DIGI – If You Can’t Beat Them, Suck the Coffer Dry

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Mar 22 2007
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Malaysia’s smallest mobile phone firm, DIGI.com Berhad (KLSE: DIGI, stock-code 6947) feels its balance sheet is under-geared and a capital repayment could be one way to restructure it, Chief Executive Morten Lundal said today.

“Right now, we have too much cash and too little debt … Our balance sheet is under-leveraged and we have to make good, to get to a more optimal balance sheet. We will announce, at some point, a better restructuring of the balance sheet” Lundal told reporters on the sidelines of an investor briefing in the Malaysian capital.
Lundal declined to comment on speculation that DiGi may tie up with ailing state tech firm Time DotCom Berhad (TIMECOM : stock-code 5031), after DiGi failed, in two separate government tenders, to win licences to offer high-speed 3G and WIMAX services.

DiGi is the only one of Malaysia’s three mobile phone firms that has chosen not to expand offshore, a strategy that has enabled it to keep returning its profits to shareholders in the form of capital repayments and pay handsome dividends.

Why am I not surprise with such a move? In fact I think it’s a brilliant move. If you want to know why, then you should read my previous article “Lost Again – What Should DIGI Do Next?”. I also wrote about how the smarter Telenor drove up the stock price to prevent TimeDotCom from launching a hostile takeover. If you can’t beat them, suck the coffer dry. Transport all the money out from here back to Norway. Can you blame them? Put it this way – what would you do if you are denied again and again license for expansion only because you’re not majority own by Bumiputra or Malay-ethnic? Malaysia government is idiot enough not to encourage foreign investors to further “re-invest” their profit into the nation.

Norway’s Telenor ASA (OSL: TEL), DiGi’s main shareholder with a controlling 61 percent stake, stands to benefit the most from these capital repayments or dividend payouts. Since the Malaysian government has given the Norwegian firm until the end of 2007 to reduce its stake as a foreign shareholder to a maximum 49 percent, DIGI.com has been consistently refrain from spending any new huge budget on the company but systematically rewards itself in terms of handsome dividend.

And things can only get better and better for shareholders as the unused money need to be dried soonest possible – with the hope of leaving an empty shell back to the bias-government. Can you blame Telenor since the rules state that at least 30 percent of the equity of a publicly traded firm must be held by Bumiputras, or indigenous Malay, shareholders – something equivalent to daylight robbery?

# TIP: If you’re looking to invest in high-dividend stock, DIGI.com stock perhaps will reward you with the highest dividend ever seen throughout this year, 2007.

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