This article first appeared in The Edge Malaysia Weekly on December 9, 2024 - December 15, 2024

AS it turns out, Temasek Holdings Pte Ltd’s wholly-owned Singapore Technologies Telemedia Pte Ltd (ST Telemedia) did effectively have a “majority stake” — possibly up to 71% via certain convertible instruments — in Malaysia’s second 5G spectrum holder U Mobile Sdn Bhd before ST Telemedia entered into a conditional agreement to bring it down to 20% last Wednesday.

“The purchaser [Mawar Setia Sdn Bhd] will own an approximately 51% stake in U Mobile upon completion [of the agreement],” an ST Telemedia spokesperson tells The Edge when asked about the size of its stake in U Mobile prior to the agreement.

She declined to confirm if that meant ST Telemedia was selling a 51% stake to Mawar Setia Sdn Bhd — a private vehicle 70:30 owned by Berjaya Group founder Tan Sri Vincent Tan and Johor princess Tunku Tun Aminah, the only daughter of His Majesty Sultan Ibrahim, the King of Malaysia.

If indeed ST Telemedia is selling a 51% stake to Mawar Setia, it implies an original holding of as high as 71%, given that ST Telemedia will still retain a minority 20% stake in U Mobile following the sale which “is subject to the satisfaction of certain conditions precedent, including the receipt of regulatory approvals in respect of the proposed transaction” and is expected to be completed “no later than the third quarter of 2025”, according to ST Telemedia’s statement to the Singapore Exchange (SGX) dated Dec 4 that did not contain any financial numbers.

While it is generally understood that ST Telemedia had agreed to pare down its equity interest in U Mobile to 20% by selling excess holdings, confusion arose because ST Telemedia’s statement to SGX said it had entered into an agreement to sell a “majority stake” in U Mobile.

In its strictest sense, a majority stake means more than 50% ownership of a company’s voting shares.

Confusion arose because there is a 49% cap on foreign shareholding in telecommunications companies in Malaysia, and filings with the Companies Commission of Malaysia (SSM) show ST Telemedia’s shareholding in U Mobile to be 48.25% via Straits Mobile Investments Pte Ltd.

Many assumed the term “majority stake” was being used loosely since ST Telemedia was U Mobile’s largest shareholder, reflecting literal majority rather than an absolute one with a 50% plus one stake.

At least two sources, however, told The Edge that ST Telemedia’s effective stake in U Mobile was indeed above 49% via certain financial papers.

One source calculated it to be as high as 75% due to sizeable bonds that are convertible to ordinary shares. “I wouldn’t say they breached the 49% [foreign shareholding cap]. It is a grey area, let’s put it that way,” says the source.

Without confirming its exact stake in U Mobile, ST Telemedia admitted to holding “certain instruments” that can be exchanged into ordinary shares in U Mobile when asked about its choice of words in the Dec 4 statement — specifically whether it had more than 50% stake in U Mobile.

“As a strategic investor, [ST Telemedia] has funded U Mobile’s growth through certain instruments which are convertible into ordinary shares. These instruments will also form part of the sale to the purchaser [Mawar Setia],” the ST Telemedia spokesperson replied without elaborating on the convertible financial instruments.

“Since our investment, [ST Telemedia] has been supportive of U Mobile’s transformative development and growth, deploying strategic resources, capital and network. We are proud of U Mobile’s achievements over the last 14 years, and we remain supportive of its continued growth,” the ST Telemedia spokesperson added, in reply to questions seeking clarity on whether ST Telemedia had more than 50% “majority stake” in U Mobile prior to the share sale agreement entered into with Mawar Setia that leaves ST Telemedia with a 20% stake.

When asked whether ST Telemedia’s stake in U Mobile was indeed the 48.25% shown in U Mobile’s SSM filings, a U Mobile spokesperson replied: “Regardless of the changes in U Mobile’s shareholding, our operations remain the same and we are committed to realising [the] government’s goal of becoming a technology-enabled high-income nation.”

Asked about the transaction price with Mawar Setia, the ST Telemedia spokesperson replied: “This is confidential. We do not provide financial information on our investments.”

It could not be immediately confirmed if the price itself is still being negotiated as U Mobile seeks out a strategic partner to roll out the second 5G network with an eventual public flotation or a backdoor listing said to be among a near- to medium-term end-goal.

Ultimately controlled by Singapore’s Temasek, ST Telemedia entered U Mobile with a 33% stake in March 2010 when it only had about one million subscribers and increased its stake to just under 49% in June 2012, making it the single largest shareholder, according to information on U Mobile’s website. U Mobile, which has invested over RM5 billion in its network infrastructure, currently has about nine million subscribers.

Sultan Ibrahim, who was sworn in as King of Malaysia on Jan 31 this year, bought a 10% stake in U Mobile a decade ago (in 2014) before raising it to 15% in 2015, and currently has a 22.3% stake (excluding dilution from ST Telemedia’s enlarged stake).

If indeed ST Telemedia is selling a 51% stake to Mawar Setia and still retains 20%, the king’s stake in U Mobile could be around 27.8%. His daughter’s 30% stake in Mawar Setia would equal an indirect stake of 15.3%, with his original stake diluted to about 12.5%, back-of-the-envelope calculations show.

By similar assumptions, a 70% stake in Mawar Setia with 51% of U Mobile, would give Vincent Tan a 35.7% stake. His deemed interest — via Singer (M) Sdn Bhd, U Telemedia Sdn Bhd and Berjaya Infrastructure Sdn Bhd — could rise to about 44%, if indeed his original deemed interest was diluted from just over 13% to 7.7%, a simple calculation shows. This makes Tan U Mobile’s new largest shareholder.

It remains to be seen what new information will be disclosed in the coming weeks and months. An analysis of the shareholding of U Mobile obtained from SSM by The Edge also shows that only 48.26% of U Mobile’s equity is controlled by non-citizens. Surely the summary SSM filings should show the potential impact of convertibles instead of the information coming as a surprise admission by ST Telemedia to queries sent by The Edge?

It is not immediately known if the Malaysian Communications and Multimedia Commission (MCMC) is aware of the convertibles that effectively raises ST Telemedia’s effective equity above its 49% cap for foreign equity holdings. Are MCMC’s rules silent on whether the existence of convertible instruments count towards whether its 49% cap on foreign shareholding has been breached?

At press time, MCMC had yet to say if ST Telemedia offered to pare down its stake to 20% pursuant to the 5G spectrum award or was ordered to pare down the stake to 20%. The regulator also had not disclosed the terms U Mobile will need to fulfil to be granted the 5G spectrum. What is certain is MCMC’s selection of U Mobile to lead Malaysia’s second 5G network has restarted the rumour mill on consolidation. 

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