Wednesday, April 4, 2012

How deep is Green Packet's problem? Quite!

Green Packet is a company that is bleeding cash. Just like some of the telecommunication companies (telcos), it is being thrown into the deep sea without much life savers. Once a while they get some life savers in the form of SK Telecom (the big one), IntelCap and Malaysia Debt Ventures. They just have to continue to swim. Why is it that the company and all the shareholders, continue to be able to battle through? Telco business has some uniqueness where there are some interests from foreign parties. In Malaysia, any foreign party is not allowed to own more than 49% of a telco. This is why Telenor is still required to reduce its stake in Digi from 61% to 49% despite several approved appeal.

This is also why SK Telekom did the absurd by injecting in close to RM400 million into Packet One and yet to see the light of the day. They probably feel that RM400 million for 26% of a telco is worth it. Why? That uniqueness in telcos, as most countries see telco assets as a sovereign right. Companies like SK Telecom, Singtel, Telenor have not much room to grow anymore in their own respective countries. Imagine SK Telecom having a net free cashflow of some USD1 billion a year and they do not know how to grow the business any further. Besides issuing dividends, companies like SK Telecom will always look for opportunities overseas. These opportunities however are few and far between. That is probably why the Green Packet deal was stumbled upon. What they probably are short in the right decision making is that Malaysia is already a matured market in terms of telco business growth. Yes, South Korea is much more matured but the competitors in Malaysia are ruthless and cash rich already as well. In fact, Malaysian telcos are also already looking for opportunities overseas. Look at Axiata, Maxis.

Now look at the table above. By converting all the preference shares Packet One will have some of the debts converted into equity. Good stuff for Green Packet who is the holding company. But now what - will SK Telekom be injecting more money into Packet One? They already own 26.07% (via preference) of the company which is valued at some RM350 million. Will SK Telecom be the grand daddy again and value Packet One much higher than the market as what they did in the past? These are questions that only SK Telecom can answer.

If SK ever decides to pump in more money for whatever it is, trying to help to keep Green Packet afloat for the LTE and fibre broadband initiatives, how much more can they do to add to that 26.07%? Another 20% for RM150 million. That I foresee is still not enough for Packet One.

Green Packet has looked overseas and the overseas solution is going to be maxed out. They have to look inward as a solution. Any local takers? You see, SK Telecom's injection has to be met by locals so that the % shareholdings are even out. Again probably tough, as all the other cash-rich players are already fully happy with what they have. LTE (4G) is coming and from that WIMAX is no advantage anymore. Why then would they want Packet One? No angels would want either as Green Packet's business is beyond angels appetite already.

Will the current shareholders of Green Packet be able to pump in more money. Let's look at the below table and you will see they themselves are maxed as well.

The CEO's, Puan Chan Cheong and gang shares in Green Packet are already pledged (same as MTouche case). You bet they can raise anymore funds themselves for their own injections? These pledged shares are due to a rights issue done sometime in 2009. They are just not able to raise from within themselves anymore.

Having said all the above, I am still amazed at the ability of Green Packet to raise funds externally. Will they be able to keep that up? As they will need that extraordinary ability again.

1 comment:

Anonymous said...

It appears so ie. they plan to issue new shares (again)up to 10% of its paid up capital. I just wonder who will be their next 'sucker'.