One of the biggest failed listings in Malaysia’s corporate history is the initial public offering of Time dotCom Bhd (TdC) in December 2000.

It’s a classic case of how a well-connected company riddled with debts sold a “dotcom story” to the government and regulators. But private funds were not taken in, resulting in government funds having to step in to take up shares that nobody wanted.

In the end, Khazanah Nasional Bhd ended up bearing the brunt of a listing that failed miserably.

Until today, Khazanah’s entry into TdC is in question, as the entry of the government’s investment arm was said to be largely due to an expression of interest by Singapore Telecommunications Ltd (SingTel) to take up a stake in TdC.
SingTel’s entry into TdC was, however, not welcomed ­— by none other than the then prime minister Tun Dr Mahathir Mohamad.

Tun Daim Zainuddin was also in the government then and Tan Sri Halim Saad, one of the coterie of businessmen handpicked to lead the charge of increasing bumiputera equity ownership in Corporate Malaysia, was heading Renong Group which ultimately owned TdC.

In hindsight, SingTel should have been allowed to take a stake in TdC. But approval was not forthcoming and in stepped Khazanah. The entry of Khazanah was on the grounds that if the investment was good enough for Temasek-controlled SingTel, it was good enough for the national investment fund.

Khazanah ended up with a 20% block in TdC at RM3 per share, or RM1.52 billion, and in addition subscribed for exchangeable bonds amounting to another RM784.6 billion. The investment stuck out like a sore thumb in Khazanah’s books until last year, when an arrangement was made to sell a stake to an investor who will be driving TdC.

The listing of TdC was actually planned in 1997, but the financial crisis threw a spanner in the works. The listing was to reduce the debt burden of parent company Time Engineering. In 1997, TdC’s owed Time Engineering amounted to RM2.2 billion. By 2000,  the debt had swelled to RM5.37 billion, including that to secured and unsecured creditors and inter-company loans.

Time Engineering then approached the Corporate Debt Restructuring Committee (CDRC) to restructure its business and sell a portion of telecommunications arm TdC to an investor. The proceeds were to be used to repay the debts.

Three bids came in but the directors were of the opinion that the sale of a stake in TdC was not in the best interests of scheme creditors and shareholders. So, a listing was the way out with participation from Khazanah, something brokered by the CDRC.

“Whether the bids were credible or not, nobody really knew,” says an investment banker familiar with the deal.

The listing process took a year. The application was submitted to the Securities Commission in January 2000 and received the go-ahead in late June that year. Early July, Time Engineering managed to get Khazanah on board and in a matter of days, creditors gave their nod — largely after seeing Khazanah’s entry. By the end of the year, TdC was listed.

But right from the beginning, the listing was viewed suspiciously because the exercise was purely to pare down debts and not for Time Engineering to extract value from its investments in TdC.

CIMB was the lead investment bank while the independent adviser was KPMG. CIMB itself was one of the creditors of Time Engineering, something that was disclosed in the prospectus.

What’s telling is that the private funds did not respond warmly to the IPO, resulting in a low take-up rate. Among the more bullish of the investment houses was CIMB Research, which tagged TdC at RM3.30. But most of the other houses gave the IPO a thumbs down.

This saw the entry of Kumpulan Wang Amanah Pencen to take up a portion of shares offered for sale. The offer-for-sale portion was slated to bring in total proceeds of RM1.4 billion for Time Engineering.

The proceeds from the offer-for-sale, together with the money from Khazanah, which  amounted to RM2.13 billion, were used to pay off scheme creditors holding promissory notes that came up to RM3.9 billion.

On top of that, US dollar bond holders with  papers worth RM950 million were supposed to be repaid from proceeds from the conversion of Time Engineering warrants. But the conversion of warrants into shares never came about as Time Engineering itself was not doing well. Neither was its share price.

Finally, Time Engineering settled with bond holders by using proceeds from the sale of TdC shares.

Looking back, there are many listings that went bad. But the listing of TdC easily qualifies as one of the worst in the past decade. If not for the entry of Khazanah, the listing would have failed.

And considering the influential figures behind Time Engineering, why Khazanah and subsequently KWAP took up stakes in the company is anybody’s guess.

A few years later, TdC was awarded a licence for 3G spectrum, which gave the company a new lease on life. The licence and spectrum were leased out to DiGi.Com Bhd in return for shares. TdC sold off a portion of its shares and retained a tidy sum for dividends.

TdC is now under the care of Afzal Abdul Rahim, who plans to capitalise on its broadband network.

As for Khazanah, it is highly unlikely that it has recovered its investment in the telco. 

This article appeared in Corporate page of The Edge Malaysia, Issue 795, Mar 1-7, 2010