Khazanah’s money-go-round telecom shuffle

(The Malaysian Insider) – While market value has been lost in Khazanah Nasional Berhad's paper shuffle of its telecom units last year, it takes a ironic turn now with one unit flush with cash from another that is deep in debt.

Dominant fixed-lined provider Telekom Malaysia Berhad (TM) this week announced it wanted to pay back its shareholders RM3.5 billion apart from RM700 million in dividends, most of it from the RM4 billion that TM International Berhad (TM Intl) owes it after it was spun off last April.

Here's the catch. TM Intl is looking at a US$1 billion (RM3.6 billion) rights issue this year to raise capital for its operations apart from planning to reschedule the bulk of its RM10.45 billion short-term debt in 2009.

Industry insiders familiar with the telecom units split said the current situation could have been avoided if state asset manager Khazanah did not force the break-up to "enhance shareholder value".

"The only enhanced value is for Khazanah to take TM's cash pile. Otherwise that money would have gone to grow the mobile units without creating debt," an industry source told The Malaysian Insider.

Another source speculated that Khazanah was only interested in the funds due to TM's cash-rich position. "The Khazanah representative on the TM board was very insistent on the payout during the meeting recently," said the source.

In that meeting, the board proposed the capital repayment exercise to be completed in the second quarter or early third quarter of 2009. The proposal will have to be approved by shareholders at an EGM in May.

"We do have a strong cash position so there is no reason for us to keep excess cash," said TM's group chief financial officer Bazlan Osman. "If we have an opportunity to return cash, we will do so."

As of Jan 31, 2009, Khazanah owns 41.78 per cent of TM's shares and 44.51 per cent of TM Intl shares. It has said that it will issue right shares or some other equity-linked instrument to raise funds to retire some of its debt.

TM Intl has already missed an initial RM2 billion repayment to TM last year. The entire debt is due this April.

In a report on Tuesday, Citigroup said TM Intl may need to raise capital because of an expected US$300 million cash shortfall next year and about US$600-US$700 million capital spending.

"A rights issue or a debt issue — both of which will prove challenging in our view," Citi analyst Karen Ang said about the pan-Asian mobile operator's latest plans, which last year included taking a RM2 billion loan from local lender Maybank Berhad.

TM Intl shares have underperformed the local market, falling 11 per cent so far this year versus an almost 2 per cent rise in the benchmark KLCI. The shares ended nearly 3 per cent lower yesterday to RM3.14 a share while TM shares shot up 6.5 percent to RM3.56 a share.

Barisan Nasional backbencher Datuk Anifah Aman slammed Khazanah yesterday for "hand-picking" inexperienced young professionals to manage government-linked companies like TM and Tenaga Nasional Berhad.

“GLCs should not be led just by those with academic qualifications but those with the experience and knowhow to navigate through the economic crisis,” the Kimanis MP said.

Pulai MP Datuk Nur Jazlan Mohamed, also a TM director, on Monday criticised Khazanah for not being transparent in its accounts unlike Singapore investment agency Temasek Holdings, which announced that its investment portfolio had contracted by almost S$60 million (RM144 million) last year.

But Deputy Finance Minister Datuk Ahmad Husni Hanadzlah defended Khazanah, saying it had been giving annual reports of its investment assets which declined from RM88.2 billion in May 2008 to RM70.4 billion in December 2008 which he called a reassessed "book value".

Bagan MP Lim Guan Eng, who like Nur Jazlan is a qualified accountant, also weighed in on the debate, saying there should be an independent panel to assess Khazanah's investments and its losses which he called the net realisable value or paper losses.

Last November, The Malaysian Insider reported that the break-up of utility giant TM into fixed-line and mobile units to unlock their share value had achieved the reverse and was shrinking their market capitalisation in the current global financial turmoil.

Khazanah, the main shareholder that pushed for the demerger, had predicted that the market capitalisation of both units would touch RM40 billion. But their share prices have tanked with the combined market capitalisation now about RM23 billion, even lower than the RM25 billion last November.

The market was split about the demerger, first announced in late September 2007, with some directors and analysts against the deal, saying it looked like shuffling paper to create value. But Khazanah sealed the deal with government backing to create two units with purportedly more value.

TM spent some RM100 million for the seven-month demerger exercise that began in September 2007 when subprime loans were already hogging the headlines, including advisory fees of RM30 million and listing charges of RM45 million.