Temasek's Divestment of Telekom Malaysia'- What Took You So Long?

On 4th May 2007, the press reported that Temasek was selling a 3.3% stake in Telekom Malaysia (TM), as it transpired, at RM10.60 per share or RM1.21 billion.

This was sold at a discount to TM share price on KLSE, which prior to the report, was at RM11.00.

Note that Temasek was reported to have acquired a 5% stake for RM1.6 billion in March 2, 2004. According to my stock chart, TM's share price on 1 March 2004 was RM9.85.

TM was forced to issue a press release on 8 May to calm investor unease by saying that this was part and parcel of Temasek's normal exercise to "realign its portfolio".

Errr, thanks TM, but this still means that you're no longer part of that group who Temasek thinks is deserving of their money...

Actually my first reaction to the news was, "What took you (Temasek) so long?". I remember when I first heard of Temasek's investment in TM, I'd thought that this must have been a political decision to signal warming relations between Singapore and Malaysian governments. No self-respecting market driven investor would be so short on due diligence that they would not know that TM's fixed line revenues were declining , and Celcom, TM's mobile arm, was losing market share to more organized (Maxis) and nimble (Digi) rivals. But Temasek's other telecoms investments (via Singtel) tend to be safe rather than risk/reward driven anyway, always going for so called the largest entity (read AIS in Thailand, Bharti in India, Telkom in Indonesia, Globe in Philippines) rather than the challenger (you don't get fired for choosing the incumbent - únless its a S$1.5 billion loss like AIS).

So whilst TM's rivals shares have powered ahead, Temasek had to bear with an anaemic stock performance, not surprising since TM suffered classic incumbency issues such as lack of proper incentives but abundance of improper ones, bloatedness, lack of customer focus (ex-Malaysian civil servants, as many TM's staff are, are not renowned for their customer service).

Temasek (excluding dividends etc) achieved a return of a mere 7.6% over more than the 3 years it invested in TM. Comparable numbers over the same period for Digi and Maxis are 433% and 76% respectively (this excludes 2 rounds of capital repayment for Digi).

So a right decision at long last. Dear Temasek, maybe its time to check out the challengers?