5. RISK FACTORS 5. RISK FACTORS Before investing in the Shares, prospective investors should pay particular attention to the fact that Maxis, and to a large extent its activities, are governed by the legal, regulatory and business environment in Malaysia. The business of Maxis is subject to a number of factors, many of which are outside the control of Maxis. Prior to making an investment decision, prospective investors should carefully consider, along with the other matters set forth in this Prospectus, the risks and investment considerations below. Investors should note that the following list is not an exhaustive list of all the risks that Maxis faces or risks that may develop in the future. Risks relating to Maxis 5.1.1 Maxis is exposed to competition in the Malaysian telecommunications industry The market for telecommunications services in Malaysia is highly competitive. Increasing competition in the Malaysian telecommunications industry has had, and is expected to continue to have, a significant impact on Maxis’ financial condition and results of operations. Telecommunications service providers compete for customers in a number of different areas including the services and features offered, customer service and price, while in the mobile telecommunications sector, service providers also compete for customers in the areas of the technical quality of the wireless system, network coverage and capacity. In addition, the telecommunications industry in Malaysia is experiencing technological changes, evolving industry standards, liberalisation and changes in customers’ preferences. Competition in the telecommunications industry in Malaysia may increase as a result of industry consolidation, the entry of new competitors, regulations, foreign investment in eXisting competitors, and the development of new technologies, products and services. In particular, in addition to Celcom and Maxis, 2 operators have commenced commercial operations of their 3G services, namely U Mobile and DiGi, creating additional competition for Maxis, in particular in the provision of advanced data services. Further, Maxis competes for inbound roaming customers and any downward pressure on roaming prices may adversely affect roaming revenues and margins. Under the current telecommunications laws in Malaysia, mobile operators are obliged to provide their customers with number portability, which allows customers of mobile services to retain their existing number when changing from one operator to the other. Number portability decreases the hurdles for mobile customers to switch to another operator and could lead to increased churn rates and increased customer acquisition costs. In addition to competitors within the telecommunications sector, Maxis has identified other sources of potential competition. Firstly, internet-based carriers, such as Google Voice, Yahoo Voice and Skype, allow users to make calls, send SMS, and offer other advanced features such as the ability to route calls to multiple handsets and access to internet services. Secondly, MVNOs which are service prOViders that purchase network capacity from mobile network operators on a wholesale basis and provide mobile services to their customers. Thirdly, there are 4 companies which have been awarded WiMAX spectrum by the Government. They are in various stages of rolling out their network and services. WiMAX is a technology that provides high-speed wireless transmission of data that competes with Maxis’ HSDPA wireless broadband technology. Finally, competitors with last mile access to customers may offer products and services which can compete with Maxis. For instance, TM is investing in the HSBB Project with last mile access. TM and other operators may use HSBB to offer voice, data and content access services in direct competition with Maxis’ services. While the Commission has announced that HSBB will offer open access to the other providers, including Maxis, there can be no assurance that the wholesale prices and other terms will be economically attractive to Maxis. 5. RISK FACTORS (cont’d) Any of these alternative providers may offer pricing and service packages which Maxis is unable to compete. As such, there can be no assurance that the emergence of such new competitors will not have a material adverse impact on Maxis’ results of operations and financial condition. See Section 5.1.5 of this Prospectus. Competition from existing and new operators has resulted in, and is expected to continue to result in, greater price competition in the telecommunications market, with operators lowering monthly access fees and tariffs, providing substantial mobile device or tariff subsidies to their customers and offering more attractive product and service packages, resulting in a higher churn rate, lower ARPU, slower growth in total customers and increased customer acquisition cost. In order to minimise the impact of increased competition on Maxis’ financial position and results of operations, Maxis’ key strategies have been, and will continue to be, the management of mobile subscriber churn and the maintenance of a low cost structure, the continued focus on high-value customers through Maxis’ branding and marketing strategies, maintenance of a loyal customer base through customer service and loyalty programmes and providing high quality mobile services and extensive network coverage. There can be no assurance however that these or other strategies will prove effective in avoiding any material adverse effects on Maxis’ future growth and profitability, and there can be no assurance that the level of existing and future competition will not adversely affect the results of operations and financial condition of Maxis. 