Foreigners OK’d to Take 61 Pct. Stake in M’sian Telcos

Posted on May 11, 1998 
Filed Under AsiaBizTech, Julian

By Julian Matthews

May 11, 1998 (KUALA LUMPUR) — The Malaysian government is allowing foreign companies to own majority stakes in local telecommunication companies.

The foreign equity ceiling was raised to 61 percent from 49 percent in an effort to pump in much-needed funding for ailing local telcos.

Energy, Telecommunications and Posts Minister Leo Moggie said the new policy will only be valid for five years, after which foreign companies will have to revert their equity back to 49 percent.

“We think five years is sufficient time. Foreigners will have time to recoup their investments, and locals would have acquired enough expertise and be ready to increase their participation by then,” he said.

Moggie said the move is to stimulate the telecommunications industry and encourage continued growth.

Local telcos are starved of local funding as a result of the financial crisis and are burdened by high infrastructure build up costs for fixed-line, mobile and fiber optic services.

The government stipulates that foreign companies may buy into or raise their stakes of local telcos only on condition that the funds are sourced from overseas.

This is the second time in three months the government has raised the equity limit. Moggie said local telcos had yet to generate interest from foreign parties despite raising the foreign equity cap to 49 percent from 30 percent in late February.

At present, four local telcos already have foreign partners. Germany’s Deutsche Telekom AG has a 21 percent interest in Technology Resources Industries Bhd. (TRI). US West Inc. has 19.8 percent stake in Binariang Sdn., Bhd. Swiss Telecom of Switzerland has a 30 percent stake in Mutiara Swisscom Bhd. And International Wireless Corp. has a 30 percent stake in Prismanet (M) Sdn., Bhd.

Moggie said the government has yet to receive any formal applications from foreign companies to buy or increase their stakes in local telcos.

The local telecommunication industry, which has enjoyed double digit growth in recent years, has been pummelled by currency freefall and financial downturn.

With sluggish market demand, higher telecom equipment costs, and commitments to roll-out plans for a gamut of mobile, fixed-line, fiber optic, data and satellite services, the telcos have stretched their resources thin and are ripe targets for foreign investors.

Already one local telco, Mutiara Swisscom, has acknowledged that it may need up a 600 million ringgit (about US$162 million) capital injection to continue to expand its mobile, fixed-line and data networks in the next three years. Mutiara Swisscom is projecting a loss of 115 million ringgit (about US$31 million) for its fiscal year ending April 30, 1998.

Three other telcos, government-controlled Telekom Malaysia Bhd., TRI and Binariang have been forced to review their expansion plans for this year.

Telekom Malaysia, the dominant fixed-lined provider, is investing two billion ringgit (about US$540 million) in 1998 in capital expenditure, a hefty 20 percent reduction from 1997.

TRI stated in its latest quarterly bulletin, it will spend only up to 500 million ringgit (about US$135 million) this year, down from 800 million ringgit (US$216 million) last year. TRI owns Cellular Communications Network Sdn., Bhd., which has a dominant share of the two million mobile phone subscriber market.

It plans to spend the money mainly on revenue-generating activities including enhancing its billing and IT support systems, expanding its GSM services coverage, and raising its switching capacity for its fixed-lined network to 200,000.

Binariang has retrenched more than 600 staff and cutback various expansion activities. Industry sources say the three telcos may also be affected by their long- term commitments to telecommunication infrastructure projects abroad.

Telekom Malaysia has joint ventures or partnerships in nine countries, TRI has projects in at least four countries, and Binariang has committed to maintaining and building up its satellite infrastructure system. Telekom Malaysia’s most prominent foreign venture last year was an agreement with American partner SBC Communications Inc., a Baby Bell company, to jointly take up a 30 percent stake in Telkom South Africa Ltd. for US$1.261 billion.

Published in Asia BizTech, May 11, 1998

by Julian Matthews, Asia BizTech Correspondent

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