http://www.feer.com/2001/0111_15/p056shroff.html

The Far Eastern Economic Review
Issue cover-dated 15th November 2001

Tajudin Thwarted

By S. Jayasankaran

Tajudin Ramli is likely to lose control of Technology Resources Industries, his telecommunications conglomerate, after the authorities recently blocked a crucial part of TRI's debt workout plans. It could pave the way for a renewed consolidation of Malaysia's telecoms industry.

In 1992, when the industry was deregulated, there were eight players. Now there are five, with combined debt of nearly 20 billion ringgit ($5.3 billion). Moreover, 7 billion ringgit has been spent on infrastructure, much of it wasteful duplication. Kuala Lumpur has been prodding them to share resources or, better still, to merge, but it's been slow going.

The TRI impasse opens the way for national utility Telekom Malaysia to buy it out. It dovetails with the government's plan to accelerate the restructuring of Malaysia's indebted conglomerates. Kuala Lumpur wants to replace indebted owner-managers (read Tajudin) with institutions (Telekom Malaysia) and professional management. Other conglomerates going through such management changes include Malaysia Airlines, infrastructure group Renong, media and property group Malaysian Resources and Pernas International Holdings, a hotel, property and plantations company.

The Tajudin story can be easily understood by examining TRI. With 2 million subscribers, it has potential. But with nearly 4 billion ringgit in debt, Malaysia's second-largest cellular-phone operator was barely surviving. And Tajudin couldn't concentrate on TRI as he had bigger problems elsewhere. His 47% owned Naluri was the biggest shareholder in Malaysia Airlines, which was haemorrhaging money with 10 billion ringgit in debt.

In December, the government bailed Naluri out, paying it 1.79 billion ringgit for its 29% Malaysia Airlines stake. The deal was widely criticized and MAS went on to record even more spectacular losses but Naluri, after paying off its own debt, had a cash hoard of more than 800 million ringgit.

Now Tajudin could concentrate on TRI. In June, TRI came up with a credible plan to prune 1.8 billion ringgit of debt. One component involved a restricted issue of 724 million new TRI shares at 1.45 ringgit apiece to "strategic investors." The investor was mainly Naluri. It had the money and that was comforting to the creditors who had already agreed to take 10% discounts.

No, said the Securities Commission on November 2, immediately sparking speculation about Tajudin's status in TRI. The exercise would have enlarged TRI's equity and diluted Tajudin's stake down to 14% from over 25% now. But had Naluri come in, it would have ended up with another 32% of TRI and Tajudin would have strengthened his grip. (Naluri said it would appeal the decision.)

But the restructuring plan stands and TRI has until April--when the money must be paid to creditors--to seek "strategic investors." These could be a combination of foreign interests or, if the government has its way, it could be state-owned Telekom Malaysia.

There are lots of good reasons for this. One, it would reduce the playing field to four. Two, it would provide Telekom Malaysia with the one prong it lacks --a strong cellular-phone division. Three, Telekom can easily afford it, having netted 900 million ringgit in cash after recently selling its stake in a Thai cellular-phone company.

Finally, TRI is relatively cheap. At the government's urging, Telekom has looked at TRI before but no deal ever materialized because of pricing. But at 1.45 ringgit per share, TRI is valued at around $600 per subscriber. In contrast, Singapore Telecommunications recent purchase of 22% of Indonesia's Telkomsel valued the latter at $1,100 per subscriber.

That's not all: There's politics as well. The nixing of Naluri is viewed as part of the continuing corporate fallout rippling from the June exit of Finance Minister Daim Zainuddin. It was Daim who pushed through the December buyback of MAS from Naluri. The consequent public backlash against the deal--the government paid Naluri almost three times the market worth of the MAS shares--was one of the reasons cited for his alleged rift with Prime Minister Mahathir Mohamad.

Indeed, the Securities Commission reports to Mahathir, now finance minister. "I think that the idea of Tajudin using money paid to him by the government to retain control of TRI was unacceptable to the Finance Ministry," says a businessman closely linked to the government.