The agreement entails surrendering all its shares and convertible medium-term notes (CMTN) related to WeBe Digital Sdn Bhd back to TM. In a filing with Bursa Malaysia last Friday, Green Packet said both parties had come to an agreement to swap MTN issued by Green Packet and held by TM in return for all the securities and debt instruments that Green Packet held in WeBe.
PETALING JAYA: Green Packet Bhd, which in 2014 sold a controlling interest in its mobile business to Telekom Malaysia Bhd (TM), has entered into an agreement with the latter to divest its remaining interest in the asset that would leave the company debt free to pursue its current objectives.
The agreement entails surrendering all its shares and convertible medium-term notes (CMTN) related to WeBe Digital Sdn Bhd back to TM.
In a filing with Bursa Malaysia last Friday, Green Packet said both parties had come to an agreement to swap MTN issued by Green Packet and held by TM in return for all the securities and debt instruments that Green Packet held in WeBe.
Green Packet had in 2014, sold a partial 57% in WeBe, formerly known as Packet One Networks (M) Sdn Bhd, to TM in a deal that valued WeBe at RM350mil.
TM had also extended a further RM186.7mil to Green Packet via the issuance of redeemable exchangeable bonds.
TM explained in its own filing on Friday that upon completion of the exchange arrangement, it will end up with 91.8% of WeBe, with SK Telecom Co Ltd holding the balance of 8.2%.
In Green Packet’s case, the move will have a significant impact on its balance sheet by removing almost all its debt, all of which had been sitting on its books due to equity accounting treatment from its balance holdings in WeBe.
Another significant result would be that the exit from WeBe cements Green Packet’s pivot away from its original business of mobile telecommunications into the new businesses it had embarked on over the last few years. This includes fintech, proptech and major plans for entering the cloud computing business as well as building itself to become a regional digital bank.
Based on Friday’s filing, Green Packet said that it “will recognise a fair value gain of approximately RM63.1mil” from the deal.
Notably, the company also said the exchange “is expected to result in gross annual interest savings of RM14.9mil per annum” for Green Packet.
That comes about as a result of no longer having to pay the coupon rate of 8% on debt papers it had issued to TM from the time of the 2014 sale of WeBe.
A person familiar with the situation explains the impact of the exchange.
“The fair value gain of RM63mil should increase by another RM9.5mil to around RM72.5mil by the closing of Green Packet’s third quarter as they have recognised two quarters of the debt interest payments in the first half of FY2020, ” he said.
In a nutshell, he explains, the exercise is a “total clean up of Green Packet’s balance sheet” as its gearing will be reduced to zero and it will extinguish the RM20mil in annual interest payments.
This, in turn, puts Green Packet in a good position to gear up. With shareholder funds of about RM400mil, and using an undemanding gearing level of say 0.5 times, Green Packet should be able to easily raise RM200mil.
The monies could be used to fund its growth plan, which includes building a cloud computing business with Internet giant Tencent Holdings Ltd, as speculated by media reports.
To be sure, Green Packet, which had RM50mil in cash as at March 31,2020, has received another RM30mil in warrant conversions over the last month or so.
It has also conducted a placement of 10% of its shares which should have raised it around RM50mil.
As for TM, the incumbent telecommunications firm said the exercise “will allow TM to better leverage its nation-building expansion initiatives in delivering broadband beyond fibre to reach especially underserved and rural areas, as well as in accelerating TM’s fixed-mobile convergence aspiration.”