Frankly Speaking

-A +A

Now we can ‘Sing and Tell’It was obvious that the presence of former prime minister Tun Dr Mahathir Mohamad — even though via teleconference from London — was important at the signing ceremony between Singapore Technologies Telemedia (ST Telemedia) and U Mobile Sdn Bhd last week.

His blessings would have sent the tacit message to the ultras that the entry of a Singapore-based company into the Malaysian telecommunications sector is no longer a threat to national security.

That’s because the former premier had a key role in the rejection of Singapore Telecommunications’ entry into the beleaguered Time dotCom (TdC) 10 years ago.

Many would remember that it was Mahathir who in 2000 stopped SingTel from taking a 20% block in TdC, on the grounds that the telecommunications sector was strategic and Malaysia does not “Sing and Tell”.

Tan Sri Halim Saad, the former supremo of Renong, had by then got SingTel to sign on the dotted line for RM2.2 billion. It was a lifeline for Halim, who was fighting to save a debt-laden TdC from going under.

As SingTel was not allowed to take up a block in TdC, Khazanah stepped into its shoes, forking out more than RM2 billion in the eventual listing of the telecommunications company. Apart from Khazanah, Kumpulan Wang Amanah Pencen had also taken up a block in TdC. Both entities are still licking their wounds from that investment today.  

U Mobile has now roped in ST Telemedia, a major shareholder of StarHub, the Singapore listed incumbent pay-TV provider. StarHub provides mobile phone services and broadband — services that U Mobile would be able to offer considering the spectrum in its stable.

The partnership throws a lifeline to U Mobile which is probably at its wits’ end trying to carve a niche for itself in a market dominated by three big mobile service operators controlling 96% of the market.

In the field of pay-TV, Astro is already way ahead with its direct-to-home satellite broadcasting service having penetrated over 50% of Malaysian households.

With ST Telemedia on board, the chances of U Mobile carving a niche for itself by stealing some of Astro’s market share are much better. After all, if the prospects were dim ST Telemedia would not have forked out RM1 billion for a 30% block in U Mobile.

And ST Telemedia has stated that it is in the company for the long term — meaning there is no easy exit, unlike U Mobile’s previous Korean and Japanese partners.
Healthy developmentSecurities Commission Malaysia and Bursa Malaysia are taking steps to plug the loophole in the privatisation of companies via asset disposal, having sent out a consultation paper on this matter to industry players. But before it comes into effect, will it spark a deluge of corporate exercises involving the disposal of significant assets?

Hopefully that will not be the case. The privatisation of companies via asset disposal has often been criticised for unfavourable valuations, and the majority shareholders accused of trampling on the rights of the minorities. That is primarily due to the low threshold for approval, since privatisation via asset disposal requires only a simple majority of 50% plus one shareholder.

There are several other methods to take a company private which require a higher threshold of 75% shareholder approval. But most major shareholders use the easy way out, especially when the assets are undervalued.

If the new proposals are accepted by the industry, privatisation via asset disposal can be scuttled by minority shareholders holding at least 10% of the shares. While that would be a major plus point for shareholder protection, it can also be used by minorities to stymie privatisation exercises.

In future, major shareholders will not be able to take companies private by offering inferior prices. By the same token, minorities will hopefully be reasonable about their expectations from their investments. Only then can a healthy capital market emerge, with vibrant mergers and takeovers.
Just do itIn the last few years, it has become increasingly apparent that the country is dropping off the radar of foreign investors and witnessing a serious outflow of direct investment. For the record, it bears reiterating that between 2006 and the first nine months of 2009, there was a cumulative net outflow of direct investments overseas to the tune of RM49.96 billion.

Among the reasons cited is the diminishing competitiveness of our economy against lower-cost countries, including China, India and Vietnam. The adoption of structural reforms is therefore among the urgent priorities for the country. Indeed, international development institutions such as the World Bank have pointedly declared that such reforms are several years overdue.

The key changes include a shift from the low-value assembly line manufacturing of electrical and electronic products to value-added industries that have the potential of making Brand Malaysia a benchmark of technological excellence. Admittedly, at this point in our development this idea looks like a tall order. In order to make this happen, fundamental changes need to take place in our human resource development.

No doubt, it will require much effort to make the human resource base a strong point of the nation’s economy. This is clearly a major challenge that must be addressed by the New Economic Model which is due to be “soft launched” at the end of March.

Although resistance to change is only to be expected, postponing reforms is an invitation to trouble. It is disturbing, therefore, that the government appears to be backtracking on its avowed economic transformation programme in the face of opposition to the new agenda.

The answers are never simple in such situations. It may require a combination of consensus building, public education, astute leadership and firm resolve to effect what would be a tectonic shift in the country’s economic strategy.

What is clear is that indecision is the worst possible option in this unfolding crisis.
This article appeared in The Edge Malaysia, Issue 798, Mar 22-28, 2010