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Tuesday, 11 December 2012

TDC CEO: A dividend-in-specie is the best way of rewarding shareholders

PETALING JAYA: Time dotCom Bhd (TDC) has no plans to dispose of the remaining 1.75% stake it holds in DiGi.Com Bhd and will keep it for the time being, according to its chief executive officer, Afzal Abdul Rahim.

“Our core business at TDC is generating healthy profits with cash flow that give us sufficient headroom to reinvest. We see this stake in DiGi as additional to our requirements, and thought it was best to return the funds to our shareholders via a dividend-in-specie exercise,'' he told StarBiz yesterday.

On Friday, TDC announced a proposed plan to share 1.75%, or 137.5 million of DiGi shares or half of what it holds in DiGi, with its shareholders. That means TDC shareholders will get six DiGi shares for every 25 shares in TDC and though the entitlement date is not fixed, the entire exercise is expected to be completed by the first half of next year.

TDC had 275 million shares, or 3.5% stake, in DiGi as of Friday and post-exercise, the stake will be reduced to 1.75% or 137.5 million shares worth about RM660mil. The announcement caught many by surprise and yesterday TDC share price rose 47 sen, or 13.4%, to close at RM3.97 a share after a day high of RM4.03 a share. DiGi share price was also up marginally by 2 sen to RM4.86.

Some analysts are also positive about the share distribution and OSK Research said it “was a good and wise move on TDC's part.''

“DiGi's share price has appreciated by more than 100% over the past four years, and monetising those shares by selling them off for cash would have led to a reduction of shareholders' wealth as the gain would be taxed. We think that distributing a dividend-in-specie is the best way of maximising this portion of wealth to the benefit of TDC shareholders.

“Based on our estimates and assuming an indicative price of RM4.84 per DiGi share, TDC's book value would fall by RM1.16 per share upon completion of the proposals. The growth trajectory of TDC's core business remains unchanged. We also think that the current share price does not truly reflect the value of TDC's core business,'' OSK said.

The main reason why the exercise was crafted was because the value of TDC shares did not reflect its business.

“TDC share price at around RM4 was still somewhat depressed because of how people value the business. Since TDC holds 3.5% of DiGi shares worth RM1.5bil and when combined with its own cash at hand of RM200mil, TDC's price to earnings ratio is 4.5x based on current share price and this is relatively low for a telco.

“That is why a decision was made to distribute the DiGi shares and hopefully the exercise will help realise the intrinsic value of TDC shares,'' said people familiar with the matter. For a long time after its listing a decade ago, TDC share price has been depressed led by bullish profit projections that could not be met. It has been loss making and in 2008 Afzal came on board and a year later turned it around.

“Many of the shareholders had suffered by losing money on the stock and this is a welcome goodwill gesture,'' they said. For three months July to September this year TDC reported RM37mil net profit on the back of RM110mil revenue.

Going forward, Afzal said: “Our focus is to continue to improve internal efficiency and gain more market share in the areas where we compete.''

TDC first owned DiGi shares some six years ago. It got a 3.5% block of shares for transferring the 3G spectrum to DiGi and later bought 6.5% from Telenor ASA to raise its stake to 10%. Then Telenor had to reduce its stake in DiGi to meet the 49% shareholding ruling. Over the years TDC sold the 6.5% block to raise cash for its business.

Afzal declined to say how many DiGi shares he would directly own in DiGi after the dividend exercise, though directly he has over 3% in TDC after injecting Global Transit International and AIMS group into TDC.

In 2008, Khazanah Nasional Bhd's divestment efforts in TDC gave Afzal an option to increase its existing 38.3% stake in TDC's major shareholder, Pulau Kapas Ventures Sdn Bhd (PKV), but it did not include the DiGi shares. So Afzal is not likely to get any allocation meant for PKV for the DiGi shares.

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