, even
though valuations came off in general for telecom sector," says
Jupiter's Mr. Pong. "The reason is they need to raise the cash."
While few private investors are expected to snap up the Time dotCom
offering, analysts believe that government-linked funds will purchase
most of the shares to ensure the IPO's success. "I don't think any
mutual fund managers in their right mind would pick up the shares at
this price," says the head of research of a Hong Kong-based brokerage
The prospect of intervention by government funds isn't likely to
impress critical investors, who reckon that Tan Sri Halim and the
Renong group are getting yet another helping hand. In November, Renong
subsidiary United Engineers Malaysia Bhd. granted Tan Sri Halim,
Renong's executive chairman and controlling shareholder, a 15-month
extension to honor his pledge to buy back a large block of Renong
shares from UEM.
Tan Sri Halim owes about 3.2 billion ringgit on a put option he bought
to mollify investors two years ago, after he announced that UEM would
take on debt to buy a 33% stake in Renong. That move was widely seen
as a bailout of the ailing parent company at the expense of UEM.
Analysts are now waiting to see whether Time dotCom can find a foreign
partner with the technical know-how and financial backing to bolster
investor confidence. Time dot Com, which has been courting potential
foreign partners, came close to signing a deal with Singapore
Telecommunications Ltd. early last year. But the deal fell apart in
May after the Malaysian government objected.
Last week, analysts and fund managers speculated that talks with
SingTel had resumed. But bankers familiar with SingTel reject the idea
and suggest that rumors were being fanned in Kuala Lumpur to pump up
interest in the offering.
"At this price, I don't think a foreign partner would come in. You
need a foreign partner to add value, not the other way around," says
Kok King Ching, head of research at Worldsec Securities in Kuala
Lumpur. He points to the situation in Europe, where companies overpaid
for licenses for third-generation networks. He explains: "There's not
so much money now to expand abroad."