The Rise of CELCOM Empire, Tales You Should Know





Sep 30 2007
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By now you and everyone should know that the once listed Celcom will be re-listed again. Who said deadman cannot rise and pig cannot fly in Malaysia? And to think of the possibility that Maxis Communications Berhad could be making its way back to the local stock market one of this day after Ananda decided to takes it private recently is enough to amuse everyone, at least me.

In a not so-distance star away, there was this galaxy whereby the planet was ruled by a powerful government who always got voted into power no matter what. Somehow there was this vision to nurture and create huge companies with international reputations led by some bumiputra businessmen who can make the ruling party UMNO proud and stand tall since successful businessmen often associated with ethnic-Chinese. After all, if the Chinese-ethnic can produce so many successful businessmen, UMNO can mould the same quality Malay-ethnic businessmen as well – how hard could that be?

The Ambitious Plan to Clone Success

And so some candidates were identified and they were to be trained or rather fast-tracked to become amongst the most elite Daim Tajuddin Rashid HalimMalay-ethnic corporate businessmen ever produced. There were actually quite a number of candidates but suffice to say among the successful one were Tajudin Ramli, Halim Saad and Rashid Hussain. All these characters were once multi-billionaires “before” and were trained by Master Yoda Daim Zainuddin (the former Malaysia Finance Minister). Yes, before the 1997-98 Asia Economy Crisis which brought in the recession and as fast as you can blink your eyes, their fortunes evaporated, though the one who could stand the longest was Rashid Hussain.

While the intention was good (the plan to have more Malay-ethnic successful businessmen), the method of how it was being carried out was flawed. You simply can’t clone a businessman out from some sort of moulder (as if you’re making biscuits in the production line) and expect him to be able to withstand the tsunami of the real corporate challenges if you throw in the “fast-track to become a billionaire businessman for dummy” book, can you? Even within the the Chinese-ethnic not everyone has the quality to achieve the desired dream of becoming another Teh Hong Piow, Lim Goh Tong, Li Ka-shing or Robert Kuok.

A thin line between Cronies and Walking Zombies

To cut story short we travel through the worm-hole in the galaxy. Tajudin controlled 47 percent of Naluri and 24.3 percent of TRI (Technology Resources Industries). Government bailout Tajuddin's MASNaluri controlled Malaysia Airline System (KLSE: MAS, stock-code 3786) and TRI controlled cash-cow Celcom. Before the 1997 Crisis, TRI was the darling stock which managed to fly from a penny stock to almost RM12.00 per share within 2 years. Then the crisis came and everything was wiped out. Earlier on Tajudin was somehow magically able to sell its 29 percent stake in MAS to the Government for RM8.00 a share (for a total RM1.8 billion) although the stock price for MAS was at RM3.68 per share.

Everyone cried “bailout of the century” and “cronies” but Tajudin couldn’t care as he desperately needed the money to reinvest into TRI to rescue his sinking ship. TRI somehow was buried under debts of more than RM4.0 billion and was rushing against time to meet its outstanding US$375 million (the currency rate then was US$1 = RM3.80) euro-bonds repayment with only a couple of months left. With some elements of politic, the Securities Commission somehow rejected Tajudin’s plan to use the proceeds from MAS’s sale to rescue TRI.

The episode showed that managing and growing businesses are more than rubbing shoulders with politicians in hoping for sudden rise in the corporate world and waiting for bailout when disaster strikes. Even the government needs to set priorities of which entities to rescue when the coffer itself was running out of money. Successful people always advise not to wear a hat bigger than your head.

From Hero to Zero

During that period Telekom Malaysia Berhad (KLSE: TM, stock-code 4863) owned TM Touch which was bleeding profusely with losses of over RM100 million for the last four consecutive years despite having about 1 million subscribers. Later Malaysia state bad-debt agency Pengurusan Danaharta Nasional moved in and forced disposal of Tajudin’s 13.2% stake in TRI to Telekom for RM717 million (US$188 million) or RM2.75 a share. Tajudin cried and screamed that the forced-sale was a scheme by the government to enable Telekom to take over TRI cheaply.

