Stripped-down Maxis IPO could turn off investors

Stripped-down Maxis IPO could turn off investors

Kuala Lumpur: With the blessings of the prime minister, the relisting of Malaysia’s top telecom firm Maxis Communications Bhd next month was destined to be a blockbuster, but tepid response from domestic funds so far suggests otherwise.

Reclusive Malaysian billionaire Ananda Krishnan took Maxis private two years ago in a deal that valued the company at about 40 billion ringgit ($11.78 billion, or Rs54,895 crore). Maxis, which also owns telco assets in India and Indonesia, was once one of the most widely owned stocks by foreign investors in Malaysia.

Prime Minister Najib Razak, in his eagerness to boost the country’s sluggish stock market, had asked Ananda to relist Maxis, a call that was heeded, but only in part, because Ananda plans to float just the Malaysian operations in the initial public offering (IPO).

Some fund managers have said they will likely underweight Maxis, whose listing is expected to squeeze a few stocks out of the benchmark stock index due to its size, as valuations seem lofty and growth prospects uninspiring.

“You really have to struggle to find where is growth going to come from," said Abdul Jalil Rasheed, who helps manage about $2 billion at the Malaysian unit of Aberdeen Asset Management. “This is just the Malaysian business, not the fast-growing Indian or Indonesian business."

The Indian and Indonesian businesses were together valued at around 7 billion ringgit when Ananda took the firm private two years ago, but analysts feel the current IPO risks overvaluing the mature Malaysian arm by excluding the lucrative overseas operations.

Sources have said Ananda and his partner, Saudi Telecom, are looking to cash in at least $2 billion through the IPO, making it South-East Asia’s biggest since 1995.

An indicative price could be announced this week, while CIMB Research said the company could be valued at $11-12 billion. “Maxis could be looking to raise around $2.5 billion from this," a source familiar with the deal said on condition of anonymity.

Maxis, controlled by Ananda, Saudi Telecom and some domestic trust funds via unlisted Binariang GSM, will sell 2.25 billion shares, or 30%, of its existing share capital in the IPO. Given the big size of the offering, every bank is salivating for a slice of the pie. Institutional bookbuilding for the IPO is expected to take place by 9 November and the listing by 16 November.

But at a fund manager briefing by CIMB in Kuala Lumpur last week, investors questioned why Maxis, stripped of its prized assets in India and Indonesia, deserved to be valued at the figure of two years ago. Malaysia is a fully saturated market in terms of SIM penetration. “People have talked about 14-16 times (price to earnings ratio)," said Aberdeen’s Jalil. “I think at the lower end of the range it does look OK but if it’s in a late teen or something, it might put off certain people."

Rival Axiata, a regional player with a presence in Indonesia, India and Sri Lanka, currently trades at 15.9 times 2010 earnings, Thomson Reuters data showed. DiGi, the smallest mobile player in the country, with no regional presence, trades at 14.9 times.

These ratios compared with the 11.7 times fetched by Singapore Telecom, which also operates in a fully saturated market with some regional presence.

Saeed Azhar contributed to this story.