Telecom takeover is cheap, except for debt

Hutchison Telecom of Hong Kong is selling the four companies in its Hutch mobile business in Thailand to True Corp Plc for a token four baht.

But the transaction will cost True up to 6.3 billion baht to clear all debts of the companies under the umbrella of Hutchison, said True vice-chairman Athueck Asvanont.

The takeover will give Real Move, the 3G investment arm of True, control of three firms under Hutchison Wireless Multimedia Holdings: Hutchison CAT Wireless Multimedia, Hutchison Multimedia Services (Thailand), and Hutchison Telecommunications (Thailand).

Real Future Co, another True subsidiary, will acquire all shares in BFKT (Thailand), which owns the Hutch network that serves the 25 central provinces including Bangkok. It leased the network to Hutchison CAT Wireless Multimedia, a 74:26 joint venture between Hutchison and CAT Telecom, to provide service under the Hutch brand. Its 15-year marketing contract with CAT ends in 2015.

Mr. Athueck insisted that the takeover deal did not breach the 1992 Public-Private Joint Venture Act as True would continue business under the old contract on a wholesaler-reseller basis.

Mr. Athueck said True would take on debts of no more than 6.3 billion baht, although Hutchison is estimated to have lost 60 billion baht in the business.

He said the wholesaler-reseller model True plans to use would comply with National Telecommunications Commission (NTC) regulations.
Real Move and Real Future hold licenses from the NTC to provide telecom services under its wholesaler and reseller regulations.
True, meanwhile, owns the Hutch CDMA network in the 25 central provinces and CAT holds the right to rent it.

However, the transaction may dilute True's earnings in the short term given the high capital expenditure requirement.
The analyst has an underperform rating on True shares as there is a possibility that the reseller contract may breach the Frequency Allocation Act, which prohibits the transfer of frequencies.

"But if CAT agrees to further lower regulatory fees for True, the potential benefit will be larger than we estimate," said the analyst.
However, 20 brokerage analysts covering True have widely differing views on the impact of the Hutch deal, with 12- month price targets for True shares ranging from 2.46 to 9.60 baht, with an average of 4.39.