A look at REDtone's new JV partner XS21
By Goh Thean Eu January 13, 2015
- Both parties to work together on high-capacity wireless connectivity services
- XS21 linked to former Cabinet minister Mohd Adib, whose children hold shares too
MALAYSIAN telecommunications group REDtone International Bhd’s recent joint venture with XS21 Wireless Sdn Bhd (XS21) has got industry observers excited, but is also raising questions on whether the partnership will be successful.
On Jan 8, REDtone International announced that it had entered into a joint venture and shareholders agreement with XS21 for the provision of high-capacity wireless connectivity services.
REDtone Marketing Sdn Bhd (a wholly-owned unit of REDtone International) and XS21 will set up a joint-venture company, with REDtone Marketing holding a 60% stake and XS21 taking the remaining 40%. The proposed JV company has not been named yet.
The agreement, which is expected to be completed within two weeks from Jan 8, will be terminated if the joint-venture company fails to secure any bids for the provision of high-capacity wireless connectivity projects, REDtone International said.
The company did not reveal further details on the project the new joint-venture company plans to bid for.
The initial capital for the joint-venture company is RM500,000 (approximately US$141,000) and more importantly, the deal will be off the table if the company fails to secure any wireless connectivity projects.
REDtone International is an established entity, but the market was buzzing with questions on what XS21 can bring to the table.
A 101 on XS21
XS21 was established in October 2010, stating that its principal activity is the provision of telecommunications technology and related services.
It has an authorised share capital of RM25 million divided into 25 million ordinary shares; the issued and paid-up capital is slightly above RM15 million (RM15,000,002 to be exact).
[RM1 = US$0.29]
Then it starts to get more interesting: XS21 is 20% owned by Mohd Adib Mohamad Adam, who has slightly more than three million shares in the company (or 3,000,001 shares to be precise).
Those familiar with the Malaysian political scene may find his name familiar – Mohd Adib was the former chief minister of the state of Melaka, from 1978 to 1982, as well as a Cabinet minister from 1982 to 1986.
His children Ahmad Azuwar Mohd Adib, Ahmad Azam Mohd Adib, Nadia Mohd Adib, Azdarlina Mohd Adib and Aida Mohd Adib each have one share, while Allied Digital Infonet Bhd holds the remaining 80% stake or 11.99 million shares.
However, a check on Allied Digital Infornet also showed that close to half of the company’s shareholding is held by Aida, while Nadia and Azdarlina each hold close to a 25% stake. The remaining 3.8% stake is held by Mohd Adib himself.
Based on data available with the Companies Commission of Malaysia, XS21 was a loss-making company in 2011 and 2012.
In 2011, it posted a net loss of RM2.86 million and a year later, its net loss was at RM1.47 million. For both years, it did not record any revenue.
Although XS21’s historical financial data may raise some questions on why REDtone International decided to work with it, it is also important to note that XS21’s financials – which were showing an improvement in terms of narrowing its net loss – may have turned to the black and the comoany may have started generating revenue over the past two years.
Financial records for 2013 and 2014 were not available as at press time.
“For a publicly-listed company, any form of joint venture would usually be deliberated at the board level. So, I am pretty sure the company (REDtone International) knew very well what XS21 can bring to the table before jumping on board,” said an industry observer.
REDtone International expects the joint venture to contribute positively to the group’s earnings for the financial year ending May 30, 2016.
Should the deal be executed well, it could help boost the company’s financials in the long-term.
For the financial year ended May 31, 2014, REDtone International revenue from telecommunications services – which comprise both its voice and data services for the government sector, enterprises and SMEs (small and medium enterprises) – declined to RM70.68 million, from RM97.5 million in 2013.
The decline was partly driven by delays in some of the projects which were supposed to have been completed in the 2014 financial year.
During the same time period, its managed telecommunication network services – which include building, maintaining and operating large scale WiFi hotspots, base stations and fibre infrastructure – jumped from RM37.3 million to RM64.85 million.
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