5.1.2 Maxis may not be able to successfully extend and/or launch existing or new products and services into new markets As part of its strategy, Maxis intends to introduce, and to continue to develop, a number of products, services and service experiences for its customers, particularly in the areas of data and broadband. There is no assurance that Maxis will be able to successfully extend and/or launch existing or new products and services into new markets. There is a risk that Maxis may not identify consumer trends correctly, or that any new product or service it launches will not be provided on a cost-effective basis or on a pricecompetitive basis because of Maxis’ misreading of consumer demand or sentiment. These risks exist in particular with Maxis’ anticipated future growth drivers in the communications area such as data services or other advanced technologies (including 3G services) and new handsets such as the Apple iPhone™. Procuring and marketing a new prc~I.”‘~ is cosIly, and with no asslJrance that Max.i::;_will predipt tren<;ls correctly, there can be no assurance that a misjudgement will not adversely affect the results of operations and financial condition of Maxis. 5. RISK FACTORS (cont’d) 5.1.3 The telecommunications industry is sUbject to rapid technological change The telecommunications industry is subject to rapid and ongoing technological changes. Wireless technology, satellite-based personal cOmmunications services, private and shared radio networks, internet telephony, fixed line broadband and other communications services that have the technical capability to handle voice, data and content access services compete with Maxis’ businesses. Emerging and future technological changes may adversely affect the viability or competitiveness of Maxis’ businesses. There can be no assurance that Maxis will be successful in responding in a timely and cost-effective way to these developments. Furthermore, changing market demand and future high bandwidth requirements may require Maxis to adopt new wireless or fixed line technologies that could render many of the technologies that it is currently implementing or has implemented less competitive or obsolete. In addition, Maxis may need to incur substantial capital expenditure to explore and test emerging industry standards (such as Long Term Evolution (LTE) or Evolved High-Speed Packet Access (HSPA+)) or implement technological advances to integrate the new technologies with existing technology. Maxis may not be awarded any licences or spectrum that may be required or necessary to make use of such technologies and may not be able to obtain financing that may be required to implement such new technologies on terms that are favourable to Maxis or at all. further, Maxis may choose new technologies that may prove to be unprofitable, inadequate or incompatible with the customers’ devices or the technologies developed by other carriers. In addition, competitors may implement new technologies before Maxis, allowing these competitors to provide lower priced, enhanced or better quality services than those which Maxis provides, which could have a material adverse effect on Maxis’ ability to compete effectively. Maxis may not be successful in modifying and modernising its network infrastructure in a timely and cost effective manner to facilitate integration and innovation, which could have a material adverse effect on Maxis’ quality of services, business, prospects, results of operations and financial condition. 5.1.4 Maxis’ success depends on the reliability ofits network infrastructure MaXis provides mobile, fixed line and international gateway services over networks that rely to varying degrees on a common core network. The provision of services by Maxis depends on the reliability of this integrated network. Any failure of this integrated network that res!.J!~:!n, a major interruption in. operations or. pro”,ision of anysp.rvice over prolonged periods could diminish the value of Maxis’ brand, reduce its ability to attract and retain customers and could have a material adverse effect on its results of operations and financial condition. MaXis has built in some degree of diversity and resiliency into its network through decentralisation and duplication of critical components to provide diversity of the transmission trunk network at the outset. Notwithstanding these measures, Maxis’ network is potentially vulnerable to damage or interruptions in operation due to natural disasters, fire, power loss, telecommunications failures, network software flaws, transmission cable cuts, breaches of security and similar events. Radio frequency interference as a result of various factors, including out-of-band emissions from other domestic wireless operators, illegal radio frequency transmitters or jammers, co-channel interference from neighbouring countries, or emissions from equipment not complying with spectrum band plan reqUirements may have an impact on the quality of services of Maxis’ network. This may have a direct impact on Maxis’ reputation for service reliability and quality. Any consequential decrease in SUbscriptions or network usage as a result of this could have a material adverse effect on Maxis’ results of operations and financial condition. 5. RISK FACTORS (cont’d) In June 2008, one of Maxis’ MSCs in Kota Kinabalu, Sabah malfunctioned, resulting in a state-wide service disruption which lasted for one day, and a partial service disruption which lasted for 3 days. A MSC is a primary service delivery node for GSM service, responsible for handling voice calls and SMS as well as other services. The failure of the MSC in Kota Kinabalu, Sabah resulted in interruptions in service for approximately 242,000 customers, and may have resulted in some subscribers discontinuing their subscriptions with Maxis. There can be no assurance that Maxis’ MSCs or other critical network equipment will not fail in the future, with corresponding interruption in service. Such interruptions may have a direct impact on Maxis’ revenue and may also adversely impact Maxis’ reputation for reliability, with consequent adverse effects on Maxis’ ability to retain existing customers or attract new customers, Which could in turn affect Maxis’ results of operations and financial condition. 