H-Net* D-Day nears for a Malaysian cellphone giant

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From Asiaweek Issue 29th October 1999 Time to Call in the Chips D-Day nears for a Malaysian cellphone giant By ASSIF SHAMEEN Marketing cutbacks will cost TRI hard-won customers Chan Looi Tat for Asiaweek  Malaysia's mending economy has survived political unrest, currency controls and the near-sinking of some of its flagship corporations. But, despite signs that the economy is growing again, Crisis-related woes are not all in the past. Within a month, some $531 million in Eurobond debt falls due for troubled Technology Resources Industries (TRI), one of Malaysia's biggest and best-connected cellular phone companies. Bankers and investment analysts have their fingers crossed that a TRI default, which could come in close proximity to eagerly-watched general elections, will not dent fragile investor confidence and complicate the country's economic recovery. TRI, the parent of mobile phone operator Celcom, is unlikely to pay off the Eurobonds without help. The money-losing company's total debt approaches $1 billion, including some $400 million in local-currency obligations. But it is unclear whether a rescue can be arranged before the Oct. 29 and Nov. 28 maturity deadlines for two bond tranches. Any delay could dampen investor sentiment towards Malaysia, says a Singapore-based European fund manager. "You have had capital controls, flip-flops on bank [mergers], delays in corporate restructuring and now this TRI bond crisis," the manager says. "It just tells us that Malaysia isn't a good place to invest right now despite the improving headline economic data." > > During the boom times of the early 1990s, TRI was one of the region's highest-flying companies. In one 25-month period, its shares soared in value from less than one Malaysian ringgit to 11.8 ringgit, a 19,000% gain. To punters, it looked like a sure bet: TRI had a monopoly in the domestic cellular service and was shedding less promising businesses such as property and shipping. It also had political connections. Majority owner Tajudin Ramli, who now also owns Malaysia Airlines, is a close associate of finance czar Daim Zainuddin. Mokhzani Mahathir, son of Malaysian Prime Minister Mahathir Mohamad, was at one time a director and minority shareholder. > >TRI has not fared well in the face of competition, however. In late 1994, Malaysia opened up the mobile-phone business to new entrants. As many as six companies vied for subscribers in the relatively small market (mergers have reduced the number to four). TRI has the largest base - about 930,000 subscribers - but a significant proportion of its customers are low-end and the drop-out rate is high. Analysts say TRI has been outmaneuvered by rival Maxis, which has 800,000 customers yet makes more money than TRI by catering to higher-paying customers. Maxis "is the dominant cellular player in Malaysia," says Choong Khuat Hock, analyst with Dresdner Kleinwort in Malaysia. "It has better after-sales service and better infrastructure in place." > >TRI's efforts to build an expensive, countrywide network while fighting for market share has landed it in a cash-flow bind. The >company raised $375 million by issuing the Eurobonds that now are coming due. The bonds are convertible into stock. Most investors opt >to swap convertible bonds for equity when share prices are rising. But TRI put the conversion strike price at 11.80 ringgit. With TRI shares now trading at one-sixth that amount, bondholders instead are calling in their loans, plus accumulated annual interest of more than 9% for >the first tranche and more than 6% for the second. > >Analysts estimate TRI has about $150 million in cash, just 30% of what it needs to meet its Eurobond obligations. The company won't say how it intends to raise the rest. Among rumored remedies is a bailout by Deutsche Telecom, which bought 21% of the company in 1996. But the >German phone company has already lost three-fourths of its original investment. And a bigger stake would mean Tajudin, who owns 27% of TRI, losing control. Other possible saviors are Malaysian oil giant Petronas - vehemently denied by Tajudin - and Telekom Malaysia, the country's dominant fixed-line phone company. Telekom officials deny a takeover of TRI is imminent. >Kuala Lumpur bankers claim Chase Manhattan is arranging a bridge loan to pay off the bonds and buy some time. The company will still be hard-pressed to continue with no cash, given the ongoing interest payments and heavy capital-spending demands. In recent months, marketing and network expansion programs have been slashed; analysts say austerity will cost customers and can't go on indefinitely. Some observers see parallels between TRI's predicament and the Eurobond default of Thailand's Samprasong Land in March 1997, an event that lit the fuse for the region's financial meltdown. But no one is alarmed. "We have had UEM, Time Engineering and other high-profile players default before and life has gone on," says a Kuala Lumpur analyst. UEM has since refinanced most of its $2 billion in debt through a domestic bond issue and Time is in the process of restructuring its loans. "Default may be a bad word in Western countries but it means nothing in Malaysia," says one Kuala Lumpur banker. "It just means that payment is being deferred until further notice." It may also mean that investor confidence, just now starting to return, is similarly put off. >http://cnn.com/ASIANOW/asiaweek