Telekom Malaysia Wants To Up Stake In Spice

[@ksh@T 20]

MUMBAI: Relations between the promoters of Spice Communications, the Modis and Telekom Malaysia , seem to have soured recently over ways to finance the company’s expansion plans and management control in the loss-making venture. TM is learnt to be looking at increasing the Spice stake to at least 51% from 39.2% through a combine of open offer and acquisition of shares from the Modis. The BK Modi family holds a 40.8% stake in Spice through Modi Wellvest and public and financial institutions hold the balance 20%.

TM sees this as the only way of pumping money into the company, which reported a Rs 1,200-crore debt at the time of listing last July. And Spice’s debt-equity ratio of 1:6 (more than twice the corresponding ratios of competitors) makes it difficult to finance expansion through more debt. “Since none of the partners have a controlling stake, the company seems to be heading nowhere. Spice requires further investments to grow its networks. TM cannot put more money unless it raises its stake. It is now aggressively seeking management control,” said a senior company official who didn’t want to be named.

TM International CEO Datuk Yusof Annuar Yaacob told ET, “We (TM and Modis), as the two largest shareholders of Spice Telecom, remain committed to the business and are looking at various options to further accelerate growth in the business, which has shown significant traction in the last few quarters.” He denied a rift with the Modis. “Modi Wellvest is a leading shareholder in Spice along with Telekom Malaysia. Modi Wellvest has an excellent relationship with Telekom Malaysia. TMI has strong faith and trust in the leadership of Dr BKM and the management team of Spice Communications,” said Dilip Modi.

We refute any speculation over any change in relations or of any dispute over control of Spice Communications. Both shareholders are well-aligned and committed to the business,” the Spice Telecom head said. Spice posted a net loss of Rs 36.50 crore for the quarter ended March 2008 against Rs 14.66 crore in the corresponding period last year. While TM is keen to increase its Spice shareholding, it is unlikely to partner an international operator for this. “TM can do it on its own. It’s a strategic investor in Spice and would not like to rope in any other party,” said sources.

However, the Modis are learnt to be demanding Rs 60-Rs 65 per share, against the Rs 46 at which the shares listed last year. “The price being asked (by Modis) is way above the true value of shares now,” said an investment banker. The Spice scrip closed at Rs 39.85 last Friday, down 0.87% from the previous close.

In such a scene, TM is looking at making an open offer in the near future. As it already owns 39.2% stake in Spice, it will have to make an open offer if it buys more than 5% stake in the company as per Sebi guidelines. TM had acquired 49% stake in Spice for $179 million in March 2006 when the company had 1.7 million customers. It subsequently offloaded around 10% stake during the IPO days. Spice now has nearly 4.2 million subscribers across Punjab and Karnataka.

It has also applied for a pan-India licence. On April 28, TM spun off its mobile phone businesses across nine geographies to form TM International, valued at $9 billion. TM International would consider having a foreign partner, but not immediately, the company said after the listing.

However, selling the Indian business does not seem to be on TM’s radar at present. “We are not selling our stake to anybody. India is important for us,” said Mr Yaacob. “At a time when the Indian telecom market is the fastest growing in the world, TM will not look at an exit because it complements TM’s South and South East Asian investments in Sri Lanka, Bangladesh, Indonesia, Pakistan, Singapore and Thailand,” said sources.

everybody is going to have a bite in this ;ucrative market and dont wanna miss the train