5.1.5 Maxis’ growth initiatives contemplate significant investments in wireless and fixed line technologies, which may be unsuccessful or unable to compete with other companres’offerings Maxis believes that there are significant growth opportunities in new technologies, particularly for the provision of broadband services in Malaysia. In order to benefit from this growth, Maxis expects to make significant investments in the rollout of its network and in HSDPA technologies. The success of these investments and the potential financial returns thereof will depend on various factors inclUding, among others, future customer adoption, price affordability, spectrum availability and quality of services. In addition, Maxis’ wireless broadband products may compete directly with products provided through other platforms and technologies which may prove to be better adapted to customer needs and more efficient in the long term. In 2007, several companies were allocated spectrum to offer WiMAX services in Malaysia. WiMAX is a technology that provides high-speed wireless transmission of data and is a technology that competes with Maxis’ HSDPA wireless broadband technology for the provision of wireless broadband services. Furthermore, pursuant to a partnership agreement with the Government, TM is expected to invest in HSBB over the next decade. Although HSBB is not a wireless technology, it is expected to allow TM to deliver high-speed broadband services through its HSBB infrastructure network. Part of MaXis’ strategy involves Maxis leveraging on the HSBB inititative in providing its services. There can be no assurance that Maxis will also be able to access the HSBB on terms thRt’H011ldenable it to.b'” competitive inproviding it~ts~ryic~s. ..,….” In addition, there can be no assurance that Maxis’ investments in broadband technology will be successful, nor can there be any assurance that its broadband technology will be able to compete with alternative broadband products available in Malaysia. Such failures could adversely affect Maxis’ results of operations and financial condition.
5.1.6 Maxis is exposed to risks relating to its network Maxis operates a digital mobile network in Malaysia that utilises GSM and extended GSM 900, GSM 1800 and W-CDMA 2100 frequencies. Maxis’ ability to maintain or increase its customer base is dependent in part on its ability to expand and upgrade its network on a timely basis. One of Maxis’ key strategies is to continue to focus on network investments to improve its network quality, coverage, capacity and capabilities. The continued expansion and upgrading of its network are subject to risks and uncertainties, including the ability to procure the permission from the relevant local authorities to install a sufficient number of suitably located base station sites, as well as to retain and maintain the existing sites. 5. RISK FACTORS (cont’d) Maxis has experienced local opposition to the building of certain base stations including because of concerns about alleged health risks and environmental factors. As a result of such opposition, Maxis has in some instances been required by the local authorities to remove or relocate certain base stations. Besides the requirement to remove or relocate certain base stations, new policies or guidelines from state and local governments on tower site leasing arrangements could be imposed. Such policies and guidelines may provide that the establishment and operation of tower sites may only be carried out by certain companies approved by the relevant state authorities and that operators will have to lease the tower sites from such companies. There can be no assurance that such policies or gUidelines will not result in increased site operating costs for Maxis. In the past, local tower companies or agencies have sought to acquire Maxis’ towers and lease back these towers to Maxis or for Maxis to decommission its towers or rooftop infrastructure and move to use other towers or rooftop locations in order to operate its services. There can be no assurance that any such sale and leaseback for towers sold, or new leases in the case of site relocation, would be on favourable terms to Maxis. Such an arrangement would impair Maxis’ ability to expand or maintain its network in the affected areas. Further, given the rapid deployment of base station sites required to support network growth, Maxis has in the past installed a significant number of base stations while pending submission to or approval from the local authorities. This is in line with common practice among mobile operators in Malaysia given the lead time generally required for the approvals. The lack of approvals has in certain cases resulted in the local authorities issuing notices and dismantling the base station sites which were then relocated. There can be no assurance that actions by the local authorities in issuing notices and/or dismantling the base station sites will not delay or disrupt the operation and installation of base stations, which could have an adverse effect on Maxis’ business and operations. As at 1 October 2009, Maxis was in receipt of notifications from local authorities to dismantle its base stations on 38 base station sites located in the Klang Valley and Penang out of its 6,291 base station sites nationwide. There can be no assurance that Maxis will not receive similar notifications in the future. Maxis beliE”’o,~,Jhat thedism.<Hltling ofthese base statiol”H,.!Jl<;ly,resuILin p9.qrnetwork quality and potential loss of reputation among customers in the affected locations. Dismantling may adversely affect Maxis’ network coverage, and therefore may adversely affect Maxis’ results of operations and financial condition. In addition, Maxis relies on third parties for the construction of its towers, and there can be no assurance that such third parties will continue to construct towers that are constructed on a timely basis, or on commercially favourable terms or at all.
