JAKARTA - Three very recent mobile telecom deals have
helped make Telekom Malaysia, the country's biggest
phone company and Southeast Asia's second-largest, the
most attractive telecom stock in Malaysia, giving it a
solid footing in Asia's other mobile markets, where
growth remains strong.
Telekom's overseas business is
carried out by investment
arm TM International. It's first deal came when
Telekom disposed of its entire stake in
Telkom South Africa for more than RM3 billion (US$790 million),
giving it a net gain of more than RM800 million.
Then last week, it bought a stake in Indonesia's
third-largest cellular-phone operator, the unlisted PT
Excelcomindo Pratama (XL) for Rp2.8 trillion ($314
million). Two days after the Indonesian acquisition, it
sealed a deal along with Singapore's ST Telemedia to buy
a 47.7% stake in India's fifth-largest mobile
company, Idea Cellular, for $390 million, of which
Telekom's share costs $156 million.
Though around 48.5% of Malaysia's 25 million people
use cell phones, growth in cellular business in the
home market is slowing and is expected to reach
saturation in about two years. Since the entry of
Singapore's Temasek Holdings Ltd as a substantial
shareholder, Telekom has been restrategizing.
Rationalizing Telekom's shift to Asia, chief executive
officer Abdul Wahid Omar said Telekom would rest on its
laurels for a while with the two acquisitions before
looking at any other major investments.
"We are
moving away from Africa to invest closer to home. The
two investments [in Indonesia and India] will increase
our regional presence," he told reporters. "This
restrategizing was done after many deliberations. The
South Asian and Southeast Asian markets do hold quite a
lot of promise," he added, though emphasizing that it
would not be until 2006 that the company's Indian and
Indonesian investments would begin to contribute to
its earnings. Overseas operations contributed 29% to Telekom
Malaysia's 2003 earnings, though this is projected to
fall to 21-22% in 2004.
First,
the Indonesia deal. Indonesia's population of more than
230 million dwarfs that of Malaysia, and its mobile
sector remains one of the least developed in Asia. Indonesia has
a 9.4% mobile penetration rate compared to 25%
for other emerging markets such as China and the
Philippines, countries that have similar levels of per capita
income. More than 28 million Indonesians now own mobile
phones and sector analysts believe the best is still to
come, with some forecasting as many as 60 million
subscribers by 2007.
Talks
between Excelcomindo's main shareholders and potential
bidders have been going on for more than a year, leading
some analysts to describe the process as an auction,
with the spoils going to the highest bidder. Telekom
Malaysia bid for Excelcomindo last year but failed to
offer an adequate price amid uncertainty over this
year's parliamentary and presidential elections and
competition from Australia's largest phone company,
Telstra Corp, and China's largest fixed-line operator,
China Telecom. Both dropped out of preliminary
negotiations earlier.
China Telecom was
looking at Excelcomindo in September but analysts questioned
the company's need to make its first overseas
acquisition rather than focus on the domestic market.
Telekom paid cash for the 27.3% minority stake in
Excelcomindo in a deal struck with the majority owner,
the Rajawali Group, and has been given the right to buy
additional shares and obtain majority control in the future.
The Rajawali group, through telecommunications firm PT
Telekomindo Primabhakti, controlled Excelcomindo with a
60% stake, US telecoms carrier Verizon Communications
Inc had 23.1%, the Asian Infrastructure Fund 12.7%, and
Japan's Mitsui & Co 4.2%.
New
York-based Verizon and Mitsui jointly founded Excelcomindo in
1996 with Telekomindo Primabhakti, amid
sweeping liberalization aimed at attracting foreign
investment and know-how in building up Indonesia's
telecom infrastructure. Since Verizon's sale last year of
its 10% stake in listed Thai mobile telephone
company TelecomAsia Corp to its Thai joint-venture partner,
Excelcomindo has been the New York-based company's only
investment in Southeast Asia. However, as the stake
bought by Telekom equals exactly the percentage held by
Verizon and Mitsui before the transaction, it appears
that Rajawali has bought the shares from Verizon and
Mitsui, before selling them on to Telekom.
Top financial advisers
steered the deal to conclusion - Credit Suisse
First Boston Inc and Morgan Stanley for Rajawali, and
Citigroup NA for Telekom Malaysia Bhd - but neither
would comment on whose shares were actually bought. Indonesia
has just three mobile operators - the mobile arm
of PT Telekomunikasi Indonesia Tbk (Telkom), Telkomsel; Indonesian
Satellite Corp Tbk (Indosat), once the state-owned
monopoly international carrier and now owner of
its second-biggest cellular company, Satelindo; and Excelcomindo,
which, with around 4.2 million subscribers, has
an estimated 15% of the market share.
Top
executives in Malaysia and Indonesia were upbeat over the
deal, with Telecom chief executive Omar saying in Kuala Lumpur,
"The deal will see many synergies between Excelcom and
Celcom, Telekom Malaysia's mobile unit, especially in
voice and data traffic." Said Telekom chairman Tan Sri
Dato' Ir Radzi Mansor: "We are excited to acquire a
substantial equity interest in XL and hope to increase
our stake further. This is clearly a major acquisition
for us and is in line with our strategy to acquire
mobile assets in low-penetrated markets close to home."
