Contents :

1. INTRODUCTION

• On 28 October 2002, Commerce International Merchant Bankers Berhad (“CIMB”) announced the execution of a conditional sale and purchase agreement (“SPA”) between Telekom and Celcom (Malaysia) Berhad (“Celcom”) for the disposal of 100% of the equity interest in TM Cellular Sdn Bhd (“TM Cellular”), a wholly-owned subsidiary of Telekom, to Celcom for a total purchase consideration of RM1,684 million to be satisfied by the issue of 635,471,698 new Celcom ordinary shares of RM1.00 each at RM2.65 per share (“Proposed Disposal”).
  
  It was also announced on 28 October 2002 that upon completion of the Proposed Disposal, Telekom’s direct and indirect interests in Celcom would increase from 31.25% to 47.93%. Accordingly, Telekom, Telekom Enterprise Sdn Bhd (“TESB”) and the persons acting in concert with them (“PAC”) would be obligated to undertake a mandatory general offer (“MGO”) for the remaining voting shares in Celcom not held by Telekom, TESB and the PAC after the Proposed Disposal under Part II of the Malaysian Code on Take-overs and Mergers, 1998.
  
  On behalf of the Board of Directors of Telekom, CIMB is pleased to announce that the Company proposes to implement the Proposed RPS Issue for the purpose of raising funds of up to RM4 billion for the MGO and the working capital requirements of Telekom and its subsidiaries ("Telekom Group"). The Proposed IASC and Proposed Amendments to M&A are to facilitate the issuance of the Telekom RPS.

• The Company has also proposed to amend the Bye-Laws of the ESOS of Telekom to allow employees of TM Cellular to continue to exercise the options granted to them under the ESOS during the interim period between the completion of the Proposed Disposal and MGO where Telekom would temporarily have an equity interest of less than 50% in TM Cellular.

2. DETAILS OF THE PROPOSALS

• 2.1 Proposed RPS Issue

• • • The Proposed RPS Issue is an integral part of the fund raising exercise by Telekom to raise up to RM4.0 billion for the purpose of the MGO and/or repayment of any loan facility taken by Telekom and/or TESB for the purpose of the MGO and for the working capital of the Telekom Group. Details of the Proposed RPS Issue are as set out below:
      
      Step 1 : Proposed issue of Telekom Bonds and Telekom RPS to SPV1
      
      (i) Telekom issues 1,000 Telekom RPS A and 1,000 Telekom RPS B to SPV1 at an issue price of RM1.00 per Telekom RPS, representing a premium of RM0.99 per Telekom RPS. (The Telekom RPS A and Telekom RPS B are collectively known as the “Telekom RPS”).
      
      (ii) Telekom will also issue up to RM2,000 million nominal value Telekom Bonds1 and up to RM2,000 million nominal value Telekom Bonds2 at 100% of their nominal value to SPV1. SPV1 will subscribe for the Telekom Bonds via funds raised from the issuance of RPS to SPV2. (The Telekom Bonds1 and Telekom Bonds2 are collectively known as the “Telekom Bonds”).

• • • Step 2 : Proposed issue of SPV2 Bonds to investors

• • • (i) SPV2 shall issue up to RM2,000 million nominal value SPV2 Bonds1 and up to RM2,000 million nominal value SPV2 Bonds2 at 100% of their nominal value to investors to be identified. The funds raised by SPV2 will be used to subscribe for SPV1 RPS and for SPV2’s administrative costs. (The SPV2 Bonds1 and SPV2 Bonds 2 are collectively referred to as the “SPV2 Bonds”).

• • • (ii) As an integral part of the proposed issue of the SPV2 Bonds, a put option will be granted by Telekom to the holders of the SPV2 Bonds. The put option will allow the holders of the SPV2 Bonds to have direct recourse on Telekom for the following:

• • • • (a) any coupon payments due but unpaid by SPV2 on the SPV2 Bonds; and
    • • (b) principal repayment of the SPV2 Bonds upon maturity, if unpaid by SPV2.
      SPV1 and SPV2 are independent special purpose vehicles to be identified for the purpose of facilitating the proposed fund raising structure. An announcement will be made on the details of SPV1 and SPV2 and the final principal terms of the SPV1 RPS and SPV2 Bonds on the Kuala Lumpur Stock Exchange (“KLSE”) upon implementation of the fund raising exercise.

