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Sapura mahu 40% TDC
Short Term Notes
TDC akan disenarai
Kerajaan tidak campur
Last Update:
10 May, 2000
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Corporate News
Short-term notes versus shares By C S Tan |
As the Sapura group makes a
hostile bid for Time Engineering Bhd’s telecommunications division — hostile
from Time’s point of view — the bids are pitched as an offer from Sapura as
opposed to the one from Singapore Telecommunications Ltd (SingTel).
That does not seem to be what’s on offer. It’s actually Sapura’s offer as
opposed to Time’s own proposed debt conversion scheme. In Time’s scheme of
things, and probably Sapura’s too, there will be a foreign strategic partner and
SingTel was chosen by Time. Who the strategic partner is, is apparently not key to Time’s
debt conversion scheme.
Under Time’s scheme, its debts will be converted into promissory notes prior to full
repayment upon the listing of its telecommunications sub-holding company, Time dotCom Bhd.
That distinguishes the current state of affairs at the Sapura group and Renong Bhd, which
is the ultimate holding company for Time. Sapura could raise RM1.8 billion cash as a
carrot to dangle before Time’s creditors while Renong could only offer promissory
notes — it has to go to the stock market for funds to repay Time’s creditors.
Time, which has debts of over RM4 billion, has sought court protection under Section 176
of the Companies Act and it has referred its debt-restructuring scheme to the Corporate
Debt Restructuring Committee (CDRC).
It is said that in such a situation, the interests of creditors come before that of
shareholders. The reasoning behind this grim view is that creditors can force a company
into liquidation and they have first bite over what’s left in the company before
shareholders.
Both Time and Sapura will naturally pitch their offers as being the more favourable one
for both creditors and shareholders.
One of the conspicuous contrasts between these two offers is that Time Engineering offers
its creditors zero coupon promissory notes that it will redeem, with no haircut, upon the
listing of its subsidiary, Time dotCom. Thus, the exit for the creditors is a few months
down the road.
They will then get dollar-for-dollar on the debts. There’s no upside to this though.
There is only downside, should anything go wrong with the listing. However, creditors need
not be concerned over the market price.
As they hold redeemable notes, their only concern is that Time dotCom’s initial
public offer (IPO) be fully subscribed. Other than in a recession, IPOs in Malaysia are
always over-subscribed. Time expects to receive proceeds totalling RM3.0 billion from its
IPO exercise.
Sapura is offering Time’s creditors shares in Time dotCom. Viewed positively, there
is an equity kicker to its offer. The creditors can hope for capital gains on the Time
dotCom shares they will hold. Further, there is partial repayment in cash from the RM1.4
billion that Sapura will cough up for this purpose.
Individuals would normally prefer shares at IPO prices since new issues tend to trade
above their IPO prices. Time’s creditors are mainly banks and it is unclear whether
they want to have exposure in shares.
Time’s board will obviously lean towards its own proposal. It may not have the final
say on this. Any scheme for its debt repayment requires the agreement of its creditors, so
they hold the cards here.
Furthermore, as Time has referred its debt problems to the CDRC, that body has influence
over the solution. The powers of the CDRC are not clear since it is a newly set up
committee. Ultimately, higher authorities may intervene considering that in this country,
telecommunications is viewed as a strategic sector. |
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