Telenor agrees to buy stakes in Thailand's Ucom and TAC

United Communications Industry, one of Thailand''s largest telecommunications companies, aims to reduce its debt to fund expansion through a strategic sale to Telenor.
United Communication Industry, one of Thailand's largest telecommunications companies, agreed to sell as much as 24.9% of itself, and up to 30% of its Total Access Communication (TAC) cellular phone subsidiary, to Norway's Telenor for $720 million in an effort to reduce debt.

Telenor, Norway's largest telecommunications company, will buy $189 million of Ucom shares at $1.75 each - a 162% premium to Ucom's closing price of Bt26.25 ($0.67) on May 12. Telenor will also buy up to $530 million of TAC shares at S$3.75 each - a 170% premium to TAC's closing price of S$2.40 ($1.39) on the same day. TAC is listed on the Singapore Stock Exchange, while Ucom is listed on the Stock Exchange of Thailand.

The agreement is the latest in a series of measures Ucom has taken over the past two years to pay off debts, which surged after the Thai Baht was devalued in mid-1997 and TAC spent heavily to build out its fiber optic network. Ucom currently has debts of $423 million, while TAC's debt is $900 million, says Greg Mazur, head of the telecoms and media group at Salomon Smith Barney, which is managing the share sale.

As part of the agreement, Telenor will install its own chief financial officer and chief operating officeráat Ucom. With Telenor executives in such key positions, the company expects to have a far greater influence over Ucom and TAC than its minority shareholdings might suggest. The first task of the new, still-to-be appointed CFO will be to refinance TAC's remaining dollar-denominated debt in local currency.
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"We want to do that as soon as possible," says Sigve Brekke, managing director of Telenor Asia.
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TAC's debt includes $250 million in bank loans, $400 million in Yankee debt, and $250 million in euro-convertible bonds. The $530 million it receives from Telenor will go to pay off the bank loans andáa portion of the bonds. With TAC's debt down from $900 million toá$370 millionáand Ucom's down from $423 million to $234 million, Brekke says he expects TAC to be able to financeáits remaining debt - onceáconvertedáinto Baht - with cash. "We're not at all worried about it," he says.

Telenor, which beat out Australian telecommunications company Telstra in the acquisition of its Ucom stake, says the premium it is willing to pay reflects its optimism that cellular phone penetration in Thailand will rise from about 4% today to "double-digit" figures over the next two to three years.

á"We think the price we paid is very healthy given the growth we have in mind," Brekke says.

Expansion plans

For Telenor, the acquisition is part of a broader strategy to expand throughout Asia. Last year the company bought a third of Digi Swisscom of Malaysia for $207 million. It says it plans to make additional acquisitions throughout the region.

"The European market is saturated so we have to move outside," Brekke says. "We plan to be very aggressive in our acquisition strategy."

TAC is Thailand's second largest mobile phone operator. At the end of March it had 1.1 millionásubscribers, or a 42% market share,áand is poised to benefit from a rebound in consumer spending as the country emerges from its economic crisis, analysts say.

"We believe underlying huge pent-up demand for cellular service exists, but has been contained by poor economic conditions," says Pat Pattaphongse, an analyst at Credit Lyonnais Securities Asia in a recent report on the company. "TAC is in a vibrant industry, holds very attractive telecom assets and offers excellent growth potential."

After the sale, Ucom will hold 40% of TAC, while Telenor will hold 30%. Institutions and public shareholders will hold the rest. Ucom will be 22.4% owned by the Bencharongkul family, 24.9% by Telenor, 22.6% by privately-held investment company Somers UK and 30.1% by the public.

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