Another windfall for TM shareholders?

KUALA LUMPUR: Telekom Malaysia Bhd (TM) plans to dispose of the 101.5 million shares in sister company Axiata Group Bhd that it still holds this year according to group chief executive Datuk Sri Zamzamzairani Mohd Isa.

“The sale of the remaining Axiata shares is in line with our plans to dispose of non-core assets. However, we are currently in no hurry to do so,” said Zamzamzairani in an interview.

Zamzamzairani did not mention whether this could mean another potential windfall for TM shareholders. Recently, TM announced its fourth quarter results ended Dec 31, 2010, where it proposed a capital distribution of 29 sen per share, returning around RM1.04 billion from its share premium account.

Even before the announcement, there already had been market talk of a special dividend as a result of the two disposals in non-core assets that TM had made last year, namely disposal of its shares in Axiata as well as its 15.39% stake in privatised Measat Global Bhd. Proceeds from both came to RM667 million.

The last time TM pared its stake in Axiata, which it holds through its wholly owned subsidiary TM ESOS Management Sdn Bhd, was via a bookbuilding exercise back in December last year. The shares, which were eventually sold for RM4.60 per share, were previously issued as part of an ESOS programme, for which the options were not exercised and lapsed on Sept 16.

The exercise eventually netted TM gross proceeds of RM414 million and a gain on disposal of RM209.7 million. At the time, TM had announced to Bursa Malaysia that it had intended to use the proceeds for working capital, capital expenditure, investments or acquisitions.

It is unclear at this juncture whether the proceeds from its eventual sale of its remaining Axiata shares will make its way back to shareholders. For FY10, total dividends at TM came up to 26.1 sen which worked out to a dividend yield of 6.5% based on yesterday’s closing price of RM3.98.

TM has a dividend payout policy of paying out RM700 million or 90% of profit after tax and minority interest, whichever is higher.

Axiata is currently the top pick among research houses for exposure to the telecommunications sector, with most calling it still undervalued. Among the catalysts cited for the counter include its growing businesses in overseas markets, in particular Indonesia and Bangladesh.

According to data services, research houses are bullish on Axiata’s prospects with the majority calling a “buy” or “overweight” on the counter with target prices ranging from RM5.45 to RM5.83.

On Feb 18, Axiata’s share price had closed at a 52-week high of RM5.14, but has since retreated slightly in the weeks that followed. Yesterday the stock closed at RM4.99.

According to the previous announcement by TM, the original cost of investment for the shares were RM2.27 per share. Based on yesterday’s closing price, the sale of the Axiata shares would net TM gross proceeds amounting to some RM504 million.

Based on the original cost of investment, a back-of-the-envelope calculation suggests that Axiata’s gain from the sale could amount to some RM274.7 million.


This article appeared in The Edge Financial Daily, March 4, 2011.