Maxis ... July 09

T. Ananda Krishnan may merge one of his companies with his phone group, Maxis Communications Bhd.

Sources say it could be listed on Bursa as early as year end (2009) without its loss making overseas operations.

The funds raised from floating Maxis Malaysia will be used by its owners to expand their business in India and Indonesia. The current thinking is to float MAXIS with little or no debt in its books. Maxis has two tranches of AAA-rated Rm500 million medium term notes expiring in 2014 and 2037 respectively.

Prime Minister Datuk Seri Najib Tun Razak said he wants Maxis, which Ananda has held privately since 2007, to re-list on the local exchange. Such a high-level recommendation means billionaire Ananda, ranked as Malaysia’s second-richest person, is more likely to bring Maxis back to the market, possibly by merging the business with another of his listed units.

If it comes from the number one person in Malaysia, that puts pressure on Ananda. It strengthens the possibility of Ananda doing something with his companies. If you look at the operational synergies between Maxis and Astro, it’s possible. Astro has the content, Maxis is the conduit.

Maxis, 25 per cent-owned by Saudi Telecom Co, is assessing “very seriously” the suggestion to re-list. The return of the mobile-phone operator, which had a market value of RM40 billion (US$11 billion) before it was bought out, would attract capital to Malaysia and increase trading on the local exchange.

Maxis chief executive officer Sandip Das wasn’t available to comment.

Najib had discussed the Maxis initial public offering (IPO) proposal with King Abdullah Abdulaziz Al Saud as Saudi Telecom Co, which owns 25 per cent of Maxis, is a government-linked firm.

The potential listing is expected to boost the profile of the Malaysia-Saudi partnership while enlarging the size of the local stock market. A large and global IPO like Maxis can also help profile Malaysia to international investors.

According to speculation that surfaced in June 2009, Ananda might use Astro or Measat Global Bhd, his listed satellite operator, as a vehicle to hold Maxis. That would create a so- called triple-play telecommunications company offering wireless, television and satellite services.

On July 20 2009, Astro issued a statement confirming it was reviewing options to reorganise, although chief executive officer Ralph Marshall later told reporters a merger with Maxis was not being considered.

Going Forward …

Even if they agree, some doubt it will be relisted anytime soon, because the valuation is lower than the market peak when it went private and doubt it will be the shareholders' first choice.

Perhaps there may be some-thing non-monetary, or new incentives involved such as new opportunities or markets, then the listing may happen sooner.

It will not be as straight forward or as simple as it may seem. It needs to sort out its issues in India. Its operation there needs a lot of funding. It may need to consider stripping India off and put it in a special purpose vehicle, and list Maxis on a clean sheet without India.

Of course, it can relist itself with the Indian entity, but investors won't be too happy about it. Because, after all, it had said one of the reasons it went private was not to burden investors with India's huge capital-expenditure commitment.

Assuming Maxis will be relisted without the Indian entity, would it be strong enough to attract investors?

It does not have much option. It's hard for the company to package Maxis like Axiata because that will take too many mergers and acquisitions. By focusing on the Malaysian market, it could be a good dividend story.

Maxis’s cash cow is its Malaysian operations, which is 75% controlled by Ananda Krishnan and 25% by state owned Saudi Telecom Co Ltd. Maxis Malaysia is expected to command a market cap of some rm40 billion.

Back of the envelope calc show that Maxis operations made about RM2.8 billion in pre-tax profit in FY2008. Valuing Maxis at 15 times earnings would give Maxis an EPV of Rm40 billion.

Would Rm40 billion be enough, considering Maxis’ market cap stood at about Rm39 billion when it was privatised? When comparing the value of the privatized Maxis and the Maxis will soon be listed, one has to remember the value can be realised from the overseas operations at a later date.

Selling a 25% stake in Maxis’ Malaysia operations could raise Rm10 billion upfront cash for its promoters, part of which would go towards repaying debt papers that Binariang GSM Sdn Bhd issued to fund Maxis’ privatization I n2007. The latter has rm804 million in debt obligations due in 2010.

As it is, Binariang GSM’s balance sheet is constrained, with debt levels expected to increase to around Rm25 billion by 2010 from around RM21.35 billion as at end 2008. For FY2008, Binariang GSM’s net profit grew 9.4% y-o-y to RM757 million on the back of 113% revenue growth to RM10.51 billion.

Binariang GSM, which owns 100% of MAXIS, also owns 44% of NTS. STC owns 51% of Indonesian NTS directly, with the Indonesian partner holding the remaining 5%.

Binariang GSM had indicated that it may implemented restructuring that would enable Aircel Ltd to be independently funded. An additional US$1.5 billion cash could soon be unlocked by Aircel, Maxis’ 74% owned Indian subsidiary, to help cover the US$5 billion that its owners intend to spend on expansion in India over the next the three years. Aircel had reportedly set July 24 2009 as the deadline for interested parties to bid for its 12000 telecommunications towers.

The rating agency notes that Maxis will find it a challenge to defend its 50% market share of the country’s post paid subscriber based, with its share of the pie slipping to 46.6% in 2008 from 49% in 2007, even as rivals Celcom and Digi move more aggressively into the segment.

Nonetheless, Maxis was still generating strong cash flow. Capex expenditure was less than Rm1 billion in FY2008. Maxis has budgeted Rm5 billion capex for its Malaysian operations over the next four years, more than half of which is slated for 3G infra and broadband.

RAM recently lifted its rating watch on Binariang GSM’s debt papers after the latter provided a formal commitment measures and balance sheet at levels commensurate with the Islamic paper’s ratings.

Related:-
MAXIS/Astro/Measat ... Jun 09