Wednesday, July 28, 2010

The Delisting Of Measat Global at RM 4.20

It was a long time ago.

6 December 2003. On Star Business.

  • Saturday December 6, 2003
    Back in Orbit


    Measat Global has given the market quite a bit to digest just before it resumes trading on Monday. Will investors warm up to the counter and do they understand enough about the business to accord its shares a fair value?

    AFTER more than 16 months of suspension, the shares of Measat Global Bhd will resume trading this Monday. All eyes, of course, will be on the price performance. Things are made more interesting because a couple of developments last week have handed the market quite a bit to digest over the weekend.

    Question is, once the investors have mulled things over, will they warmly welcome back the counter, or will they give it the cold shoulder?

    First came the announcement last Tuesday that a private placement involving 80 million shares had enabled Measat Global to meet the Kuala Lumpur Stock Exchange's listing requirements on 25 per cent public shareholding spread. It was this matter that had necessitated the counter's suspension in July last year.

    Controlling shareholder Measat Global Network Systems Sdn Bhd (MGNS), which in turn is controlled by tycoon T. Ananda Krishnan, had placed out the shares.
    The buyers were fund managers who forked out RM4.25 per share.

    (Following a mandatory general offer of Measat Global, MGNS ended up with more than 90 per cent equity in the former, which was formerly known as Malaysian Tobacco Company Bhd.)

    Then, on Thursday, Telekom Malaysia Bhd said it had paid MGNS RM250 million cash (RM4.165 per share) for a 15 per cent strategic stake in Measat Global.

    Observers point out that the fact that portfolio investors have paid only a 2 per cent premium to Telekom's price suggests that Measat Global shares are well-supported at that level.

    Prior to suspension, the counter was last done at RM3.84, on a day when the Kuala Lumpur Stock Exchange closed at 731 points. A lot has happened since. The global economic outlook has brightened considerably and the KLCI is now hovering at 790 points.
    The key perhaps is whether the market understands enough about the company's business to accord its shares a fair value.

    Through wholly-owned subsidiary Binariang Satellite Systems Sdn Bhd, Measat Global owns and operates commercial satellites. It has launched two satellites – Measat-1 and Measat-2 – in 1996, and plans to launch Measat-3 in the second quarter of 2005.

    Like most satellite companies, it gets the bulk of its revenue from the lease of transponders, that is, equipment on board the satellites that receives and transmits signals. As such, Measat Global's earnings are largely dependent on the utilisation of its satellites and the transponder lease rates.

    “It's complicated in terms of technology but it has a very simple business model,” says Binariang vice-president, sales and marketing, Paul Brown-Kenyon.

    It is undoubtedly a business that demands massive capital outlay – the company will eventually have spent about US$460 million to buy and launch its first three satellites – but it is also a business that promises strong cash flow and healthy growth.

    Riding the boom

    The satellite services business rides on the expansion in the telecommunications and broadcasting industries. Typically, customers sign transponder leases for three to four years, and the payments are made quarterly and in advance.

    Binariang sees itself as a regional player currently and its satellites enjoy a utilisation rate of 80 per cent. It has over 40 customers, of which 60 per cent are outside Malaysia.

    Its marketing strategy is to go for the No.1 or No.2 telco or TV company in every market and build its business from there.

    Nevertheless, its major customers are closer to home and these include Measat Broadcast Network Systems Sdn Bhd (which operates the Astro direct-to-home (DTH) service) and telecommunication companies such as Telekom Malaysia and Maxis Communications Bhd.

    Because Ananda Krishnan also controls Astro and Maxis, Binariang is perceived to be overly reliant on “in-house business”.

    Brown-Kenyon dismisses this. “Yes, Astro and Maxis are important customers, but so are Telekom Malaysia, GMA Network and Globe Telecom (both of the Philippines). We are an independent company and we sell to the regional market.”

    Rating Agency Malaysia Bhd (RAM), in a June rating review on Binariang, says the dependence on Astro and Maxis is not necessarily a bad thing. “In fact, we have a favourable view of the synergistic benefits which the company can derive from their relationship,” it wrote.

    For one thing, the two customers have their own plans for expansion and this will lead to demand for additional transponder capacity. Astro, for example, wants to add more channels and services to its offering.

    RAM also argues that Maxis and Astro are likely to remain within Ananda Krishnan's stable of companies, thus ensuring that the two companies will continue to support Binariang in the future.

    Enter Measat-3

    In any case, the perception that Binaring leans too much on Astro and Maxis may well become moot. The satellite company is banking on Measat-3 to launch it to the global stage. “With Measat-3, we're looking to extend our geographic reach and the breadth of our offering,” say Brown-Kenyon.

    Larger, more powerful and more flexible, the third satellite will have wider coverage and has deeper capacity to give customers what they want.

    Another reflection of Binariang's global ambitions is that it has secured rights to operate satellites from 16 slots around the world. It now uses only two.

    But it is not just a matter of launching one bird after another. Brown-Kenyon says Binariang wants to go beyond simple transport to provide value-added services to customers.

    At the same time, the company is looking to leverage its strength in the DTH segment. “We are today the largest DTH platform in Asia, excluding Japan. That gives us a great experience in terms of differentiating ourselves in the region,” he says.

    This is a wise move when you consider that DTH customers tend to be “sticky”. Once a DTH company signs up with a satellite operator, it tends to keep to the arrangement. A switch means having to take the expensive step of changing the direction of dishes of the TV customers to the new satellite.

    Judging from the results of the share placement, there is no shortage of believers in the Measat Global story. According to sources familiar with the exercise, the demand for the shares was strong. “People see the potential. It's a high-growth business and the pricing was attractive,' he adds.

    But the situation was different about a year ago. A similar attempt to place shares was aborted and the sagging stock market was blamed. In addition, it was felt that at that point, Measat-3 was too distant in the horizon to convince investors of its potential.

    But observers also point out that the initial public offering (IPO) of Astro All Asia Network plc may have been another factor in changing the fund managers' perceptions about Measat Global.

    Says one analyst, “The Astro IPO might have made it easier to understand how Ananda Krishnan's information and communications technology (ICT) businesses would converge. Before, people were not sure that Astro was viable. Now, many believe that Measat Global too will fare well.”

    That will be incentive enough to watch the skies. But on Monday at least, the attention will be on the trading of Measat Global shares on the KLSE

Measat opened trading at 4.60. Fell to a low of 4.12. Closed at 4.14.

That was the highest it ever traded.

To bad for the buyers who bought the placement shares at rm 4.25 per share.

Today Measat Global Networks launches takeover of Measat at RM4.20 a share

Which of course is nice for those who bought recently.

See Part II here: The Delisting Of Measat Global at RM 4.20: Part II