Malaysian battle on Lankan turf

By The Sunday Times FT desk

If the government goes ahead and approves the Maxis offer to buy a 25 percent stake in the NTT stock in Sri Lanka Telecom, it would result in a massive turf battle in the local communications industry between two Malaysian telecom giants.

Transactions on the CSE

To facilitate the trade of large blocks of shares, the CSE has provided two special procedures called ‘crossings’ and ‘all or none blocks’.

A crossing is where two parties (a buyer and a seller) get together and carry out the trade through Automated Trading System (ATS). All or none block transitions are done off the trading floor. It does not go through the ATS.

All or none block transitions are referred to the Securities and Exchange Commission (SEC) for approval. There are several types of such transactions that ATS rules have provided for. Gifting of shares between immediate family members is one such instance. A company can also pledge shares to obtain a financial facility or a bank overdraft in order to buy further shares. Both mandatory and voluntary offers come under all or none block transactions.

When a company wants to restructure or streamline their business, they can take the route of all or none block transactions. For an example if a company has subsidiaries in different business such as leisure and construction, which they want to sell, depending on their proposals to sell these business, the SEC will grant approval under all or none block transactions.

“Maxis is a leader in the industry in Malaysia and is top of the list in mobile phones (Maxis), television (Astro) and radio, and will give Dialog a good run for their money,” said an industry analyst, who has a close insight of how Maxis operates. “With such a powerful force and much better expertise in television producing, it could oust Dialog from its current position.”

Dialog, which was the fourth mobile operator, ousted Celltel and also Mobitel from the top, a challenge it would face from Maxis.
But questions abound about the manner in which the transaction is taking place with allegations of corruption, under-hand deals, kick backs and ignoring other bids. “Transparency is the biggest issue in this transaction,” said Peter Jayasekera, chairman of the Consumer Affairs Association of Sri Lanka who successfully challenged the SLT-NTT’s arbitrary tariff increases.

A stockbroker said Maxis Communications planning to de-list from the Kuala Lumpur Stock Exchange poses further problems. “When you are a private firm, you can get away with a lot than if you were public,” he added. Three weeks ago, Maxis announced it planned to take the company private and wanted to de-list.

The industry analyst said that Maxis owner Ananda Krishnan, a Malaysian citizen of Jaffna-Tamil origin, will want full control of any company that he gets involved in. “That the way he operates. It is an all or nothing basis.

Like any company, he wants to make profits and will bring the full force of his group. Rest assured they won’t be happy with 25 percent control – they’ll want a much bigger say,” he said, adding that Krishnan is likely to aim for a fully integrated operation involving fixed and mobile phones, television and possibly radio.

Stockmarket dealers said that over the past two years there have been numerous entities such as Philippines Long Distance, Etisalat of Middle East and John Keells and Sing-Tel (a Singaporean firm) interested in SLT.

Raising questions as to why the NTT stock was not offered through the Colombo Stock Exchange (CSE), dealers said: “had they announced that they are selling a stake in SLT to the CSE, there would definitely have been more than one buyer interested in the company.”

The NTT, which has a 35% stake in SLT, is selling off 25 % valued at more than US $ 260 million (Rs. 27.5 billion) with a fat commission going to influential Sri Lankan operators. Industry analysts say the deal is being pushed through by a powerful government authority and one of the most powerful stockbrokers, with links to the political hierarchy and who also figures in the controversial multi level marketing scheme, GoldQuest. The brokerage commission is said to be over a billion rupees.

An official committee which includes representatives from the Treasury, the Planning Ministry, SLT chairman (himself) and director-general of the Securities & Exchange Commission, was appointed by the cabinet to clear the Maxis proposal. This committee last week formulated a new shareholders agreement between the government and the new buyer, Maxis.

Sources close to the committee said they had been informed of a separate offer by Telecomsel, Indonesia, a company listed in the New York Stock, Exchange, for the NTT stock, but this offer was not taken up by the committee,

These sources said that since the government is a majority stakeholder in SLT, it should take the lead role like the appointment of the CEO, in addition to the chairman. “If the government has 75 percent control, why not?” he asked. But others in the industry said no investor like Maxis will settle for anything less than management control. “It’s unfair to expect such a thing because the technical and management expertise is what we need. How do we balance sufficient state control with adequate management expertise from the foreign partner, is the issue.”

Industry analysts were hoping that the transaction would take place on the CSE trading floor. “That way the CSE, brokers and the Sri Lankan government can earn and benefit. There is also transparency,” one analyst said. Senior SLT officials declined to comment saying that they have ‘nothing’ to do with the deal.

Under the earlier shareholders agreement between NTT and the government, both sides were obliged to offer each other the first option on the sale of shares and then look for other buyers.

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