• • • 2.1.1 The proposed principal terms and conditions of the Telekom RPS are as set out in Attachment 1 below:
      
      2.1.2 The proposed indicative terms and conditions of the Telekom Bonds are as set out in Attachment 2 below:
      

• • • An announcement will be made on the final terms of the Telekom Bonds on the KLSE upon implementation of the debt fund raising exercise.
    • The Proposed IASC and Proposed Amendments to M&A will involve the following:
    • (i) Amendment to the Memorandum of Association of Telekom to increase the authorised share capital of Telekom from RM5,000,000,001 divided into 5,000,000,000 ordinary shares of RM1.00 each and one (1) Special Rights Redeemable Preference Share of RM1.00 TO RM5,000,000,021 divided into 5,000,000,000 ordinary shares of RM1.00 each, one (1) Special Rights Redeemable Preference Share of RM1.00, 1,000 Class A Redeemable Preference Shares of RM0.01 each and 1,000 Class B Redeemable Preference Shares of RM0.01 each by the creation of 1,000 Class A Redeemable Preference Shares of RM0.01 each and 1,000 Class B Redeemable Preference Shares of RM0.01 each; and

      (ii) Amendments to the Memorandum and Articles of Association (“M&A”) of Telekom to set out the rights of the Telekom RPS A and Telekom RPS B in the M&A of the Company and to facilitate the issuance of the Telekom RPS pursuant to the Proposed RPS Issue.

    • • • 
          “In the event that any subsidiary shall cease to be a subsidiary of the Company, all unexercised or partially exercised Options of Grantees employed under the said subsidiary shall automatically lapse and be null and void and of no further force and effect that the TM Shares comprised in such Options or the balance thereof now subscribed for may, at the discretion of the Options Committee, be re-offered to other Eligible Employees.”
      The Proposed Amendments to the Bye-Laws will involve the following:

      (i) The replacement of the existing Clause 10.3 of the Bye-Laws:

  2.2 Proposed IASC and Proposed Amendments to M&A
  2.3 Proposed Amendments to the Bye-Laws
  

with the following:

• • • • • “In the event that any subsidiary shall cease to be a subsidiary of the Company, a Grantee who is employed under the said subsidiary shall be entitled to continue to exercise all his remaining Options subject to the provisions of Clause 9 for a period of six (6) months, or such longer period as may be determined by the Options Committee in its sole discretion, after such cessation, and all unexercised or partially exercised Options of such Grantees employed under the said subsidiary shall automatically lapse and be null and void and of no further force and effect upon the expiry of the said six (6) month period, or where the Options Committee has determined a longer period as aforesaid, upon the expiry of the said longer period, and that the TM Shares comprised in such Options or the balance thereof not subscribed for may, at the discretion of the Options Committee, be re-offered to the other Eligible Employees.”

• • • • • 
          “Subject to the approvals of the SC and any other relevant authorities, the Board shall have the power at any time and from time to time by resolution to amend, at the recommendation of the Options Committee, all or any of the provisions of the ESOS provided that no such amendment shall be made which would either materially prejudice the rights then accrued to any Grantee without that Grantee’s prior consent or alter the advantage of any Grantee in respect of any provisions of the ESOS without the prior approval of the Company’s shareholders in general meeting.”
      (ii) The replacement of the existing Clause 17 of the Bye-Laws:

with the following:

• • • • • “The Board shall have the power at any time and from time to time by resolution to amend, at the recommendation of the Options Committee, all or any of the provisions of the ESOS provided that no such amendment shall be made which would either materially prejudice the rights then accrued to any Grantee without that Grantee’s prior consent or alter to the advantage of any Grantee in respect of any provisions of the ESOS without the prior approval of the Company’s shareholders in general meeting.”

3. RATIONALE

• • • The Proposed RPS Issue will allow Telekom to raise funds in an expedient and cost effective manner for the purpose of the MGO and/or the repayment of any loan facility taken by Telekom for the purpose of the MGO and to provide additional working capital for the Telekom Group.
    • The Proposed IASC and Proposed Amendments to M&A will facilitate the issuance of the Telekom RPS by the Company pursuant to the Proposed RPS Issue.
      
    • The Proposed Amendments to Bye-Laws will provide the existing employees of TM Cellular the opportunity to continue to exercise their options under the ESOS for a period of six (6) months or such longer period as may be determined by the Options Committee after the completion of the Proposed Disposal.
      
