Digi caught in a bind

Digi.com Bhd ("Digi"), the telecommunication company that has been a darling for investors, is now caught in a bind. The problem has arisen because its major shareholder i.e. Telenor ASA is required to pare down its stake in Digi by the end of the year from 61% to 49%.

Being a foreign-owned telco has also presented problem in a very strategic way. Some believe that its foreign-owned status could well be the reason that it was not successful in the second round of 3G license award completed earlier this year. The 2 new licenses were awarded to MITV and Time.com.

Yesterday, another surprise awaits Digi when the government cancelled the tender for the wireless broadband spectrum, known as WIMAX. The applicants in this tender were Digi, REDtone CNX Broadband Sdn Bhd (a subsidiary of REDtone International Bhd) and NasionCom Holdings Bhd. Again, Digi stood out when compared to the other 2 applicants and would appear to be a clear favorite. I believe that because of Digi's frontrunner position, the government may find it easier to cancel the tender than to refuse granting the license to Digi.

Where does that leave Digi? One possible solution which may solve Digi's problem of foreign-owned status as well as gaining a 3G license is to buy into Time.com. Digi has indicated that it does not agree to this but, given the present circumstances, does Digi has a choice? This uncertainty may translate into weaker share price for Digi. If Digi were to change its mind & buy over Time.com, the expected high price of Time.com may cause many foreign funds to unload their Digi shares. If nothing is done, Digi's strategic picture may become cloudier and, again, some funds may choose to take profit, especially since they are sitting on quite sizeable profit in this investment. So, for investors out there, it may be good time to pare down on your investment in Digi before the bigger fish gets nervous and rushes for the door.