5.1.7 Maxis’ success depends on its ability to efficiently utilise its current spectrum as well as its ability to acquire additional spectrum One of the measures of a mobile system’s capacity is the amount of radio frequency spectrum available for use by the system. The Commission is responsible for the overall allocation of spectrum in Malaysia. Refer to Section 7.22 of this Prospectus. Maxis operates a digital mobile network in Malaysia that utilises GSM and extended GSM 900, GSM 1800 and W-CDMA 2100 frequencies. 5. RISK FACTORS (cont’d) The provision of wireless broadband services in particular requires significant available spectrum. If Maxis is not able to continue to utilise its spectrum capacity efficiently and successfully or in a timely manner, or if it cannot finance the requisite incremental capital expenditure to utilise such spectrum capacity successfully as and when needed, or obtain additional spectrum from the Commission for future broadband growth, it may experience difficulty in attracting and retaining customers. This could have a material adverse effect on Maxis’ results of operations and financial condition. In addition, if Maxis’ mobile customer base should grow significantly larger, particularly in high density areas, there can be no assurance that current spectrum will continue to be sufficient to maintain service quality, or that Maxis will not be required to make greater capital expenditures in order to maintain and improve service quality based on its current spectrum capacity. 5.1.8 Maxis’ businesses depend on interconnection with other operators’ networks and disruption in interconnections with those networks could jeopardise its operations Maxis’ mobile services, like those of other operators, depend to a large extent on interconnection with other telecommunications operators. Maxis’ mobile network is interconnected to all other fixed and mobile operators in Malaysia, as well as certain other international fixed and mobile operators, so as to aI/ow access to voice and data services to and from any fixed line or mobile telephone within and outside Malaysia. See Section 7.9.2 of this Prospectus. To date, Maxis has not experienced any material disruption under such interconnection arrangements. However, any disruption under such interconnection arrangements in the future as a result of natural events, accidents, failure by other operators to perform their contractual obligations or regulatory, technological, competitive or other reasons could cause service disruptions, which could have a material adverse effect on Maxis’ business and operations. 5.1.9 Adverse changes to the terms for current interconnection agreements or failure to enter into or renew commercially acceptable interconnection agreements in the future could result in higher interconnection or other operating expenses and hinder the planned expansion ofMaxis’ businesses Adverse changes to the terms of Maxis’ interconnection agreements with other operators or failure to reach or renew agreements on commercially acceptable terms with other operators. co’ :’~ .result in higher i’1terconnection or other qp~!F1~ir:Jg e.xpen~,es. 1’1~ddition, the terms of future interconnection agreements may not be commercially acceptable to Maxis. In certain cases, Maxis does not have direct connectivity to its customers’ premises and will need to obtain access to those premises through telephone lines and cable or optical fibre systems (which in some instances belong to local fixed line telephony companies). If Maxis is unable to reach or renew agreements on commercially acceptable terms With those owners, the planned expansion of its businesses will be hindered and it may not be able to compete successfully. 5.1.10 Maxis’ business is SUbject to extensive regulation and Maxis’ licences and spectrum rights have fixed terms andare subject to renewal The ownership, construction, operation and provision of telecommunications systems and services and the allocation of frequency spectrum in Malaysia are subject to extensive regUlation and supervision by the Commission and the Minister. Maxis operates its businesses pursuant to licences and approvals that have been granted by the Minister having due regard to the recommendations of the Commission. Maxis’ licences, issued under the CMA, permit Maxis to provide telecommunications services through its own network. 48 5. RISK FACTORS (cont’d) The licences held by the Subsidiaries have fixed terms. See Section 7.22 of this Prospectus. Class licences expire and are renewed by way of registration on an annual basis, while majority of the individual licences will expire in September 2019. Before the terms of these licences expire, the Subsidiaries must apply to the Commission to have the licences renewed. The CMA provides for the renewal or registration, as applicable, of the licences upon expiration on the standard terms and conditions then provided by the CMA, subject to continued compliance with the terms of such licences, the CMA and any instruments thereunder. There can be no assurance that such renewals will be on the same terms as the existing licences. Any inability to obtain new licences, or delay in the renewal of existing licences, could impede Maxis’ ability to provide its services and could therefore have a material adverse effect on Maxis’ business and results of operations. Further, these licences and Maxis’ other licences are subject to suspension or cancellation by the Minister, acting on the recommendations of the Commission under certain circumstances, including failure to comply with their terms or violation of telecommunications laws and regulations. The Commission allocates the use of spectrum frequency through spectrum assignments and apparatus assignments. Maxis has been granted a 3G spectrum assignment which expires in April 2018. Prior to the expiry of the spectrum assignment and apparatus assignments, Maxis may apply for a renewal and the Commission may renew the assignments in accordance with the provisions of the CMA. The Commission may also suspend or cancel an assignment in certain circumstances including upon the breach of any condition contained in the assignment. Holders of assignments may be required by the Commission to vacate a spectrum frequency for purposes of refarming for various reasons, including the introduction of services, re-alignment, migration, changes in technology, reviewing channelling plans and border coordination agreements. Under the CMA, the Minister may direct the Commission to develop procedures for the compulsory acqUisition of assignments in a determined spectrum. The Commission may pay a reasonable amount of compensation to the assignment holder whose assignment has been acquired prior to its expiry. No compensation may be payable if an assignment is not renewed. The Commission is also expected to commence an industry-wide costing study in 2009 to seek industry feedback relating to the establishment of new access prices for certain regulated services. If adverse fee changes are introduced by the Commission, Maxis’ results of operations and financial condition could be adversely affected. See Section 12.2.2(iv) oftlli”, E’rospectL!s.’