      Upon completion of the Proposed Disposal, the equity interest of Telekom in TM Cellular would decrease from 100% to 47.93%. Telekom’s reduced shareholding in TM Cellular is, however, expected to be temporary pending the completion of the MGO. In the event the MGO is successful and Celcom becomes a subsidiary of Telekom, TM Cellular would become a subsidiary of Telekom again. The Proposed Amendments to Bye-Laws thus caters for the interim period where TM Cellular temporarily ceases to be a subsidiary of Telekom as defined under the Companies Act, 1965.
    • In the event the MGO is not successful, the options held by the existing employees of TM Cellular under the ESOS will lapse upon the expiry of the six (6) month period or such other period as may be determined by the Option Committee after the completion of the Proposed Disposal.
  
  3.1 Proposed RPS Issue, Proposed IASC and Proposed Amendments to M&A
  3.2 Proposed Amendments to the Bye-Laws
  
  

4. FINANCIAL EFFECTS OF THE PROPOSALS

• The Proposed IASC, Proposed Amendments to M&A and Proposed Amendments to Bye-Laws will not have any effects on the issued and paid-up share capital, earnings and net tangible assets (“NTA”) of Telekom.

• • • 
      The effect of the Proposed RPS Issue on the share capital of Telekom is as follows:
      
      

      Type of share	No. of shares	Par value RM	Total RM
      As at 7 February 2003
      Ordinary shares	3,168,998,380	1.00	3,168,998,380
      Special Share	1	1.00	1
      			3,168,998,381
      After the Proposed RPS Issue
      Ordinary shares	3,168,998,380	1.00	3,168,998,380
      Special Share	1	1.00	1
      RPS	2,000	0.01	20
      			3,168,998,401

    • The Proposed RPS Issue will not have any material effect on the net earnings per share of the Telekom Group.
      
    • The Proposed RPS Issue will not have any material effect on the NTA of the Telekom Group.
  4.1 Issued and paid-up share capital4.2 Earnings
  4.3 NTA
  

5. Approvals Required

• The Proposals are subject to the following approvals being obtained from:
  
  (i) the SC for the Proposed RPS Issue;
  
  (ii) the MoF for the Proposed RPS Issue, Proposed IASC and Proposed Amendments to M&A;
  
  (iii) the shareholders of Telekom for the Proposals; and
  
  (iv) any other relevant parties/authorities as may be required.

6. Directors’ and Substantial Shareholders’ Interests

None of the Directors and substantial shareholders of Telekom are interested in the Proposed RPS Issue, Proposed IASC, Proposed Amendments to M&A and Proposed Amendments to the Bye-Laws.

• • • On 13 February 2003, a waiver was sought from the KLSE for the appointment of independent advisers to advise the minority shareholders on the Proposed Disposal and MGO due to Mr. Tan’s shareholdings in Telekom and Celcom. The grounds for the waiver were as follows:
    • (a) Mr. Tan is not a substantial shareholder of Telekom or Celcom; (b) Mr. Tan has and will abstain from deliberation and voting at the Board meetings of Telekom and Celcom pertaining to the Proposed Disposal and MGO and from voting in respect of his shares at the respective extraordinary general meetings ("EGM") of Telekom and Celcom;
      
      (c) Mr. Tan has held the shares in Telekom and Celcom for more than ten (10) years and two (2) years respectively; and
      
      (d) Additional costs to Telekom in appointing an independent adviser, taking into consideration the size and value of Mr. Tan’s shareholdings in Telekom and Celcom.
    • The waiver was approved by the KLSE on 21 February 2003, subject to the following conditions:
    • (a) Mr. Tan abstaining and continuing to abstain from deliberating and voting at the respective board meetings of Telekom and Celcom on the Proposed Disposal and MGO; and
      
      (b) Mr. Tan abstaining from voting on the Proposed Disposal and MGO at the respective EGMs of Telekom and Celcom.
    • Mr. Tan has abstained and will continue to abstain from deliberation and voting at the relevant Board meetings of Telekom on the Proposed Disposal and MGO. Mr. Tan Poh Keat will also abstain from voting on the resolutions pertaining to the Proposed Disposal and MGO at the respective EGMs of Telekom and Celcom. In addition, Mr. Tan Poh Keat has undertaken to ensure that the persons connected with him (if any) will abstain from voting on the resolution pertaining to the Proposed Disposal and MGO at the respective EGMs of Telekom and Celcom.
    • 
      On 25 February 2003, a waiver was sought from the KLSE on the appointment of independent advisers in respect of the EPF’s shareholdings and to allow the EPF to vote at the EGM of Telekom on the following grounds:
      
      (a) The EPF is not the largest shareholder of Telekom;
      
      (b) the EPF is not a party to the transaction, initiator, agent or involved in any other way in Proposed Disposal and MGO;
      
      (c) the EPF does not have any representative in an executive capacity on the Board of Telekom or any of its subsidiaries; and
      
      (d) the EPF is a statutory institution managing funds belonging to contributors or investors who are members of the public.
      
