Hello TMI, What's Up Bro?

The following set of news caught my attention.

'TMI aiming for US$1b rights issue'

• SINGAPORE/KUALA LUMPUR: Malaysian mobile phone company TM International (TMI) (6888) is looking to raise more than US$1 billion (US$1 = RM3.67) in a rights offering in the first half of this year to cut debt, sources with direct knowledge of the deal said yesterday.
  
  Analysts said TMI is facing significant pressure to lower its RM10.45 billion debt, while its overseas businesses are also being hit by the economic slowdown.
  
  "TMI will do a rights and the issue size is over US$1 billion," one of the sources said, declining to be identified because the deal is not public.
  
  JPMorgan and Goldman Sachs, which are advising TMI on the fundraising, declined to comment.
  A TMI spokeswoman said nothing has been finalised yet, but the firm is on track to announce details of its capital raising plan in the first quarter.
  
  In a report yesterday, Citigroup said TMI may need to raise capital because of an expected US$300 million cash shortfall next year and about US$600 million to US$700 million capital spending.
  
  "A rights issue or a debt issue - both of which will prove challenging in our view," said Karen Ang, a Citi analyst.
  
  Malaysia's state investment arm Khazanah Nasional Bhd, which owns 44.51 per cent of TMI, said last month the mobile company will issue right shares or some other equity-linked instrument this quarter to raise funds to repay some of its debt. - Reuters

LOL!

I like how they said "sources with direct knowledge of the deal" and "one of the sources said, declining to be identified because the deal is not public."

Now this is called narrowing down the sources! Inside info eh? Ho ho ho!

Anyway let's not talk about sources this morning.

So TMI wants to do a rights issue worth maybe over US$1billion to lessen the size of its debts.

Now this sounds like the right thing to do but in US dollars now?

And then I saw the other news TM to return RM3.51b to shareholders, pay dividends

• Dominant fixed-line phone company Telekom Malaysia Bhd (TM),(4863) which posted a 73 per cent fall in 2008 net profit, said it will return RM3.51 billion cash to shareholders after sister company TM International Bhd (TMI) agreed to repay a debt it owes in the next quarter.
  
  TM, which will receive the full amount of RM4.03 billion by April 24, said the capital repayment exercise, pending shareholders' approval, would be completed by end of second quarter.
  
  "There's no reason for us to keep the excess cash ... By returning cash in excess of its requirement to shareholders (98 sen a share), TM is providing immediate value enhancement," said group chief executive officer Datuk Zamzamzairani Mohd Isa in Kuala Lumpur yesterday.
  
  Besides the capital repayment of RM3.5 billion, the company also agreed to pay a final dividend of RM382 million.
  
  The company said its capital repayment exercise will not change its dividend policy of returning at least RM700 million to shareholders.
  
  The move, which is expected to be positively received by investors, has also raised some concerns.
  
  An analyst who declined to be named said the company should set aside more cash (from TMI's repayment) for working capital and repay bank loans.
  "It's like giving all your salary to your parents when you have bills still to pay," said the analyst.
  
  TM, which has started rolling out the RM11.4 billion national high-speed broadband (HSBB) project, said it has no funding worries currently and enough cash internally to fund the project.
  
  The company is expected to spend RM1.7 billion on the HSBB project this year, of which half (RM850 million) will be subsidised by the government. Besides the RM1.7 billion commitment, the company will spend RM1.5 billion or less on non-HSBB related capital expenditure.
  
  Nevertheless, group chief financial officer Datuk Bazlan Osman said TM has ample room to gear up without hurting its credit ratings.
  
  "There is a potential of debt head room moving forward. If you look at our balance sheet, we do have quite a fair, if not good, debt-to-capital or debt-to-EBITDA ratio.
  
  "We believe we should be able to maintain our current rating, which is 'A-' by the foreign rating house, and 'AAA' by the local rating house," said Bazlan.
  
  Analysts expect TM shares to rise today, mainly driven by the capital repayment announcement.
  
  "It will generate interest in the stock market ... 98 sen a share capital repayment for a stock trading at around RM3.30, that's a handsome return of nearly 30 per cent already," said an analyst.
  
  The company's fourth quarter net profit grew 5.7 per cent to RM166 million, while revenue grew by 18.7 per cent to RM2.5 billion, helped by growth in the broadband and data businesses.
  
  However, for the full year ended December 31 2008, net profit fell by 73.2 per cent to RM229.3 million, mainly due to exceptional items like foreign exchange losses.
  
  Broadband revenue jumped by more than 25 per cent to RM1.48 billion, while broadband customer base expanded by 26.7 per cent to 1.6 million users in 2008.
  
  Fixed-line voice revenue declined 9.6 per cent to RM4.4 billion, due to fixed to mobile migration.

So in the second set of news we have TMI saying..

• Dominant fixed-line phone company Telekom Malaysia Bhd (TM),(4863) which posted a 73 per cent fall in 2008 net profit, said it will return RM3.51 billion cash to shareholders after sister company TM International Bhd (TMI) agreed to repay a debt it owes in the next quarter. .........
• "There's no reason for us to keep the excess cash ... By returning cash in excess of its requirement to shareholders (98 sen a share), TM is providing immediate value enhancement,"

What do we have here? First it wants to do a US$1 billion rights issue (this is about rm3.6 billion or so) because bank borrowings too much. It also wants to pay back TM rm3.51 billion because it has excess cash.

How now brown cow?

I am so baffled.

And I so fully agree with the analyst that declined to be named!

• An analyst who declined to be named said the company should set aside more cash (from TMI's repayment) for working capital and repay bank loans. "It's like giving all your salary to your parents when you have bills still to pay," said the analyst.