If I was a shareholder in MobileOne, I would be watching very carefully what Keppel Telecommunications & Transportation is doing, and I would believe only half of their statement this evening about their recent share purchases.

Keppel T&T said this evening it bought 15.68 mln shares between July 24 and August 15 at an average of S$1.98 per share worth S$31.1 mln. Keppel T&T now owns 16.25% of M1.
The official reason:

1. M1 is a well-managed company with good long-term prospects and KTPL can participate in its growth; and
2. the purchase of the Shares will have a positive impact on the earnings of the Company.

C’mon, give me a break!

Yes, these things are probably all true (leaving aside the fact that Keppel T&T is almost alone in thinking that M1 has good long-term prospects).

But consider these points:

1. The statement reads almost exactly the same as their statement on July 22. It’s a little too obvious to be putting out these statements so regularly. It’s as though they are signalling that they are not going to launch a takeover bid, without saying as much. Who are they signaling to? Possibly the market, so it doesn’t get too excited. But more so probably: Telekom Malaysia.

2. On July 25 it announced interim earnings. Revenue was down 11.5% for the first half and 18.8% for the second quarter. But profit rose around 3.5% in each case. Why? Because of 20% growth in its share of results of associated companies such as MobileOne. In other words: Keppel T&T needs MobileOne (and its other investments) to boost profits even as revenue falls.

3. On June 12, Keppel T&T announced it was making a strategic acquisition in China by buying a 25% stake in Wuhu Annto Logistics Company. The price tag: S$9.9 mln in cash. If this acquisition is being called ‘strategic’, what then please is the S$31.1 mln acquisition of M1 shares in the short space of three weeks?!

4. Keppel T&T used to own 35% of MobileOne before M1 was publicly listed. I can well imagine that there is a sense that M1 was “the one that got away”.

5. Given the importance of MobileOne to Keppel T&T’s earnings, it can’t afford to let Telekom Malaysia buy the telco over. Sure, it would make a lot of money by selling its stake into a bid but after the party the hangover and search for fresh cashflows will be greater. Looking at how Vantage Corp has been fighting tooth and nail to retain its investment in Pacific Internet, the hangover might be very ugly indeed.

Here’s what I think:

Keppel T&T is bluffing. It is purposely putting out press statements highlighting its purchases. They’re purposely trying to make people think they are preparing for a full bid so that the price rises. This means Keppel T&T is not interested in raising its stake to 30%, but wants its existing shares to be worth more.

Keppel T&T has a market cap of S$890 mln. M1 is worth S$1.9 bln. It can’t afford to buy M1. Plus Keppel has a debt to equity ratio of 0.51. It could certainly afford more debt, but to find out whether this would be nearly enough to buy out M1 we would need to ask Keppel T&T’s wealthy parent.

Still, I have my doubts that Keppel T&T won’t make a full bid for M1. If they weren’t, why not just say what Fraser & Neave keeps saying about its purchases in Asia Pacific Breweries: we intend to keep APB as a listed company.

The jury’s still out, but the message clearly being sent across the causway is: watch out.