This article first appeared in The Edge Malaysia Weekly on June 11, 2018 - June 17, 2018

ASTRO Malaysia Holdings Bhd, a pay-television operator owned by media-shy billionaire T Ananda Krishnan, has been in the news in the past two weeks.

Its share price hit an all-time low of RM1.41 on June 1 as the market reacted to news that the counter has been dropped from the component stock list of benchmark index FBM KLCI.

The subsequent news that 41 of 64 Fifa World Cup 2018 matches will be aired for free by Radio Televisyen Malaysia (RTM) further dampened the performance of the stock.

Astro, the country’s leading content and consumer company in the TV, radio, digital and commerce space, provides services to 5.5 million households and 23 million individuals.

Over the years, it has had a near-monopoly in the residential pay-TV business. The company also owns radio stations, publishes magazines and operates digital media.

Last Tuesday, there was talk of Ananda planning to take the company private after its share price fell to a record low. He is its single largest shareholder with a 40.91% stake.

Bloomberg, citing sources, reported that the billionaire has been discussing funding options with advisers and is reaching out to some major investors to gauge their interest.

A day later, Astro said it had not received confirmation of any privatisation proposal.

Then, on Thursday, the company announced the resignation of Datuk Rohana Rozhan as group CEO.

Her resignation as a CEO is effective Jan 31, 2019. She will remain on board as a non-executive director.

In line with the group’s succession plan, the board has approved the appointment of Henry Tan as Rohana’s successor. Tan, who is currently group chief content and consumer officer, has been with the company for more than 10 years.

Some industry players say the changing of the guard may see Astro chart new territories due to the challenging operating environment.

On Wednesday, the pay-TV operator released its quarterly results. Its net profit fell 10.8% to RM174.73 million in the first financial quarter ended April 30, 2018 (1QFY2019), owing to higher net finance costs. Revenue was slightly lower at RM1.31 billion against RM1.33 billion the year before. 

The company declared its first interim single-tier dividend of 2.5 sen, payable on July 6.

Astro’s share price has been on a roller-coaster ride. The stock jumped as much as 14% on Wednesday amid a surge in interest due to the privatisation talk. But it plunged 9.8% the next day. The counter has fallen 37% year to date, closing at RM1.65 on Thursday, giving the company a market capitalisation of RM8.6 billion.

This is in stark contrast to 2012 when Astro was valued at RM15.6 billion after being relisted on Bursa Malaysia through an initial public offering (IPO) that raised RM4.6 billion.
 

Is Astro ripe for privatisation again?

Ananda is the third richest man in Malaysia with a net worth of US$7.1 billion (RM28.2 billion), according to Forbes. Besides Astro, he also controls telecommunications giant Maxis Bhd and Bumi Armada Bhd — the largest operator of floating production storage and offloading vessels and offshore service vessels in Asia.

Market observers say his potential privatisation move comes as no surprise to those familiar with his track record. 

He took Astro private in June 2010, before relisting it in October 2012 at RM3 per share. Prior to that, he privatised Maxis’ parent company in 2007, then relisted its Malaysian business through an IPO in 2009. He did the same with Bumi Armada in 2003, subsequently restructuring the company and floating its shares again in 2011.

Ananda, Khazanah Nasional Bhd and bumiputera foundations received RM3.132 billion from Astro’s IPO in 2012 after offering 1.044 billion shares at RM3 apiece. At a ratio of 58:30:12, it is estimated that they received RM1.74 billion, RM900 million and RM360 million respectively.

Speculation over Ananda taking Astro private again had surfaced in 2016. The company, however, told Bursa then that it had not received any confirmed proposal from its major shareholders.

To ensure the privatisation is successful, Ananda needs to get the blessing of sovereign wealth fund Khazanah, which is the second largest shareholder of Astro with a 20.67% stake.

As at April 10, other substantial shareholders included Permodalan Nasional Bhd, Amanah Raya Bhd and AmanahRaya Trustees Bhd, which collectively hold a 6.02% stake. The Employees Provident Fund and Kumpulan Wang Persaraan (Diperbadankan) hold 7.79% and 0.4% respectively.

Interestingly, Ananda and Khazanah were parties acting in concert in 2010, jointly offering to buy out Astro for RM2.3 billion, which valued the pay-TV operator at RM8.5 billion, representing 9.6 times net assets.

To recap, the offer price of RM4.30 per share to buy out the remaining 27.09% not owned by their special-purpose vehicle (SPV), Astro Holdings Sdn Bhd, was at a 5.9% premium to the RM4.06 investors paid when Astro first went public in October 2003.

Ananda’s Usaha Tegas Sdn Bhd and its affiliates then owned 58% of Astro Holdings while Khazanah had 30% and bumiputera foundations, 12%. The latter is said to be linked to Tun Mohammed Hanif Omar.

To privatise Astro this time around, based on last Thursday’s closing of RM1.65, a back-of-the-envelope calculation shows that Ananda would need to fork out RM5.08 billion for the remaining 59.1% stake not owned by him.

Some wonder if Khazanah will team up with the tycoon again to take the company private.

It is worth noting that after Astro’s relisting in 2012, Ananda and Khazanah decoupled from their SPV in January 2015.

Assuming that Khazanah maintains its current holding of 20.67% in Astro but is willing to set up an SPV with Ananda to pave the way for a privatisation, the cost for him to acquire the remaining 38.43% stake would be significantly lower at around RM3.3 billion.
 

Funding is crucial for privatisation to happen

A media analyst says it is unclear if a privatisation will take place this time around.

“Will bankers lend money to Ananda? Astro’s concession is up for renewal in 2022 — that’s another 3½ years. Besides that, ARPU (average revenue per user) growth is not as good as before. There is a risk to the bankers. The company needs to provide clarity on the renewal of the concession to operate the pay TV,” he adds.

Ananda is unlikely to dip into his own pocket to privatise Astro, given that Bumi Armada has not been doing well in recent years, and the tycoon is also facing some problems in India and Indonesia, the analyst explains.

Ananda’s debt-laden Indian telecoms firm Aircel Ltd saw its merger with Indian billionaire Anil Ambani’s Reliance Communications Ltd unravel last year. In Indonesia, Ananda has been embroiled in a long-running legal battle with billionaire Mochtar Riady’s Lippo Group over their failed pay-TV venture.

“I don’t think he has that much cash at his disposal. Of course, Ananda had surprised us before when he took Maxis private in 2007. Who’s to say he won’t surprise us again? But realistically, the situation is much more difficult now,” says the media analyst.

An equity analyst agrees that funding is crucial for the privatisation to materialise. “I think bankers’ appetite for making money from delisting and relisting activities is not as great [as before]. The era of super cheap money is coming to an end, if it has not already ended.

“Khazanah has about 21% [equity interest]. If they do it together, the deal is likely to go ahead. But they need to convince the banks,” he says.

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