RedTone ... May 09

Off-market deals involving 13.9% of REDtone International Bhd’s paid-up capital, marked the Kuok group’s exit from the Mesdaq company and the emergence of REDtone group chief executive officer Zainal Amanshah Zainal Arshad as its largest shareholder.
By buying out the Kuok group for RM11.8mil, or 22 sen per share, Zainal Amanshah’s stake in the provider of communications services has ballooned from just 0.7% to 14.7%. Most of the shares are held via Pusaka Indah Bhd, a company in which he is the main shareholder. Two other individuals are his partners in Pusaka Indah.

One factor driving the shareholding change is the fact that REDtone has yet to meet the 30% bumiputra equity condition imposed by the Securities Commission. The deadline to comply with this was June 18, 2007, and prior to the purchase by Pusaka Indah, the bumiputra shareholding was about 10%. There had been a lot of pressure to address the shortfall.

Last year (2008), REDtone had proposed a special issue of new shares to bumiputra investors, including Zainal Amanshah, to reach the 30% target. This may no longer be necessary. The special issue has not happened but it’s still an option. They decided it was better to buy from existing shareholders because it would be less dilutive. It was on a willing-seller willing-buyer basis.

The funding is a private equity funding with a local financial institution.

He did not rule out the possibility of increasing his shareholding in REDtone if the authorities insisted on the 30% bumiputra equity requirement. If the funds are available, he would like to raise his stake. There would be no change in the company’s leadership. He joined the REDtone family in 2000 as an executive director of REDtone Telecommunications Sdn Bhd.

REDtone’s next biggest shareholder is Tan Sri Vincent Tan, who has an 11.7% stake through several companies in the Berjaya group. It is, therefore, interesting that Pusaka Indah and the Berjaya companies have the same registered address. However, Zainal Amanshah said the companies merely used the same secretarial services firm and Pusaka Indah was not linked to the Berjaya group.

As REDtone group CEO, Zainal Amanshah is primarily responsible for the company’s business in Malaysia. Managing director and co-founder Wei Chuan Beng oversees the group’s overall business, its expansion abroad and financial matters.

The Kuok group was already a substantial shareholder when REDtone was listed in January 2004. The group’s REDtone shares were largely in the hands of PPB Group Bhd and Kuok Brothers Sdn Bhd.

The investment looked good in the two years or so after the stock market debut, but the company’s core activity, discounted call business, suffered amid intense competition. It diversified into other businesses and markets, but some ventures have not paid off so far.

Financial Results … For the financial year ended May 31, 2008 (FY08), the company reported a net loss of RM7mil. Yesterday, the company announced a net loss of RM1.9mil for the third quarter ended Feb 28 2009.

For the first three quarters of FY09, REDtone incurred a net loss of almost RM3mil on revenue of RM60.8mil. In the previous corresponding period, revenue was RM93.6mil and net profit was RM7.7mil.