.’,,,.r Changes in laws, regulations or Commission policy affecting Maxis’ business activities and those of its competitors could adversely affect Maxis’ results of operations and financial condition. In particular, decisions by the Commission in the areas of the grant, amendment or renewal of licences or the assignment of spectrum to Maxis or third parties, if unfavourable to Maxis, could adversely affect Maxis’ results of operations and financial condition. There can be no assurance that the Minister will not issue new or additional telecommunications licences or that the Commission will not assign or allocate new or additional spectrum or reallocate spectrum currently assigned or allocated to Maxis to new or existing mobile operators whose services will compete with those offered by Maxis. 5. RISK FACTORS (cont’d) 5.1.11 Failure to implement rollout of 3G services in accordance with the terms of the 3G spectrum assignment may result in fines or suspension or cancellation of the spectrum assignment Under the terms of a 3G spectrum assignment granted to UMTS, a 75%-owned SUbsidiary of Maxis, UMTS is required to meet yearly minimum coverage obligations. Under the terms of the 3G spectrum assignment, UMTS must increase its 3G coverage by a certain predetermined amount each year, by installing a predetermined number of new 3G sites. In 2005, UMTS failed to reach its rollout obligation for the year, installing 406 3G sites instead of the targeted 688 3G sites. As a result, in April 2006, the Commission imposed on UMTS a fine of RM5.0 million. For 2007, the Commission extended UMTS’ target to 2008. However, by the end of 2008, UMTS had installed 2,325 3G sites instead of the revised targeted 2,629 3G sites. As a result, in March 2009, the Commission imposed a fine of RM6.0 million. There can be no assurance that Maxis’ rollout of 3G services will not fail to meet the mandated targets again, and therefore there can be no assurance that Maxis will not face further fines or suspension or cancellation of its 3G spectrum assignment, any of which could have a material adverse effect on Maxis’ business and operations. 5.1.12 Maxis’ existing operations and planned investments require significant funding Maxis’ operations are capital intensive in nature. In order to continue to be competitive and provide services and technology comparable with other telecommunications providers, Maxis must continue to expand and improve its product offering and upgrade its network, which involve significant ongoing capital investment. Maxis has invested approximately RM2,930.5 million during the 3 years ended 31 December 2008 and RM357.2 million over the 6 months ended 30 June 2009 to expand and improve its network and supporting systems infrastructure. Maxis’ capital commitments as at 30 June 2009 amounted to RM1 ,065.0 million. Maxis has funded, and will continue to fund, such capital investments primarily from cash flows from operations, additional debt and equipment and service suppliers’ credit. Maxis expects, going forward, that its operations and expansion plans will be dependent upon its ability to secure additional financing, and it is uncertain whether Maxis will be able to secure such financing on commercially favourable terms or at all. If adequate financing is !l(lt.i”‘I,”Iilable, MilXis’ bu!’\iness prospects will be ad.v,E’r.$~ly affectEld. 5.1.13 Maxis relies on a limited number ofprincipal suppliers Generally, the telecommunications industry in Malaysia is dependent on imports for the majority of its network components as most of the network equipment cannot be sourced locally. Maxis relies on a limited number of leading international mobile equipment manufacturers, primarily Huawei, Siemens A.G., Ericsson and Motorola and their respective Malaysian affiliates, to provide network equipment and facilities. The network equipment and facilities are for the provision and support of 2G and 3G network infrastructure and the IN. For the year ended 31 December 2008, the vendors that accounted for more than 10% of Maxis’ purchases of network equipment and associated services were Ericsson, Huawei and Nokia Siemens Networks. Motorola, Ericsson and Huawei are Maxis’ major suppliers of 2G and 3G radio equipment, while its network switching system was proVided by Huawei and the IN system was prOVided by Nokia Siemens Networks. 