In Jakarta, Rajawali Group chief executive officer Peter Sondakh said, "We
believe Telekom Malaysia is well placed to take XL to
the next level of development," adding that the company
was pleased to have Telekom Malaysia as its partner and
to participate in XL's ongoing growth.
This growth,
however, will not only cost money but pit the newcomer
against Indonesia's top two mobile telecommunication
companies, Telkomsel and Satelindo, both
of which have already benefited from Singapore cash and
know-how through Singapore Telecommunications and Singapore
Technologies Telemedia (STT), controlled by the
Singaporean government, with their minority stakes in
the market leaders. In late 2002, Telekom Malaysia lost
to STT in a bid for a 42% stake of Indosat. STT paid
$634 million, the biggest foreign payout for an Indonesian
company since the 1997 regional financial crisis.
At $314 million, the price for the Excelcomindo
stake is equivalent to an 8.8 times-multiple of
Excelcom's 12-month historic earnings before interest,
taxes, depreciation and amortization (EBITDA) compared
with a price of 8.5 times EBITDA for STT's stake in
Indosat. Significantly, STT has already doubled its
money on that deal, underlining just why the potential
growth of the Indonesian market is so attractive for
regional invaders from Malaysia or Singapore. For
Indonesia, foreign expertise, capital and technology is
being welcomed to make the underdeveloped industry
competitive.
Indosat, with 9.6 million cellular
subscribers, controls around 30% of the market and is valued at $3.3
billion. The $314 million cash paid by Telekom Malaysia
gives Excelcomindo shares a market capitalization of
$1.15 billion, according to Credit Suisse. Telkomsel,
the country's largest cellular operator with more than
15 million subscribers, has set a target of 5 million
new subscribers next year. Singapore Telecommunications
paid $429 million to increase its stake to 35% in
2002. The two market leaders are planning to invest some
$1 billion to expand their networks to meet the surge in
demand.
The deal means Telekom swells the
ranks of regional players like Singapore
Telecommunications (SingTel), which has stakes in almost every country
in the region. Telekom now has 15.7 million mobile
users across the region and the numbers are growing
daily. Given the substantial level of voice and data
traffic between close neighbors Indonesia and Malaysia,
there are substantial synergies for Excelcomindo and
Telekom's cellular unit, Celcom (M) Bhd. Besides mobile
services, Excel has a substantial presence in the
Indonesian corporate data market and is developing businesses
in VoIP (voice-over Internet protocol) and wireless
broadband.
For the
first nine months of 2004, Excelcomindo recorded gross revenue
equivalent to around RM965 million and is
still planning to go ahead with a planned initial public offering
some time in 2005. Last week, two days after the Indonesian
deal was announced, Telekom and STT also agreed to
buy 47.7% of Idea Cellular Ltd, India's fifth-largest mobile
phone operator, for around $390 million. STT
will hold 60% in a consortium that will take the
stake in the Indian company. Idea Cellular had 4.4 million
subscribers and a 10% market share at the end
of September, and the new investment will allow the
Indian carrier to expand its network.
In
Indonesia, Telekom will assume majority control of
Excelcomindo's management board as well as its
supervisory board of commissioners with the initial
purchase. It plans to go further and "achieve a majority
shareholding in 2005 subject to certain conditions". In
an official statement, Telekom said, "The aim is to
build Excelcomindo into an Indonesian market leader and
a substantial contributor to the revenue and profits of
Telekom Malaysia."
Paul Aiello, head of
telecommunications media and technology banking for
Morgan Stanley, which advised the Rajawali Group, said,
"This deal represents one of the last wireless
opportunities for emerging markets expansion across the
world." Another regional analyst said of the deal,
"Though it may appear expensive by today's standards,
two years down the road it would be a steal, provided
the assets are managed properly."
Telekom
earlier disposed of its stakes in India's Usha Martin
and Thailand's Digital Phone Company (now a unit of Shin
Corp). It recorded a 14.5% increase in pre-tax profit to
RM521.57 million for the third quarter ended September
30, from RM455.56 million in the corresponding period
the previous year. For the nine-month period, group
pre-tax profit leaped by 71.6% to RM2.23 billion from
RM1.3 billion, while revenue rose by 13.8% to RM9.8
billion from RM8.6 billion previously. As Omar pointed
out, "The increase in revenue was mainly due to the
growth in the cellular and multimedia divisions as well
as to the better performance of our overseas
operations."
With the latest acquisitions,
Telekom's foreign shareholdings soar from last year's
low of 4% to around 22%. The ambitious investments in
Indonesia and India beef up Telekom's existing regional
mobile investments in Sri Lanka, Bangladesh and Cambodia
and highlight the shift in its overseas investment
strategy to Asia from Africa to boost earnings. The
combined group will now have a total mobile subscriber
base of 11.3 million.
Bill Guerin, a
weekly Jakarta correspondent for Asia Times Online since
2000, has worked in Indonesia for 19 years in journalism
and editorial positions. He has been published by the
BBC on East Timor and specializes in business, economic
and political analysis in Indonesia.
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