Can This Malaysian Media Mogul Survive In A Sea Of Trouble?

Ananda Krishnan's connections no longer guarantee he will

As he struggles to save his media and telecom businesses from the ravages of the economic crisis, Malaysian tycoon Ananda Krishnan likes to reflect upon lessons he learned during his student days in Australia. He doesn't mean the wisdom of his professors at the University of Melbourne, but things he picked up at the beach where he surfed. "Out in the sea, you have to keep treading water until you catch a wave," says Krishnan, 60, who also holds an MBA from Harvard business school. "You have to make sure you don't end up on the rocks."

The rocks are a lot closer than Krishnan would like these days. Just a year ago, the oil trader seemed on the verge of creating Southeast Asia's mightiest media and telecommunications empire. But now, his companies are desperately seeking a lifeline from overseas investors. With Malaysia's recession, as well as the political crisis sparked by Prime Minister Mahathir Mohamad's imposition of currency controls, Krishnan's dreams of taking on Rupert Murdoch are endangered--if not finished for good. Many of Krishnan's companies, hatched at the dizzying peak of a bubble economy, no longer make sense. Feuds with several would-be partners from the West could block access to vital technology and entangle him in expensive legal proceedings.

NO CONTRACTS. Krishnan's struggles illustrate the difficulties that many Malaysian businessmen now face. Like other tycoons, Krishnan has been friends with Mahathir and his family for decades. His companies have benefited from lucrative licenses dispensed by the government. But the political crisis in Malaysia sparked by Mahathir's firing of his deputy and Finance Minister, Anwar Ibrahim, is causing those business relationships to come under scrutiny as never before. Anwar, who has since been jailed, called for an investigation of Mahathir himself for corruption. If that spirit takes hold in Malaysia, it could threaten politically connected companies like Krishnan's Usaha Tegas group.

Krishnan sternly counters charges of favoritism. Unlike other groups such as Renong, which have benefited from multimillion-dollar government contracts, Krishnan says his companies have only received government licenses. "I've never had a single contract from the federal government--not one," he asserts. "The license still requires us to go out and spend a lot of money."

Despite the friendship with Mahathir, many of Krishnan's $4.5 billion investments in real estate, gaming, telecom, and media are suffering because of the downturn. His satellite-TV company, Measat Broadcast Network Systems, gets its revenue in ringgit but must make payments in dollars. His telecom company, Binariang, has invested $260 million in a fixed-line network but has only 25,000 customers. The largest digital cellular operator in the country, it has accumulated $320 million in debt, about twice its equity. The Kuala Lumpur City Center, Krishnan's real estate joint venture with state-owned oil company Petronas, includes Petronas Towers, the world's tallest buildings. They are impressive to behold, but many of the buildings in the complex are largely empty. Even his cash cow, gaming operator Tanjong, is seeing revenue and profits sag by about 8%.

Krishnan's domestic woes are made even worse by his rocky ties with foreigners. Dutch giant Philips Electronics, for example, was supposed to supply Measat Broadcast with advanced settop boxes to make its direct-to-home service fully interactive. But around the same time that Measat was late on payments worth about $20 million, Philips pulled back its support. Krishnan has now filed for arbitration in Singapore, demanding at least $25 million in compensation. "They just haven't delivered," says Krishnan. Philips declined comment.

NEW RULES. At the same time, Krishnan has developed severely strained relations with U.S. telecom operator MediaOne. MediaOne inherited a 20% stake in Binariang from US West Inc. when that Colorado-based company split in two in June. Binariang was in the process of paying down $150 million in short-term debt accumulated by building up its fixed-line and cellular networks. MediaOne decided it wasn't very interested in the Malaysian company and backed out of a planned road show promoting Binariang's $270 million initial public offering in July.

According to Krishnan, that killed the IPO, leaving Krishnan to look for new equity. A MediaOne spokeswoman refused comment, other than to say she "was not going to speculate on why the IPO did not occur." A deal with Singapore Telecom to buy a stake in Binariang has also collapsed.

One possible piece of good news may come from British Telecom, which has agreed to pay $420 million for a 33% interest in Binariang--thus leaving MediaOne with a smaller stake--plus four seats on the board and extensive management control. This deal is set to be finalized in October, but Mahathir's currency controls have left foreigners unsure about the rules of doing business in Malaysia. And with the possibility of political instability rising daily, Krishnan worries that the British are having second thoughts. "I'm nervous," says Krishnan. "For the first time in my business life, I don't have control over my businesses."

Chan Chee Beng, Binariang's director, insists there's no reason for the British to worry. He has arranged meetings for British Telecom executives with senior officials at the central bank, Bank Negara. "The central bank has said that exchange controls only apply to account transactions," says Chan.

"If you are engaged in trade, no problem. Repatriating profits, no problem." For now, the British seem satisfied. A BT spokesman says the company is committed to the deal and sees it as a "long-term investment."

WAVE WATCH. Measat has had to scale back its ambitions drastically as a result of the Philips problems and the recession. Gone are plans to provide DTH satellite TV and full interactive service connecting the Internet, home shopping, pay-per-view, and other services this year. About one-third of the staff has been laid off. Plans to use Measat satellites to beam DTH signals to the Philippines, Indonesia, and India have been shelved. However, Krishnan says that a Taiwan project, a deal with Hong Kong's TVB, is still proceeding.

Krishnan has some plans that might enable him to ride out the rest of the recession. Should the BT deal go through, Krishnan would use the cash to pay off all of Binariang's short-term dollar debt. He also plans to take advantage of the easy-money policies of Mahathir to eliminate his dollar exposure entirely. While prime interest rates for ringgit loans were as high as 12% a few weeks ago, they are heading down to 8% now. That will enable Binariang to take out ringgit loans from local banks, convert them into dollars, and pay off the foreign exchange debt. That will leave Binariang in a more stable position. "It's not a still sea," the former surfer says. "There are waves--and we are trying to catch them." If he does manage to catch them, Ananda Krishnan's challenge will be to ride them in safely.

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