Telekom Malaysia may return cash if no acquisition

KUALA LUMPUR: State-controlled Telekom Malaysia is prowling Vietnam, Laos and Cambodia for acquisitions to help buffer dwindling growth at home, but may return cash to investors if those plans don’t materialise, its chief executive said on Friday.

Telekom, 40 percent-controlled by Malaysian state asset arm Khazanah Nasional, is in buying mode, having amassed almost 5 billion ringgit ($1.45 billion) in less than two months to help it fund deals in the three Indochinese countries.

“When we made the announcements for capital raising, we were basically gearing ourselves for potential acquisitions, but if those acquisitions do not materialise, then we will look at distributing the surplus cash,” Abdul Wahid Omar told reporters.

Telekom is not yet in advanced talks with any parties, Abdul Wahid said, adding that the firm was operating within an earlier-announced 18-month timeframe for an acquisition, although he did not make clear when the deadline would lapse.

Telekom has operations and financial interests in nine Asian and Middle Eastern countries: Bangladesh, Cambodia, India, Iran, Indonesia, Pakistan, Sri Lanka, Singapore and Thailand.

An acquisition in Cambodia, Vietnam or Laos would give it further exposure in countries with low mobile penetration compared to Malaysia, where 80 percent of the population has a mobile phone. In Vietnam, mobile penetration was less than 20 percent as of February. Takeover targets in the region are likely to have become more expensive after a frenzy of mergers and acquisitions in the Asia Pacific region surged 50 percent in the first half to a record $253 billion, analysts say.

In April, Vodafone Group paid $11.1 billion for a controlling stake in Hutchison Essar, India’s fourth-largest mobile phone carrier.

Since the middle of May, Telekom has built its acquisition war chest by selling shares in its Sri Lankan mobile operator Dialog Telekom for around $70 million, issued $324.9 million in Islamic trust certificates, announced a $212 million repayment plan from its Celcom mobile phone unit and closed a $870.8 million Islamic bond issue.

“Proceeds from these exercises (not including the Islamic bond) amount to 0.59 sen a share, which we think can be paid out to shareholders on top of regular dividends without straining cashflows and gearing,” Citigroup Inc analyst Karen Ang said.

“However, we doubt whether the market expects increased capital repayment after previous disappointments, which is emblematic of low-expectations for the company in general.” Telekom’s dividend yield is about 4.34 percent.

Telekom shares, unchanged at 10.60 ringgit at the mid session break, have gained 18 percent in a year, underperforming a 49 percent advance in the benchmark Kuala Lumpur Composite Index.

Telekom has a monopoly of Malaysia’s domestic fixed-line business and is the second-largest mobile phone operator, with about 6.2 million subscribers.

It has earmarked 3 billion ringgit in capital expenditure for home operations, Abdul Wahid said. Indonesia said on Wednesday it had capped new foreign investment in the fixed-line and mobile telecommunications sector at 49 percent and 65 percent respectively, against 95 percent earlier.