KUALA LUMPUR: Berjaya Corp Bhd’s (BCorp) recent move to raise its equity interest in REDtone International Bhd begs the question of what plan the diversified conglomerate has for the small-cap telecommunications services provider?

BCorp, controlled by Tan Sri Vincent Tan, through its wholly-owned subsidiary Juara Sejati Sdn Bhd, has increased its stake in REDtone to 20.05% from 12.39% at 70 sen per share.

In addition, the group bought more irredeemable convertible unsecured loan stocks (Iculs) and warrants in REDtone. With the latest purchases, BCorp will control 62.93% of REDtone’s Iculs, plus 13.57% of warrants.

In terms of shareholding, BCorp remains the second largest shareholder after Indah Pusaka Sdn Bhd, which is controlled by the company’s chairman Datuk Sri Syed Ali, who has a 30.2% stake.  

However, BCorp’s shareholding may be larger than Indah Pusaka’s should the former convert all its Iculs and warrants.

Assuming BCorp exercises all its warrants and Iculs, back-of-the-envelope calculations show that the group’s shareholding will increase to 38%, or about 252.47 million shares, on the enlarged share capital base of 662.69 million.

It would cost BCorp some RM37.15 million to convert the warrants and Iculs it has in hand into new shares in REDtone.

Indah Pusaka holds some 53.6 million Iculs and 39.9 million warrants. Hypothetically, if Indah Pusaka converts its derivatives into shares, it would have an estimate of about 249.8 million shares, which are slightly less than BCorp’s.

BCorp did not explain in an announcement the reason behind BCorp’s acquisition, only stating that it had been done via direct business transactions.

REDtone recently announced that it had received a letter of award from the Malaysian Communications and Multimedia Commission to build, operate and maintain radio access network infrastructure in the rural areas of Sarawak and Johor.

The three-year contract is expected to contribute positively to REDtone’s performance for  financial years 2015 to 2017 (FY15 to FY17) ending May 31, as it will increase the creation of the company’s critical mass of its network in Sarawak and Johor.

It is not sure whether the latest contract has prompted BCorp to buy more shares in REDtone.

Tan and his family are the substantial shareholders of another telco provider, U Mobile Sdn Bhd.

According to the Companies Commission of Malaysia, U Mobile’s shareholders are U Telemedia Sdn Bhd with 36.45%, Singapore-based Straits Mobile Investments Pte Ltd 49%, Magnum Bhd 6.33%, Berjaya Infrastructure Sdn Bhd 2.01% and Tan himself with 6.21%.

REDtone has fared rather well in the past three financial years after being loss-making for several years.

The company posted a net profit of RM23.2 million, or 3.4 sen per share, for FY14 ended May 31,  compared with RM25.16 million, or 4.25 sen per share.

For the first quarter ended Aug 31, REDtone posted a 21.4% increase in net profit to RM4.4 million from RM3.6 million a year before. Revenue, however, decreased to RM34.2 million, from RM36.1 million previously, attributed to delays in billings for data projects.

Last Friday, REDtone’s share price closed unchanged at 71.5 sen with a market capitalisation of RM370.51 million.

This article first appeared in The Edge Financial Daily, on December 15, 2014.