TM sells its shares in a sunrise business

Here are two interesting comments to my short article regarding TM's intention of selling its shares in the mobile phone business.

Telekom Malaysia took over ailing CELCOM and renamed it TM International. Telekom was split into two units: one to focus in fived lines and TMI to expand into cellular mobile services in Sri lanka, Indonesia, Bangladesh etc...

It was losing money badly. The share price dropped from $ 7.00 to $ 2.80 in 2008. Ha.. They hired the retired CEO from Maxis. He is still there. Yesterday they announced big profit for the quarter. Hence, TM wants to reduce its holding in Axiata.

Poor business acumen. This is growth industry not the sunset fixed line collecting monthly rental for infra done 30 years ago. Many houses still keep their fixed lines and cursing paying monthly rentals. Easy money for TM. Their CEO gets pays and perks and gets rotated within khazanah group.Wonderful life. Whenever they need any business proposal, just hire the consultants. No need to think at all; no stress and just keep playing golf the corporate way!

This was a comment by a person named Umar. Another below, was a comment from One Malaysian.

…… Rather, there are 2 questions that need to be answered. First, was it a good idea for Telecom Malaysia to split itself into 2 parts in 2007 by creating TM (to house all the fixed line business plus broad band i.e. HSSB), and spin off all the mobile business into TMI, now renamed Axiata?

Second, after already selling a portion of TMI in 2007 when TMI was listed, is it a good idea to now sell some more shares to the public?

The main reason for splitting itself into TM and TMI in 2007 (Wahid's idea) was so that the 2 very different businesses (fixed and mobile) could be run by different people because they had different business dynamics - the fixed line was a declining business (and dull) and the mobile business was growing and represented the future of telephony.

The stock market gives a low price earnings ratio to dull, slow growing business and rewards the mobile business with much higher PE ratios. Thus it made sense both from value creation and business dynamics and management to split them.

So today, the market value of Axiata far exceeds that of TM. So this split was good.

Now, was it necessary to list TMI (i.e. Axiata) in 2007? This is debatable. On the one hand by selling a portion, TM raised a substantial sum of money to pay down debts and also enabled it to pursue the HSSB project. It now transpires that this HSSB project costing about RM10 billion (60%) funded by government may not be so fantastic after all. Wimax (really 3G) and later true LTE 4G wireless BB will probably kill it.

Lets wait and see.

Should TM now sell even more shares, that is, dilute its holding further?

What might be its motive? Pay down more debts, or simply to comply with Khazanah thinking to increase liquidity of GLC counters to create a more attractive stock market? It is said that Khazanah holds too many shares in listed GLCs and this kind of makes the market illiquid and so big funds stay away. Different people have different ideas about this subject. Personally, if I had a gold mine I would want 100% of it if I could afford to. Why share?

Some issues troubled me. Is there some conspiracy somewhere that this idea of slowly killing off Telekom Malaysia is becoming an official policy? Are some consultants somewhere advising the cerebrally deficient Malaysian bureaucrats that an integral part of the Economic Transformation Plan is to cannibalize Telekom Malaysia?

Then, there is this question. If mobile services is the sunrise business and fixed line is the sunset business, wouldn't it be logical for TM to be acquiring more control over the mobile communications business and not selling a profitable source of business?

So far what we know is, TM is paring down its equity in mobile cellular services. We are not yet told whether this sale will be done in an open tender basis or TM has lardy talked to some parties.

The 3rd question is: what is the role of Khazanah and the consultants leeching themselves on huge fees in this deal? I mean both business entities are owned by Khazanah. Khazanah owns some 30% of TM and probably almost 50% of Axiata.

Isn't there a conflict of interest issue somewhere? Khazanah people sit in the board of both companies. Some will know of the decision in one company and know the destination of the sale.

Let's see where the sale is directed and see whether the shares in that target company have been mopped up in recent days. What if the buyer of the TM shares is Axiata itself?

Its sunshine everyday baby!

courtesy of sakmongkol AK47