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FEER: Time dotCom's Watershed IPO
By S. Jayasankaran
3/2/2001 12:15 pm Sat
Halim Saad memang banyak masalah. Itulah bakat semulajadi beliau
agaknya - menimbulkan masalah demi masalah kepada tuannya, pemimpin
tinggi Umno. BBMB lingkup. Kilang besi di Filipina lingkup. Kalau
seringgir dua tak apa, ini berbilion yang hangus. Setiap kali beliau
tergelincir, ada saja pertolongan dihulurkan secara langsung dan
secara tidak langsung. Petronas selamatkan BBMB, dan BBMB ditelan
supaya hutangnya terhilang. Pelaburan di Filipina sudah diam kerana
Danaharta sudah membayar hutangnya dengan beberapa RM sahaja supaya
bank tidak dapat berbuat apa-apa. Baru-baru ini UEM (dana awam turut
memegang saham UEM) menolong membeli hutang Renong dan sekarang Halim
mengorak langkah untuk mendapatkan dana yang paling besar sejak 5 tahun
lepas. Dengan menyenaraikannya, dana kerajaan akan membelinya dan
seterusnya menyelamatkannya lagi.
Siapakah yang untung dan siapakah yang rugi?
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
By S. Jayasankaran/KUALA LUMPUR
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 August.
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 Time.
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
"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."