5. RISK FACTORS (cant’d) In January 2009, Maxis entered into an IT partnership agreement with IBM in respect of the IT infrastructure of Maxis. See Section 7.10.2 of this Prospectus. If IBM were to become insolvent or fail to comply with its obligations or there was some other disruption to the partnership, or if Maxis were otherwise unable to realise the benefits anticipated under the agreement, Maxis’ operations could be compromised or the costs incurred for such services could increase. Maxis’ operations could also be adversely affected if it were unable to obtain an adequate supply of equipment or services in a timely manner, or on commercial terms acceptable or favourable to Maxis, or if there are significant increases in the costs of such supplies or services. A number of leading international mobile equipment manufacturers had experienced (and some continue to experience) financial difficulties which have led in some instances to their restructuring. As a consequence, Maxis may experience delays and other problems in acquiring necessary support or spare parts on commercial terms favourable to Maxis, or at all. Maxis had purchased its softswitches manufactured by Nortel Networks Corporation (“Nortel”) to replace its fixed network circuit switches. Softswitches are computers that connect calls from one phone service to another. They are key components in Maxis’ fixed network infrastructure. Nortel continues to provide system support and services to Maxis and Maxis may purchase additional equipment from Nortel in the future. On 14 January 2009, Nortel filed for protection from creditors, in the United States under Chapter 11 of the United States Bankruptcy Code, in Canada under the Companies’ Creditors Arrangement Act and in the UK under the Insolvency Act 1986. Nortel’s insolvency may delay or prevent installation of the upgraded softswitches, which would adversely affect Maxis’ fixed network infrastructure. If Maxis is required to source an alternative system support and maintenance arrangement or to replace the existing or equipment for the fixed network infrastructure, then it may incur further delays and significant costs. Such delays or costs may adversely affect Maxis’ results of operations and financial condition. 5.1.14 Maxis is exposed to risks relating to content downloaded or uploaded by its subscribers .. .Maxis may face claims.n’ll.sti09 to Maxis-provJded content qr user-g~n§lr~t~gGontent made available by Maxis or via Maxis websites. The claims could relate to intellectual property infringement, defamation, sedition or other offences under applicable law. Such claims could materially and adversely affect Maxis’ reputation or may result in Maxis incurring substantial monetary liability by way of settlement or penalty. 5.1.15 Control byprincipal shareholders Upon the completion of the IPO, MCB will own 5,250.0 million Shares, representing 70% of the issued and paid-up Shares. MCB is 100%-owned and controlled by BGSM. Usaha Tegas, Saudi Telecom and Harapan Nusantara jointly control MCB, the 70% shareholder in the Company, pursuant to a shareholders’ agreement in relation to BGSM. Consequently, Usaha Tegas, Saudi Telecom and Harapan Nusantara indirectly jointly control the Company. By virtue of such joint control, each of Usaha Tegas, Saudi Telecom and Harapan Nusantara will be able to influence, in a significant manner, the election of Directors and the approval of any actions requiring the approval of the Company’s shareholders. The interests of MCB, Usaha Tegas, Saudi Telecom and Harapan Nusantara may collectively or individually differ from or conflict with the interests of other shareholders of the Company. Please refer to Section 9.4 of this Prospectus for information on the substantial shareholders of the Company. 51 5. RISK FACTORS (cont’d) 5.1.16 Maxis relies on sophisticated billing and credit control systems to offer and obtain payment for its services Sophisticated billing and credit control systems are critical to Maxis’ ability to increase revenue streams, avoid revenue loss, monitor costs and potential credit problems, and bill customers properly and in a timely manner. Maxis may also be affected by fraud committed by its subscribers or third parties, particularly in respect of subscription or roaming fraud. Any increase in subscription or roaming fraud could have a material and adverse effect on Maxis’ financial condition and results of operations. Maxis runs 2 data centres for its information systems providing its billing system with the ability to be back in full operation with no loss of data within 24 hours in the event of a catastrophic failure in the primary data centre. If adequate billing and credit control systems and software programmes are unavailable or if upgrades are delayed or not introduced in a timely manner or if Maxis is unable to integrate such systems and software programmes into its existing billing and credit systems, Maxis may be unable to offer certain services to its customers. In addition, Maxis may experience delayed billing or delayed delivery of bills due to postal or network disruptions which may negatively affect its cash flows, level of bad debts and other aspects of its operations. 5.1.17 Maxis’ ability to compete effectively will depend on the availability of a skilled workforce As the telecommunications industry becomes increasingly competitive and Iiberalised, both in Malaysia and elsewhere, Maxis’ success will depend to a significant extent upon, among other factors, its ability to continue to attract and retain qualified personnel. The competition for qualified employees is significant and the loss of the services of key personnel or the inability to attract new qualified personnel or to retain existing personnel could have a material adverse effect on the businesses, prospects, financial condition and results of operations of Maxis. 5.1.18 Maxis’ operations may be disrupted if Maxis loses the services of its key management team and key personnel who possess certain functional expertise There is no assurance that Maxis will be able to retain the members of the key management team and key personnel who possess certain functional expertise. If one or .’ >,;:”._’, ,•. …: more of these personnel.arec~lnable or unwillingJo continue in their presel]tPQ§jtions, or if they join a competitor or form a competing company, Maxis may not be able to replace them easily. Maxis’ business may be significantly disrupted and its financial condition and results of operations may be materially and adversely affected. There can be no assurance that Maxis will be able to attract or retain the relevant personnel that it has or will need to achieve its business objectives. 