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An Interview with Maxis

This is an interview with Maxis by Business Times. I believe these Q&A took place via email.

Q: Why is Binariang GSM Sdn Bhd launching a general offer for Maxis?

A: Since its inception, Maxis has grown rapidly to become Malaysia’s largest mobile telecommunications company. It has now expanded to markets such as India and Indonesia, and continues to look overseas for further expansion. This has significantly changed its capital and risk profile. The expansion plans will require huge amounts of new capital that could strain the cash-flow position and dividend payment.Operating in new overseas markets could present new investment and regulatory challenges.

Q: Is the offer a fair one?

A: Definitely. The offer price of RM15.60, payable in cash, represents a huge premium over the last traded price of RM13. It represents a price level which Maxis shares have never achieved since its listing on Bursa Malaysia. A shareholder who subscribed to Maxis shares at IPO (initial public offering) and accepts the cash offer would have enjoyed a total return of 301 per cent (including dividends).

This represents an internal rate of return of more than 36 per cent.

Q: How will taking Maxis private impact on the Bumiputera shareholding?

A: The Bumiputera stake in Binariang GSM Sdn Bhd, the special purpose vehicle making the bid, is around 22 per cent. Assuming 100 per cent acceptance by Maxis minorities of Binariang’s offer, the Bumiputera stake would remain unchanged at 22 per cent. It is the intention of Binariang GSM to work towards increasing the Bumiputera stake to 30 per cent over time. In that sense, Usaha Tegas would be undertaking a second round of the NEP (New Economic Policy) requirements regarding Bumiputera ownership. (The first was during the IPO.)

Q: By going private, would Malaysians be deprived of participating in the country’s largest and most profitable mobile carrier?

A: It must be emphasised that Maxis is not exiting the Malaysian market. After privatisation, it will still be a Malaysian-owned company, with substantial Bumiputera participation.

The privatisation exercise can be viewed as Maxis moving its primary source of financing from the equity to the debt market.

It is the intention of Binariang, sometime later down the road, to relist Maxis on the Malaysian market. When that happens, Maxis will be a better and more attractive company.

Q: Maxis is viewed as a Malaysian icon by many. By making it private, would its iconic status be eroded?

A: We do not think so. Privatisation allows the company to better position itself to meet the challenges of the global marketplace. It should be noted that another Malaysian icon, Petronas, is also a private company. With this exercise, Maxis becomes more Malaysian and more Bumiputera.

Q: Is the privatisation the best way to meet the capital requirements for Maxis’ overseas expansion?

A: It would be easier. But it’s not only capital. Venturing overseas in a big way changes the risk profile, and we believe this might not be appropriate for the Malaysian minority shareholders. It must be noted that the overseas ventures will have a long gestation period before they can yield the desired returns.

Q: How will the cash offer by Binariang be funded?

A: The funding will be jointly arranged by ABN-AMRO and CIMB via bank borrowings and/or bonds issuance. Binariang has had the committed funding in place to finance the offer.

Q: Delisting Maxis will reduce the large number of large, liquid, high-quality companies available to investors on Bursa Malaysia. Will this not reduce the attractiveness of the Malaysian stock market?

A: The market capitalisation of Maxis is more than RM33 billion and Maxis ranks in sixth position in terms of market capitalisation on Bursa Malaysia. However, as this only constitutes four per cent of the KLCI 100 market cap, we believe the presence of other big companies and medium- cap counters will ensure the continued robustness of Bursa Malaysia.

In any case, privatisation of listed companies has always been a common feature in stock markets worldwide, and in this case, it is a reflection of the maturity of the Malaysian financial markets.

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