      The above are the criteria of Paragraph 4.1(g) of Practice Note 14 of the Listing Requirements to regard a transaction as a non-related party transaction, which applies to EPF’s interests in Telekom and Celcom. However, the effective date of the said Practice Note 14 is 1 January 2003 which is after the date of announcement of the Proposed Disposal and MGO of 28 October 2002. As such, the said exemption is not applicable to the EPF. In view of the above, the Company has sought the KLSE’s approval to apply the provisions of Paragraph 4.1(g) of Practice Note 14 of the Listing Requirements to the EPF.
      
      The KLSE has approved the above waiver on 7 March 2003.
    • 
      On 25 February 2003, a waiver was sought from the KLSE on the appointment of independent advisers in respect of the shareholdings of Khazanah and MoF and to allow Khazanah and MoF to vote on the resolution pertaining to the Proposed Disposal and MGO at the EGM of Telekom on the following grounds:
      
      (a) The collective direct shareholdings of Khazanah and MoF and the persons connected to them in Celcom of 1.59% are not substantial. The interest of Khazanah and MoF in Celcom is principally through its substantial shareholding in Telekom pursuant to Section 6A of the Companies Act, 1965. Save for the aforesaid, Khazanah, MoF and the persons connected to them have no other interests in Celcom; and
      
      (b) Khazanah and MoF and the persons connected with them (as persons connected with Telekom) will abstain from voting at the EGM of Celcom on the Proposed Disposal and MGO.
      
      The KLSE has approved the above waiver on 7 March 2003.
      
  In addition, save as disclosed in the announcement dated 28 October 2002, none of the Directors and substantial shareholders of Telekom or the persons connected to the Directors and substantial shareholders has any interest, direct or indirect, in the Proposed Disposal and MGO:
  
  (i) Mr. Tan Poh Keat is a director of Telekom and Celcom. As at 7 February 2003, Mr. Tan holds 15,000 and 22,000 shares in Telekom and Celcom respectively.
  
  (ii) Dato’ Dr Abdul Rahim bin Haji Daud is a Director of Telekom and a shareholder of Celcom holding 20,000 shares in Celcom as at 7 February 2003. As a person connected to Telekom, Dato’ Dr. Abdul Rahim bin Haji Daud will accordingly abstain from voting on the proposed acquisition of TM Cellular by Celcom at the EGM of Celcom to convened to consider the said proposed acquisition.
  
  (iii) The Employees Provident Fund Board (“EPF”), a substantial shareholder of Telekom holding approximately 13.56% of the issued and paid-up share capital of Telekom as at 7 February 2003, is also a substantial shareholder of Celcom by virtue of its 11.13% interest in Celcom as at 7 February 2003.
  (iv) Khazanah Nasional Berhad (“Khazanah”) and MoF are substantial shareholders of Telekom holding 34.07% and 19.10% of the issued and paid-up share capital of Telekom as at 7 February 2003. Khazanah and MoF are also shareholders of Celcom with direct interests of 1.43% and 0.02% respectively in Celcom as at 7 February 2003.

7. Statement by the Directors

• The Board of Directors of Telekom is of the opinion that the Proposals are in the best interest of Telekom.

8. Adviser

• CIMB has been appointed as the Bond Structure Adviser to advise Telekom on the proposal to raise up to RM4.0 billion to finance the MGO of Celcom and/or to raise funds for the working capital of the Telekom Group.
  
  

9. Applications to the Regulatory Authorities

• All applications to the regulatory authorities pertaining to the Proposals will be made within three (3) months from the date of this announcement

Announcement Info

Company Name	TELEKOM MALAYSIA BERHAD
Stock Name	TELEKOM
Date Announced	7 Mar 2003
Category	General Announcement
Reference No	MM-030307-57658