5.1.19 Concerns about electromagnetic radiation from mobile handsets or base stations may result in litigation or other claims against the Group Research reports have in the past suggested that radio emission from mobile handsets might have an adverse effect on the health of mobile telephone users and others. Such concerns have adversely affected share prices of certain mobile telecommunications companies in the United States in the past. Although the findings in such reports are disputed, the issuances of such reports in the future could adversely affect the market price of the shares of mobile operators, including Maxis, and the actual or perceived risk of wireless telecommunications devices could adversely affect mobile operators such as Maxis through reduced customer growth, reduction in customers, reduced usage per customer or increased costs arising from the location or relocation of base stations. 5. RISK FACTORS (cont’d) Reports have suggested that radio emissions and electromagnetic radiation inherent in the operation of base stations and towers may also cause health problems for those people who live or spend significant time near such base stations or towers. There is also some concern that these emissions may interfere with the operation of certain electronic equipment, including automobile braking and steering systems. Maxis may receive claims in relation to such matters. There can be no assurance that Maxis will be able to successfully defend these claims. Many of Maxis’ base stations are located in populated areas or buildings, so it is difficult to predict how many such claims Maxis may face. likewise, Maxis cannot say with any certainty how much it would cost to defend or settle such claims, nor how much Maxis might be obliged to pay should the court award damages or other remedies against Maxis. Such claims could therefore adversely affect Maxis’ results of operations and financial condition. In addition, such actual or perceived risks relating to the operation of base stations and towers may make it difficult to find suitable sites for Maxis’ base stations. 5.1.20 Maxis’ operations depend significantly on its network ofdealers and distributors Maxis sells its prepaid and postpaid services principally through a network of dealers and distributors. As such, it is highly dependent on its dealers and distributors for its prepaid and postpaid product sales. Any dispute with them may disrupt sales and have an adverse effect on Maxis’ revenues and profitability.
5.1.21 There may be conflicts ofinterest between Maxis and its related parties Maxis has entered into various transactions with companies directly or indirectly controlled by or connected to its related parties. The Listing Requirements define a related party as a director, a major shareholder or a person connected with such director or major shareholder (including a person that was a director or major shareholder within the preceding 6 months before the transaction was entered into). A “major shareholder” means a shareholder with a shareholding of 10% or more (or 5% or more where such person is the largest shareholder in the company) of all the voting shares in the company. In addition, Maxis expects that it will in the future enter into other transactions with related parties. These transactions may involve conflicts of interest which may be detrimental to Maxis. Some of the officers of Maxis and Directors are also officers, directors and in some cases, shareholders of related parties and, with respect to the related party transactions, may, indiVidually or in the aggregate, have conflicts of -,., …. .~ interest. “~'” .~…., Maxis believes that the services offered by its substantial shareholders and companies associated with its substantial shareholders and by companies associated with Maxis’ Directors, such as the MCB Group Post-Restructuring, and the services offered by Maxis are not in competition with each other. However, there can be no assurance that competition between the businesses of Maxis and the businesses of its substantial shareholders and companies associated with its substantial shareholders or with Maxis’ Directors will not arise or that there will not be any other direct or indirect competition and conflicts of interest between Maxis and its substantial shareholders and companies associated with its substantial shareholders. Also, there can be no assurance that direct or indirect competition will not arise in the future between Maxis and its substantial shareholders and companies associated with its substantial shareholders. 5. RISK FACTORS (cant’d) 5.1.22 Depreciation of the Ringgit may increase Maxis’ operating expenditures, capital expenditures and financing costs From 2 September 1998 to 21 JUly 2005, the Ringgit was fixed at an exchange rate against the US Dollar of USD1.00 to RM3.80. Since 21 July 2005, however, the Ringgit has operated on a managed float system, which benchmarks the Ringgit against a currency basket with the aim of maintaining its value. Since substantially all of Maxis’ revenues are denominated in Ringgit and certain significant equipment purchases and other costs and liabilities are denominated in, or referenced to, US Dollars and other foreign currencies, any SUbsequent depreciation of the Ringgit may increase Maxis’ operating expenditures, capital expenditures and financing costs. 