The Maxis mandate

In one of the possible blowout deals of the year, ABN AMRO will take the Malaysian telco public.

One of 2002's most exciting IPOs will, it seems, come from Malaysia. Not only that, but it will come from a sector that was an international punchbag until recently - namely mobile telephony.

The company in question is Maxis, which has mandated ABN AMRO to take it public. It is reckoned that a deal will be launched by the Summer.

Maxis is the market leader in the Malaysian mobile scene with around 2.3 million subscribers and a roughly 30% market share. It is owned by Ananda Krishnan, and is viewed by analysts as a proxy for a recovering Malaysia, run along internationally acceptable corporate governance lines.

The deal will probably have a dual listing in Kuala Lumpur and Singapore, and analysts say it could be as large as $700 million. This would make it bigger than all of the combined equity issuance from Malaysia in the past two years. This issuance consisted of a $134 million share placement via Salomon for Digi.com; a $60 million deal for Malaysian Pacific Industries via Jardine Fleming; YTL Power's $100 million convertible bond via CSFB and Deutsche Bank; and Time Dotcom's $298 million IPO, which occurred in February last year.

ABN AMRO has been doing a lot of work with the Malaysian telco. It arranged a highly successful syndicated loan for the company, as well as advising it on its bid for Singapore's mobile operator M1 (although the latter has now been taken off the market since the major shareholders cannot get any of the interested parties to pay the desired price).

ABN AMRO's all round relationship with Maxis is aided by the longstanding relationship between its investment banking boss, Richard Orders and Ananda Krishnan. They have known each other since the 1980s, and Orders is regarded as one of the foremost telecoms investment bankers in Asia today.

Krishnan is a savvy and highly regarded tycoon. Last year he bought British Telecom out of its stake in Maxis and took his own stake up from 51% to 97%. In a recent report UBS Warburg pointed to Maxis's "capable management" and strong premium branding.

Its strongest competitor is Tajudin Ramli-controlled Celcom, but if Celcom doesn't repay a $375 million bond by May, bondholders will get 49% of that company. Other competitors include Digi.com, Telekom Malaysia and Time Dotcom.

In a recent report, "The time is now: Telco Sector Consolidation," UBS Warburg predicts that the three survivors will be Maxis, Telekom Malaysia and Digi.com. Three 3G licenses will be awarded this July, and as the report says: "We think the three most likely winners will be Telekom, Maxis and Digi, mainly because we believe they are the most financially sound telcos. This implies they would be the three main wireless operators in Malaysia."

Malaysia only has a mobile penetration rate of 32%, so it is still a growth story. The government has a target of 38% penetration by 2005.

One issue for Maxis is that analysts say it is running out of bandwith and its network is running at near full capacity. This has led to merger speculation.

A merger with Time Dotcom would solve this problem and also turn it into a more integrated telco by giving it a fibre optic network. The government now controls Time's destiny and its stated intention  is to consolidate the domestic telephone industry - however, the Securities Commission has placed a moratorium on the government's stake being sold until Time Dotcom has realized two years of operating pre-tax profits (which is estimated to happen at the close of 2002). The SC's provisions relate to the fact that Time Dotcom is a recently listed company.

Bearing mind this issue, it does not look likely that such a merger could happen before the planned IPO.