Telekom then embarked on a series of purchases on the open market and through direct deals to raise its stake to the 31.25% level, making it the largest shareholder in TRI. Under a restructuring plan, fully-owned subsidiary Celcom (M) Bhd had taken over the listing status of TRI on the main board of the Kuala Lumpur Stock Exchange (KLSE). Pengurusan Danaharta Nasional then moved another step to sell Tajudin’s 45 percent stake in Naluri to recover some of the roughly RM1 billion he owed Danaharta. Tajudin’s corporate presence was history. In Aug 2003 Celcom Berhad’s shares were de-listed from Malaysia Stock Exchange after Telekom’s stake exceeded 90 percent of the paid-up capital resulting from the general offer.

The Rise of Celcom once again?

StockTube has blogged about how boring the Telekom Malaysia stock was. The growth story wasn’t there and investors simply weren’t impressed compared with the previous listed Maxis and DIGI.com Berhad’s (DIGI: stock-code 6947) exciting growth story. Hence the stock market could be set for another chapter of excitement with the announcement by Telekom Malaysia to split its cellular operation. Soon ther
e will be two entities; Telekom Malaysia (TM) and TM International (TMI). While TM will be left with fixed-line, internet and other miscellaneous business, TMI will be loaded with mobile arm Celcom (M) Berhad.
Telekom Malaysia Split StructureCurrent TM group CEO reportedly will jump ship into TMI. However both TM and TMI will have common shareholders – Khazanah Nasional Berhad which will hold strategic 40% stake. The whole exercise should be completed by June 2008 and by then TM shareholders would see some TMI shares within their portfolio as well although the quantum is not known at this moment. According to TM estimates, TM is valued at RM33 billion currently and by breaking up the group, additional 20% value could be unlocked to RM40 billion.

However the actual plan is to expand regionally and thus foreign partner could have been already identified to grow the mobile business (Celcom). Also with Maxis’ exit, the timing couldn’t be better to tap into the floating money eagerly seeking to invest into another mobile business entity.

What could investors see pre-Celcom listing?

Celcom might not be Maxis and both are not the fruit of the same type. With the details of the whole plan still sketchy, TM stock price will definitely soar when the shares reopen for trade. Investors will buy in to capitalize on the fact that they would receive some TMI shares. Although TMI will be listed on June 2008, the question remains if the public will have a fair share allocation as if it’s a normal IPO. With the prospect of foreign investor(s) in the new TMI and existing TM shareholders to be allocated certain percentage in the new entity TMI, everything seems uncertain.

Telekom Malaysia Split AllocationSince TM announced that a detail plan will only be exposed sometime in December 2007, investors might be buying in stages into TM, only when the price is right. Cautious trading could also be seen as it depends very much on the proportion of TMI shares a TM shareholder will get. Don’t forget post-Celcom listing, the value would be shifted to TMI itself instead of TM. So stock values of TM might actually drops post-exercise but the combination of values of TM and TMI shares you hold will command some premium values nevertheless.

That’s the very reason why the government decided to announce the RM15.2 billion contract to TM to build a high-speed internet network on the same day TM stock was suspended last Friday. It was hope with this contract investors might still see some values within TM and won’t abandon the stock in totality.

Could TM International be as attractive as Maxis?

In a nutshell, TMI is not Maxis and Maxis is not TMI. The values built within Maxis were in the management itself – the value of people. You have to understand that Celcom (019) was long in the market before the birth of Maxis (012) but somehow Celcom lost its shine to Maxis within a short period of time. Put in a competitor and you can see which is the better company by observing how consumers walk towards their preference.

Wahid & Tajuddin any difference?Maxis after-sales customer service simply attracted the bulk of non-Celcom consumers while at the same time swallowed existing-Celcom customers. How inefficiency was Celcom back then? Well, considering that customers only able to receive their billing statements once every 3-months or sometimes even 6-months, it didn’t take a rocket scientist to gauge how problematic was the internal processes within Celcom.

Customer services were horrible and you would be lucky not to be screamed and scolded by Celcom’s staffs when you made enquiries. Things took for the better after Celcom was absorbed by Telekom from TRI but still, the services from Maxis were still better. Seriously whether Celcom could replace Maxis as the next “Replacement Killer” stock depends very much on the management, business direction and operational’s efficiency.

The most distinct difference between Maxis and Celcom/TMI is the fact that while Maxis’s boss was politically connected to former premier Mahathir, Celcom/TMI is closely related to the ruling party UMNO as a company via Khazanah. Could Wahid manage differently and most importantly better than Tajuddin? But with Khazanah controlling 40%, Wahid’s ballgame would be different from that of Tajuddin’s. Hence it would be interesting to see if business-sense will take the front seat instead of political-sense.

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