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Matchmaking Malaysia's telcos
By Lee Min Keong
September 10, 1999

Since the Asian financial crisis hit Malaysia's shores, every one of its main telecommunications companies has been rumored to be marrying one or more of its rivals. But till today, none of the potential partners have got hitched. Short of a forced marriage, the road to successful mergers between the telcos appear filled with potholes.

The move to consolidate gained momentum recently when Malaysia's Corporate Debt Restructuring Committee (CDRC) warned telcos that it would intervene to force mergers if efforts to consolidate the sector failed. CDRC chairman C. Rajandram said ominously that "an industry solution will be provided" should attempts at the company level fail to solve the problem of overcapacity.

While the renewed push to consolidate has been driven by the country's crippling recession which left most telcos in the red, the merger process has been complicated by various debt restructuring exercises. Time Engineering, which controls Time Telecommunications, has filed for creditor protection and sought CDRC's help to resolve debts valued at some US$1.18 billion.

Technology Resources Industry Bhd (TRI), which owns cellular operator Celcom, is mired in US$605 million of short-term debts and is scrambling to meet an October deadline for its debt restructuring. DiGi Swisscom has US$87 million debts while another small telco, PrismaNet (Malaysia) Sdn Bhd, was placed under receivership late last year with debts of US$53 million. The other full-service telcos are state-owned incumbent Telekom Malaysia Bhd and Maxis Communications Bhd (formerly Binariang Bhd).

With billions of ringgit in debt weighing down these newcomers, prospective buyers are not exactly beating a path to their corporate doorsteps. "Indebted telcos obviously won't want to take on more debt," says OCBC Securities senior analyst Lian Wah Seng.

A major reason for the failure to hive off Time Telecommunications to interested parties such as TRI, Telekom and Singapore's SingTel over the past year has been the price. "Time's parent company Renong is unwilling to part with the company for a song," says an analyst.

Malaysia's telco troubles has its roots in the hasty liberalization of the industry in the mid-1990s. Analysts say the government made the mistake of issuing too many telecommunications licenses. Malaysia was not alone in this as several other Asian countries also fell into the same trap. According to a recent Morgan Stanley Dean Witter report on Asia-Pacific's telecommunications industry, Malaysia and the Philippines, which has over 10 players, appear to be the markets ripest for consolidation.

A Kuala Lumpur-based telecoms analyst says that Malaysia's over-privatization of the sector meant that politically-connected companies with no experience in the industry got their hands on supposedly lucrative telecommunications licenses. The problem was compounded by banks offering billions of ringgit in easy credit to these companies, to build up and often duplicate telecommunications infrastructure.

Before the crisis, Telekom' s competitors had aggressively leveraged to expand their networks. When the recession came, they found themselves saddled with lower line demand, rising interest, ballooning foreign debt, and lower returns on capital expenditure.



Lee Min Keong is a regular contributor for various regional magazines and has been a journalist for over 15 years. He heads Asia-Pacific Editorial Consultants, a Kuala Lumpur-based editorial services firm. Email your comments to us.


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