Rumours of the privatisation of Measat Global Bhd have been making the rounds since 2007. But it only became a reality last Wednesday when Measat Global Network Systems Sdn Bhd made a conditional offer to mop up all the shares in Measat that it didn’t already own at RM4.20 each.
The offer values the company at RM1.64 billion and 11% above its market capitalisation last Wednesday. However, it is 17% below its latest net asset per share of RM5.08 (as at March 31).
Measat is one company under the stable of T Ananda Krishna that has underperformed ever since its listing. This is because its earnings have always been volatile, based on the numbers available since taking over Malaysian Tobacco Co’s listing status. This is usually due to fluctuations in foreign exchange rates leading to translation gains or losses on Measat’s US dollar-denominated borrowings.
Over the life of its satellites, Measat operates with a natural hedge against US dollar fluctuations, as over 90% of its revenue contracts and debt obligations are denominated in the greenback. However, at any one time, fluctuations in the exchange rate would lead to translation gains or losses on its US dollar assets and liabilities, Measat notes in its latest annual report.
The business requires deep pockets due to the capital-intensive nature of launching and maintaining satellites. The company’s net gearing has been more than 30% since 2004.
In the press release issued on the day of the privatisation announcement, the group said private ownership suits it at this stage, as it facilitates recapitalisation and restructuring in order for it to expand its satellite network. It explained that the group’s loan covenants currently restrict its ability to raise further substantial capital funding.
It added that its expansion plans may increase the risk profile of the group, hence the privatisation offer is an opportunity for other shareholders to exit at a premium.
Over the years, the swings in earnings have also been due to the adoption of certain accounting standards. Even after adjusting for fluctuations in forex rates, net earnings can still appear volatile.
Tie-up with Astro?
In terms of cash, however, Measat has never been short. Its net cash flow from operating activities have always been positive. In the last two years, net cash from operating activities has been rising steadily.
Be that as it may, Measat has never paid any dividends, as it conserved cash for working capital requirements. Furthermore, the group was not in any position to pay dividends due to the restrictions placed by various loan agreements.
Based on Measat’s annualised 1QFY2010 net cash flow from operating activities of RM196.4 million, plus cash balances and less borrowings, it should be easy for Ananda to raise the RM662.34 million needed to acquire the remaining 40% in the company.
Once in private hands, the owners can do as they wish with Measat.
One story in the market is that Astro and Measat may be put under one roof, with new investors — likely foreign and possibly Arab — brought in. This may be followed by a foreign listing where the assets may fetch higher valuations.
After falling into the red in FY2008, Measat made a turnaround in FY2009 ended Dec 31, with a net profit of RM177.55 million. The net loss in FY2008 was attributed to a foreign exchange translation loss as a result of the appreciation of the US dollar against the ringgit.
According to Measat’s 2008 annual report, earnings were affected by an unrealised foreign exchange loss of RM51.3 million on its US dollar debt. In 2007, Measat benefited from a weaker US dollar, which saw the group book in unrealised forex gain of RM54 million.
Adjusting for the forex loss, the group actually made a net profit of RM5.37 million in FY2008 — in the black but still 96.6% less than FY2007.
In 1QFY2010, Measat remains in the black, with a net profit of RM49.8 million, compared with a loss of RM34 million a year ago.
The better performance was due to higher revenue coming from the M-3a satellite, reduction in operating expenses and a weaker dollar against the ringgit.
Measat, which is 59.56%-owned by Ananda via Measat Global Network Systems and a few other vehicles, operates a network of four satellites with footprints over Asia and Africa serving customers in the broadcasting and telecommunications sector.
According to Measat’s 2009 annual report, 63% of its revenue is derived from the broadcasting sector and the rest from telecommunications. By region, 60% of Measat’s revenue came from Malaysia.
Measat’s origins date back to 1992 when Binariang Sdn Bhd — now Maxis Communications Bhd — brought together a team of experts to develop and launch Malaysia’s first communications satellite system. Binariang Satellite Systems Sdn Bhd, a subsidiary of Binariang, was granted a licence in 1993 to develop the Malaysia East Asia Satellite (Measat) system.
In 1996, the Measat-1 and Measat-2 communications satellites were launched, providing satellite service across Southeast Asia.
The launch of M-1 and M-2 paved the way for the rapid development of the telecommunication and broadcasting industries in Malaysia, including the launch of Astro direct-to-home multi-channel TV service, also in 1996.
Astro is operated by another of Ananda’s companies, Astro All Asia Networks plc, which went public in October 2003.
According to the company profile in Measat’s annual report, Binariang Satellite Systems became a wholly owned subsidiary of Measat Global Bhd in 2002, after a reverse takeover of Malaysian Tobacco Co Bhd.
The third and fourth satellites Measat-3 and Measat-3a were launched in 2006 and 2009, respectively. M-1 and M-2 were renamed Africasat-1 and Africasat-2, both serving the African continent and parts of Europe and the Middle East.
The four satellites provide capacity to more than 145 countries representing 80% of the world’s population in Asia-Pacific, the Middle East, Africa, Europe and Australia.
This article appeared in Corporate page, The Edge Malaysia, Issue 817, Aug 2-8, 2010