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Bail-Out with a piece of paper worth RM700 million



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Nov 14 2007
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Malaysia never fails to amuse me when comes to corporate bail out. Not so long ago you have PKFZ scandal but the magic word “soft-loan” solved the controversy. And now, you’ve the white-knight DIGI.com saves the day by bailing out Time DotCom in disguise of an “alliance”. So now you know the “real reason” why Time DotCom Berhad (TIMECOM: stock-code 5031) was awarded the 3G license by the government despite bleeding profusely. You don’t really think Time DotCom has the capability to roll-out anything under the 3G, do you? If you still think so, please go back and research what happened to Time DotCom’s initial public offering (IPO) years ago.

It’s obvious that the auhorities knew the only way to bail-out Time and its major shareholders was to give it an Ace, not ordinary Ace but the Ace of Spades (which is 3G license). The authorities also knew in order to force the bailer to take the bait the sucker’s application for further extension for stake sell-down in compliance with the rules had to be rejected. Furthermore authorities knew the bailer will not throw in the towel and sell-off its 61 percent and start packing heading back to Norway – there’s still money to be made.

Bail-out becomes creative with “Alliance”

The sucker or bailer on the same time knew the autorities are pushing it against the wall. So what it needs to do is ensure it won’t be eaten up alive, at least put up some fights. Pushing the stock price to as high as possible would be the immediate weapon. With its sound management and quarter-on-quarter profits plus great dividend declaration, the task wasn’t that difficult. The bailer also knew sooner or later they’ve to take the Ace of Spades by the throat, at a hefty price (of RM700 million). Tell DIGI that it can wave the whopping $700 million and the unlisted pay-TV operator MITV Corp would have snap the offer even before Telenor can say “Any 3G license for sale?”
3G Preference for Local onlyOn the gentle note, DIGI.com Berhad (
DIGI : stock-code 6947) is now offering $700 million for a piece of paper. A paper that says you’re now the proud owner of 3G license. But wait, that’s not the amazing part. The mind-boggling part is despite giving away $700 million to Time to have the rights to roll out 3G applications and services, DIGI can only use the 1965Mhz-1980Mhz, 2155Mhz-2170Mhz and 2010-2015Mhz or the IMT2000 3G spectrum until 2018. That’s 10-years lease for RM700 million or in simple arithmetic, RM70 million per year of usage.

Time DotCom the clear winner

Beyond that DIGI might needs to apply for renewal, the same way you renew your road-tax. Short of daylight robbery, this is indeed one of the creative and ingenious ways to make money out of one’s own incapability to do so. The summary of benefits that Time DotCom will enjoy:

  1. DiGi issuing (giving away free) 27.5 million shares, equivalent 3G License for leaseto 3.5% stake in the company, valued at RM654mil or RM23.80 a share, to Time DotCom.
  2. DIGI would issue a guarantee to the Malaysian Communications and Multimedia Commission in place of Time DotCom unit TT dotCom’s guarantee of RM50mil.
  3. DIGI to share telecommunications towers with Time DotCom for the purpose of Time DotCom’s broadband service in the 2.5G spectrum band or WiMAX.
  4. DIGI will utilize (or lease?) Time DotCom’s idling fibre-option network at a contract value of between RM10 million to $15 million per annum
  5. DIGI will provides training to key Time DotCom personnels (so that the idiots can become smarter and able to understand the world of telephony services)
  6. Invitation to Time DotCom to take part in the placement of DiGi shares to comply with the equity stake sell-down; although it’s highly unlikey that Time DotCom as a company has the financial strength to do so.

Does DIGI have a choice?

Now, most of the analysts said it’s a win-win “partnership” justifying that the 3G is required if DIGI.com needs to achieve higher ARPU (average revenue per user). But DIGI’s Chief Executive Morten Lundal once said the company still has other options or alternatives besides 3G to further grow the company. Without 3G, DIGI might crawls but it will still be able to deliver the values to the shareholders, better still if it has the 3G license.

Nevertheless this still has not solves the deadline problem where DIGI is required to sell down from the current 61 percent (59 percent after the dilution) to 49 percent stake. Khazanah Nasional Berhad which has a 64.6% stake in Time DotCom is perhaps the only entity that has the financial resources to acquire the remaining shares from DIGI. It would be interesting to see if Khazanah is willing to pay in cash or push more bones into DIGI’s throat.

Maybe by giving the $700 million free coupon, it could prolong the life of DIGI.com and Telenor as a whole. Yes, DIGI.com sets to gain from the license but still to pay $700 million for the 10-year license is over-kill don’t you think? Morten Lundal most likely has done some cost-benefit justifications and could conclude that this is his only choice.

More cheap sales from DIGI’s placement?

To comply with rules and regulations, Telenor will sell its DiGi shares under a placement exercise to investors, in which Time DotCom is invited to bid. While Time DotCom obviously doesn’t have money to do so, its largest shareholder Khazanah has the capability. Not sure how transparent the auction will be but please do not get too excited or flabbergasted if a lower bidder wins the deal at the end of the day. There
’re still more developments to be announced from both parties, so stay tune.

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Comments

i have been following this for some time and truely feels that digi is being cheated, as they are the only foreign own mobile phone provider.

But it truely comes to profitability when you see this. And it will worth the amount. Most probably by 10 years time, 3G is no longer in used. Digi sales is easily in billion range.

This is a way government take some profit out of the outsider pocket and giving it to certain people who have the privilege

Too early to tell. Currently, Digi can play any card they want before selling the stake down. For example, exhaust some share using share exchange through merging (as in Time episode). Then spend tons of money by “value added” Malaysia 3G market, e.g. roll out a few 3G plan that give a shock to Maxis and Celcom.
Politics are dirty, but business will find word around. Unless the country deteriorate into Zimbabwe.

hello rice blogger,

it might “worth” it because DIGI knows how to run the business … tell that to another telco co and you might see no-taker at all … hence the worthiness depends solely on the capability of the offerer (DIGI), not that DIGI has other choice …

hello moo_t,

it might be too early DIGI’s plan to recoup the $700 million investment but things for certain are:

1) TimeDotCom is getting the biggest bite of all the 3G winners prior to roll out a single thing

2) TimeDotCom is getting a “free ride” on DIGI’s prosperity from DIGI’s capability with its’ stake within DIGI …

the main point here is why offer $700 million to TimeDotCom and not MITV? i believe MITV would grab the offer if approached, even with lower offer … so if this is not bail out i do not know what is …

cheers …

whats new, guys. getting millions from a piece of paper. remember MRCB got more than RM100 million from the Genting group for a piece of IPP paper ( till todate, I dont seem to think that the project took-off because there is no offtake agreement from the sole buyer, tenaga). you know this country has perfected an art which is to cream millions/billions without moving their arse. thnik they called it the privilege of NEP. Any takers to learn this art?

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