Asian Pay TV Trust up 22% as Foxconn-linked manager mulls options

Singapore

AFTER a surprise dividend cut last November slashed its unit price by half in one day, the manager of Asian Pay Television Trust (APTT) is exploring options for the trust and its sole operating asset, Taiwan Broadband Communications (TBC).

A special committee, comprising four independent directors and chief executive officer Brian McKinley, will oversee the strategic review. An independent financial adviser will soon be hired, APTT said on Monday.

APTT units jumped 21.71 per cent or 2.8 Singapore cents on Monday to finish at S$0.157 on volume of 50 million.

Change has been afoot ever since Macquarie Singapore sold its entire stake in APTT's trustee-manager to Taiwanese industrialist and Foxconn founder Terry Gou for US$47 million in 2017.

His stake in the trustee-manager is held through his proxy Lu Fang-Ming, a Foxconn senior executive. Mr Lu is also the chairman of Asia Pacific Telecom (APT), which Foxconn controls.

Now, the timing of the corporate actions has some stock watchers speculating over Mr Gou's endgame.

Lloyd Moffatt, director of fund advisor Wickams Hill Capital, reckons that APTT could be worth a lot more to Foxconn than its market value suggests: "If you are Terry Gou, that cable into the home of every customer is worth a lot more than what an independently operated cable TV and broadband business is able to monetise."

APTT fully owns TBC, which in turn owns a hybrid fibre coaxial cable network that passes over 1.2 million homes in Taiwan. It is Taiwan's third largest cable TV operator and has a near-monopoly in all five franchise areas it operates, with 750,000 basic cable TV subscribers.

Mr Moffat said: "They could give Foxconn a foothold to be the sole provider of set-top boxes and smart home devices in these markets."

Other cross-selling opportunities abound for TBC and APT.

TBC has also begun to provide data backhaul to some of Taiwan's major wireless operators in its franchise areas, and capex is expected to remain "elevated" this year as TBC deploys fibre deeper into the network to grow the broadband business.

TBC hasn't reached the forced 33 per cent market share cap, Mr Moffatt said, so it may consider "rolling up" the franchise areas of smaller operators that have failed to digitise and had their monopolies removed.

Essentially, TBC needs to spend big to transform, and it may be better off doing so as a private entity, Mr Moffatt suggested.

"I think cutting the dividend was part of a larger ploy to depress the share price and, ultimately, privatise on the cheap."

He added: "APTT is actually a prime activist target. It has a big free-float, and it doesn't take much to remove the trustee-manager."

When asked to comment on this, Mr McKinley told The Business Times: "The objective of the independent strategic review is to evaluate options that are available for APTT and its investment in TBC, and aims to extract greater value for unitholders.

"The strategic review and the lowering of distributions are completely independent of each other."

He reiterated that APTT's revised distribution guidance of 1.20 Singapore cents per unit for this year and the next will result in annual cash savings of over S$76 million, and is necessary to keep APTT "on a more sustainable footing".

APTT's net debt at the end of last year was 7.9 times its earnings before interest, tax, depreciation and amortisation (ebitda).

Paul Chew, head of research at Phillip Securities Research, believes that APTT's new manager was just being conservative when it cut dividends last year: "The use of leverage to pay off the dividends was clearly evident in the last few years.

"They spent almost S$150 million to digitise set-top boxes, but the returns didn't come in as expected and they began to lose subscribers. That wasn't intended. They wanted to do a slow roll-out over five to six years, but the authorities pushed them to do it in three."

Mr Chew also noted that it's not easy for a listed company to buy TBC directly, because of regulatory hurdles that prevent government ownership of media assets: "Even if there's an indirect shareholding by a pension fund, they may use that to disallow this acquisition. Several deals have been scuttled before."

But Mr Moffatt noted that complicated convertible bond structures can be used to achieve control of the assets without technically owning them. "Rest assured there are plenty of ways around it," he said.

KGI Securities head of research Joel Ng said: "Privatisation on the cheap is a valid concern."

Temasek Holdings is APTT's largest unitholder with a 7.93 per cent stake. The sponsor's stake is 3 per cent and the rest of the units are held by the public.

Mr McKinley said: "The board of directors and the special committee are committed to protecting the interests of all unitholders as a whole."

Amendment note: An earlier version of this story quoted Mr Moffatt as saying that China Network Systems and Kbro were both privatised before by private equity funds. This is incorrect.