Maxis under dividend pressure

Tuesday June 22, 2010




By LEE KIAN SEONG

lks@thestar.com.my


Group’s India ops facing increasing funding needs


PETALING JAYA: With its major shareholder Maxis Communications Bhd (MCB) facing increasing funding needs for the Indian market, Maxis Bhd is under pressure to declare more dividends, according to analysts.



The unlisted MCB’s Indian unit Aircel Ltd recently won wireless broadband Internet licences in eight circles in India, for which it had to pay US$750mil. This is aside from the US$1.3bil it had to pay for the previous 3G licenses last month.



MCB owns 70% of Maxis as at April 19. To recap, Aircel and other overseas assets of the Maxis group was carved out of Maxis when the latter was relisted on Bursa Malaysia on Nov 18 last year.



AmResearch said: “This puts more strain on Aircel’s cash flow for capital investment in the next five to seven years. This may put pressure on Maxis to pay dividends to MCB to part-finance this new undertaking.” It said Maxis had not commented on special dividends in store this year but this could be the excuse it was looking, adding that Maxis currently had a net debt to equity ratio of 455%.



“Early last week, its management mentioned that it might issue debt up to RM4.5bil this year. This capital management may indicate that Maxis is gearing up to pay dividends,” it said in a statement.





Analysts say rising costs in MCB's India operations, through unit Aircel, may put a strain on Aircel's cashflow.



Another local analyst said Aircel was committed to be a significant player in India, thus a significant investment was needed.



“This will eventually affect Maxis’ profit growth going forward as the major shareholder needs more capital to fund Aircel expansion in India,” he said, adding that this might increase the dividend payout from Maxis.



AmResearch said there was no immediate impact on Axiata Bhd, as its unit Idea did not enter the bidding in India at all.



“However, in the long run, the dynamics of Internet access market might change and put some risk on Idea’s long-term sustainability,” it said. It noted that Axiata’s Idea and DiGi’s sister company Uninor passed the chance to bid.



“Idea is concentrating on 3G licences it already has while Uninor is not vying for Internet subscribers as yet,” it said.



According to AmResearch, the Indian government raised over 385 billion rupees (US$8.2bil) from the broadband service exercise, this after raking in 677 billion rupees (US$14.4bil) from auctioning 3G licences. The Government had offered two slots of bandwidth to offer wireless broadband Internet services in the country’s 22 service areas.



Some established cellular players like Reliance Communication, Vodafone-Essar and Idea Cellular had opted out as they perceived the prices to be unrealistically high. Newcomer Infotel Broadband Services, which is related to Mukesh Ambani’s Reliance Industries, bid for and got the only all-India licence across all areas for 128 billion rupees (US$2.74bil).



Another recipient of the licence, Qualcomm, spent US$1bil to buy slots of broadband in metros Delhi and Mumbai and the states of Kerala and Haryana.

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