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(The Malaysian Insider) - This year's break-up of utility giant Telekom Malaysia Berhad into fixed-line and mobile units to unlock their share value has achieved the reverse and is shrinking their market capitalisation in the current global financial turmoil.
Government sovereign fund Khazanah Nasional Berhad, the main shareholder that pushed for the demerger, had predicted the market capitalisation of both units would touch RM40 billion. But the share prices have tanked with the combined market capitalisation now about RM25 billion. Telekom slipped 3 sen to RM2.77 per share yesterday while TM International closed 2 sen lower at RM3.98 a share, the lowest to date. Khazanah's advisors had estimated a post-demerger value of Telekom at RM11 billion or RM3.05 a share while the indicative value of TM International was RM29 billion or RM7.85 a share. 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. "The market is showing that Khazanah has been reckless and shuffling paper to make themselves look good," an industry source told The Malaysian Insider, saying the current combined share prices of the two units is substantially below the RM10.90 a share it closed before the demerger on April 25.  "Khazanah should just revert to being passive investors, delivering good and steady returns instead of shuffling assets around," he said, referring to its transformation programme to turn government-linked-companies into high-performing companies.
Khazanah, with investments in over 50 major companies here and abroad, has turned under current managing director Tan Sri Azman Mokhtar to drive shareholder value creation, efficiency gains and enhance corporate governance in government-linked companies such as Malaysia Airlines, Pos Malaysia, Tenaga Nasional, CIMB Bank, Putrajaya Holdings and UEM. Shares in the fixed-line Telekom is recovering slowly from the low of RM2.54 a share on Nov 13, a day after the company reported a third-quarter net loss of RM165.82 million on lower revenues and a hefty foreign exchange loss. There were also fears Telekom would back-track on its dividend policy of paying the higher of RM700 million or a 90 per cent payout from 2009. Telekom's dividend policy of a 12-month dividend yield of around 12 per cent is one of the main reasons investors buy the shares. A company statement on Nov 13 said it had enough cash to continue its dividend policy. "The company has sufficient consolidated cash and bank balances of RM1.444 billion as at Sept 30, 2008, and it is confident that TM International is able to meet its obligation due to Telekom of RM4.025 billion by April 2009," Telekom said in a statement.  But there are doubts.
"Telekom is a cash cow but with low growth potential. So it doesn't have enough profit to maintain its pre-demerger annual dividend policy commitment. It needs to pay high dividends to maintain its share price," a financial analyst told The Malaysian Insider. "TM International has high growth and profit potential to declare dividends but doesn't have the cash to pay as its shares are sliding due to lower profit forecast from its units in the Indian sub-continent and Southeast Asia," he added, saying TM International's share prices is even underperforming the local bourse. He also said Telekom as a group had a better credit rating and was able to raise funds easily and relatively cheaper but TM International will now have to compete in a difficult environment to borrow money overseas in the markets it operates and might have to source funds locally for its growing capital expenditure. "They will basically be taking money out of the country if they get local loans," the analyst said. TM International chief executive officer Datuk Jamaludin Ibrahim said last month it was still on track to raise US$3 billion to fund its stake in Indian mobile operator Idea Cellular and to refinance an existing RM4 billion loan that came about from the demerger. Despite that loan, Telekom apparently sold local mobile unit Celcom at a discount to TM International, transferring its 3G spectrum for just RM40 million compared to an estimated market value of RM600 million which DIGI had paid for Time's licence, sources said. The government had charged a RM50 million licence fee for the spectrum. AmBank Research had also expressed doubts yesterday over TM International's ability to finance a possible venture in Iran due to a highly-leveraged balance sheet. "What we are concerned about is TMI's ability to finance the additional capital expenditure (capex) given its highly leveraged balance sheet. As it is, we expect TMI to spend RM4.6 billion for capex in the 2009 financial year," its report said, adding that this will increase TMI's net gearing to 0.8x, significantly higher than its comparable regional peers of 0.2x-0.3x. Apart from all that, Telekom spent some RM100 million for the seven-month demerger exercise that began in September 2007 when the subprime loans were already hogging the headlines, including advisory fees of RM30 million and listing charges of RM45 million.
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