More eyebrows were raised than questions asked when Berjaya supremo Vincent Tan announced that he had bought a 26.15 percent stake in Nexnews, formerly known as Gemtech Resources, owned by banker-turned-businessman Tong Kooi Ong.

Tan paid RM2.30 per Nexnews share or RM24.06 million for the stake.

Tan and Tong had a brief encounter in 2000 when Tong, using Nexnews had proposed to buy a 73.65 percent stake in Sun Media Corporation, which belongs to Tan. The complex deal would see Tan ending up with a stake in Nexnews as well as surrendering control of Sun Media Corporation, which owns The Sun daily, for no more than RM30 million.

But that deal was aborted on March 15 last year as final approval for the acquisition was not forthcoming from the authorities. And the two parties also mutually agreed not to extend the deadline of the sale and purchase agreement.

At the time the deal was called off, there was extensive market talk that Tan and Tong were blaming each other for the authorities' rejection. Various reasons were given then, including 'political' ones.

On top of that, there was a RM17 million sum that Tan was to pay Tong for spending in The Sun while Tong's subordinates were managing the newspaper pending final approval.

In the Nexnews annual report for year ended Dec 31, 2000, it was stated as a footnote that: "As at 31 Dec 2000, the company advanced RM14 million to Sun Media Corporation for its working capital in order to sustain it as a going concern pending the completion of the proposed acquisition ..."

The footnote added: "Since 31 Dec 2000, the company advanced a further RM3 million for the same purpose".

More importantly "the advances bear interest at six percent per annum, and are repayable on demand".

Interesting development

It is now almost a year since the whole deal was aborted, and slightly over a year since the RM17 million had been fully spent.

At six percent per annum, Tan should be paying an extra RM1.02 million as interest, raising the total sum payable to not less than RM18 million, depending at what point in time the interest charges started clocking.

Interestingly, Tan recently bought a 26.15 percent stake in Nexnews from Net Edge Online, a company that belongs to Tong which held a controlling 52.32 percent stake in Nexnews. This means Tong's stake in Nexnews now is reduced by half to 26.17 percent, a whisker more than Tan's 26.15 percent.

With this three issues come to mind:

One, is Tong sharing power and ownership in Nexnews with Tan? Why would he do that, when the market believes that Tan still owes him about RM18 million (assuming interest charges were not paid)?

Two, is Tong in need of cash?

Three, is the purchase a prelude to bigger things to come between Tan and Tong, especially with regards to the media business?

In the first issue, the purchase of the 26.15 percent stake by Tan in Nexnews appears to have created a situation of power and ownership sharing, with no one party having more than the majority 50 percent stake.

Following this purchase it is likely that Tan and/or his nominee would be appointed to the board of Nexnews, possibly occupying at least two seats.

The purchase would also mean that Tan is now one of the substantial owners of Nexnews. This in turn would put the outstanding RM18 million in a very different light.

Sticky issue

Previously, the RM18 million was classified as an advance, and Tan was to be a debtor of Nexnews.

Now with Tan as an owner of Nexnews, and if he is appointed to Nexnews' board, the RM18 million would be considered an advance to a director, or to a related party, and thus classified as a related party transaction.

Could this be a way out for both parties in resolving the sticky issue (assuming Tan had not paid the money at all)? If it is, then the problem could be partly resolved, as the terms of the advance to a related party could be renegotiated.

This brings us to the second issue. The RM24.06 million will see Tong having some cash in hand. For what purpose does Tong need to have the money?

In the last few months, there have been market talk that Tong, in his other venture - the publication of The Edge business weekly - has plans to expand the operations of the paper by opening up similar publications, starting with Singapore, then Indonesia, Hong Kong and Shanghai.

The Singapore newspaper is scheduled to begin publication in March this year.

All these ventures need money. And the RM24.06 million would come in handy and timely for Tong.

The third issue of whether Tan and Tong have anything on their mind regarding the media, or more specifically the newspaper business remains to be seen.

Soon after the Nexnews-Sun Media Corporation deal in 2001 was aborted (the deal was also to include the purchase of a 70 percent stake in The Edge Communications, publisher of The Edge for RM7 million cash), a report speculated that Nexnews "may again try to buy into Sun Media Corporation". This was denied by Nexnews.

Dire straits

Now, could the relationship between Tan and Tong, which was said to be cold when the deal was aborted, be hot again to the extent that the idea of Nexnews picking up Sun Media Corporation and The Edge Communications be revived?

Sun Media Corporation is in dire straits; last reported to have lost about RM200 million, and still losing about RM1.2 million to RM2 million a month.

Should the deal with Nexnews be revived, it would be a saving grace for Sun Media Corporation.

For if Nexnews buys Sun Media Corporation (probably this could be done as a debt restructuring exercise for the latter but involving the former as a 'white knight'), then it would also be likely that it would also buy into The Edge Communications.

To some, Tan and Tong may be 'strange bedfellows'. But to others, it would appear that the axiom 'anything is possible' which has always been applicable in politics would now be more appropriate in business.

As the Americans would say, "You ain't seen nothin' yet".

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PY Chin was a former editor with The Star's business desk. He is now a financial consultant. This article first appeared in KLSEtracker.com.