True's infrastructure fund a house of cards?

30 Jul 2013

When TrueMove announced that it was packaging its infrastructure into a fund and selling shares to the public to raise 70 billion baht ($2.24 billion) for its core operations, it was initially unclear what assets they were selling.

TrueMove 2G is under a build-transfer-operate concession which ends in six weeks. It is not build-operate-transfer, as seems to be the understanding of many - including some executives from concession holder CAT, who have called for assets to be transferred within 90 days of the concession ending. So how can True package that which is not theirs to sell to the general public?

Or is it the BFKT (ex Hutchinson, now sort of TrueMove H 3G) assets? That is possible but unlikely as the numbers just do not add up. The numbers for the BFKT contract were 14 billion for the project, and the passive infrastructure was supplied by CAT Telecom. Unless someone valued True’s 14-year lease on the passive infra at 56 billion baht - in which case it would reconfirm allegations of corruption at CAT Telecom for leasing 70 billion baht of assets for just 14 billion.

When asked for clarification on this, TrueMove’s PR only said that True has not made any statement regarding this 70 billion baht infrastructure fund, and that all the media reports are based on comments from the CAT board.

The CAT board, and of course True group general counsel Atheuck Asavanund’s letter to the security exchange commission outlining the plan.

Apart from the headline numbers that have been widely reported, Atheuck’s letter noted that True would lease back the assets for up to 15 years. That would sort of translate to a 15-year extension of their original 15 year concession. It also noted that the next board meeting on this fund would be on 13 September, just two days before the concession ends. Talk about brinkmanship.

Supposing for one moment that it is indeed the sale of the 2G assets, one can see that the problem stems from years of complacency by concession holder CAT Telecom. Since the concessions began in 1996 TrueMove has not transferred any assets to its concession holder and CAT has only meowed rather than roared in meekly asking for arbitration.

On the other hand, fellow CAT concessionaire Dtac has been a good boy handing everything over to CAT - until last year when Dtac refused to hand over some cellsites. CAT then roared and quickly took legal action. All CEO Jon Eddy Abdullah said was that he was happy to abide by the court decision in this matter and that there were some issues that were unclear with those assets. Perhaps he was testing the water to see if the assets needed to be returned at all to begin with. Perhaps.

At this moment in time, on paper, all of True’s cellsites and backhaul still belong to them. CAT seems to think that in six weeks it will get a functioning network and 17 million customers as part of the deal. The regulator seems to think it can extend the concession for a year in the name of consumer protection. A lot of people seem to think that they are in charge of the situation when in fact they are not.

So, to a simple minded person, it should be possible to package them up into exotic financial instruments and sell them onto a public eager for the next big thing.

If that happens, it would be much harder for CAT to be able to get its hands on the cellsites and equipment. Suddenly, from a bilateral matter between two companies the situation is now a matter that involves the general public. Of course Mr A Investor needs to be protected.

This happened before with state oil company PTT. It was privatised under dubious circumstances and woefully undervalued at its IPO, but calls for it to be renationalised have been countered with the argument that the investor needs to be protected and eggs cannot be unscrambled.

What remains to be seen is whether the securities and exchange commission and the fund manager, SCB Asset Management, will rubber stamp the fund and let it be established. Due diligence? The joke on the street is that the first word is actually in Thai. “Doo” means look or looks like. So as long as they maintain the veneer of doing their job, nobody will complain. After all, it is just 70 billion baht. It’s not a huge sum like the 73 billion baht that another telco was sold for - handled by the same bank incidentally - that led to a coup and years of turmoil.

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