5.1.23 Maxis may not be able to continue to enjoy import duty and sales tax exemptions or claim a tax deduction for certain expenses and Maxis may be required to pay stamp duty and related penalties in respect of certain services agreements and equipment lease agreements Since December 1994, Maxis has been granted import duty and sales tax exemptions on imported equipment and sales tax exemption on local materials. In the absence of any exemption, current import duty ranges between zero and 30%, and sales tax is 10%. The exemptions are granted annually and expire at different times throughout the year. Exemptions are granted pursuant to the Government’s current policy. A withdrawal of the exemptions would have a material adverse effect on Maxis. Additionally, tax deductions are claimed for expenses where Maxis believes there are strong grounds to support such claims. There can be no assurance that the Inland Revenue Board (“IRS”) will not dispute the deductions claimed by Maxis and any tax assessed by the IRB may have an adverse impact on Maxis’ results of operations and financial condition. On 1 January 2009, the Stamp Act 1949 (“Stamp Act”) was amended to, among other things, provide that services agreements and equipment lease agreements with certain elements are chargeable with ad valorem stamp duty (“Amendments”). The scope of operation of the Amendments and the impact on Maxis are unclear. It may be that certain of Maxis’ services agreements and equipment lease agreements, including customer services agreements, entered into since 1 January 2009 are chargeable with stamp duty. Maxis intends to clarify the scope and operation of the AmendmEmt~and to submit for adjudication or stamping services agreements and equipment lease agreements which are chargeable with stamp duty. To the extent that the services agreements and equipment lease agreements are submitted for adjUdication or stamping later than required under the Stamp Act, Maxis may be liable to a penalty under the Stamp Act. 5.1.24 The ownership rights of Maxis in respect of the ducts and cables that it lays and installs on public roads and highways are uncertain In the course of building its network, Maxis has laid ducts, fibre and other equipment throughout Malaysia pursuant to approvals obtained from local authorities. Maxis believes that there is a strong legal case that it also has ownership rights in respect of the ducts and fibre that it lays and installs on pUblic roads and highways. However, legal uncertainty arises because the issue of ownership of the ducts and trunk fibre laid on or under the land is not specifically addressed in the Telecommunications Act (now repealed) nor in the current CMA and the issue has not been specifically raised or addressed in the Malaysian courts, although the approvals refer to the grant of a right of way for infrastructure to be installed. There can be no assurance that the question of the ownership of such ducts, fibre and other equipment, if submitted to the courts, would not be decided against MaXis. 54 5. RISK FACTORS (cont’d)
5.1.25 Non-compliance with Government policy on non-Malaysian beneficial ownership could result in unknown penalties Maxis’ licences require it to comply with relevant Malaysian foreign investment restrictions. See Section 7.22 of this Prospectus. Pursuant to the announcement by the Prime Minister of Malaysia on 30 June 2009, the Foreign Investment Committee Guidelines have been repealed and equity ownership restrictions, if any, will be imposed by the relevant regulators for a particular industry. No foreign equity ownership restrictions are presently imposed by the Minister on Maxis. However, there is no assurance that such foreign equity ownership restriction will not be imposed in the future. If any foreign equity ownership restrictions are imposed in the future, once the Shares are listed, it is not known what regulatory framework would be enacted to support that restriction. It may not be possible to restrict any transfer of Shares to ensure compliance with such policy. It is not known what penalties or requirements (if any) the Government would impose to sanction or remedy non-compliance with such policy. Any such sanction or remedy could have a material adverse effect on Maxis and/or the shareholders of the Company. Further, each of the individual licences held by Maxis may be cancelled by the Minister on the recommendation of the Commission if there is a breach of any Government policy on foreign equity ownership restriction. In addition, any limitation on non-Malaysian beneficial ownership of Maxis may adversely affect Maxis’ ability to raise additional non-Malaysian equity or convertible debt financing in the future. The effective level of non-Malaysian ownership in the Company after the Pre-Listing Restructuring but before completion of the IPO was approximately 25%. The level of nonMalaysian ownership in the Company after the completion of the IPO would depend on the outcome of the bookbuilding under the Institutional Offering. 5.1.26 Maxis may be unable to adequately protect its intellectual property or may face intellectual property claims that may be costly to resolve or may limit its ability to use its intellectual property in the future The popularity of Maxis’ products and services is dependent on the goodwill associated with the maxis and HOTLiNK brand names and logos. In the case of trademarks and servicemarks registered with MCB, MCB has granted Maxis a perpetual, royalty-free licence to use such trademarks and servicemarks in Malaysia. Maxis and MCB rely on a combination of trademark, servicemark and domain name registrations, common law copyright protection and contractual restrictions to establish and protect their brand names and logos, marketing designs and internet domain names. There can be no assurance that the steps taken or procured to be taken by Maxis or MCB, as the case may be, in this regard will adequately protect its intellectual property. Third parties may challenge Maxis’ or MCB’s exclusive right to use these brand names and logos. Maxis or MCB (as the case may be) may incur substantial costs in defending any claims relating to its intellectual property rights. Issues relating to intellectual property rights can be complicated and there is no assurance that disputes will not arise or that any disputes in relation to Maxis’ or MCB’s intellectual property will be resolved in Maxis’ or MCB’s favour. 5. RISK FACTORS (cont’d) 5.1.27 The historical combined financial information and proforma consolidated balance sheets included herein may not reflect actual financial position, results and cash flows The combined financial information included elsewhere in this Prospectus has been prepared on an aggregated basis as the Subsidiaries have been operating as a single economic entity throughout and as at the financial years or periods presented. The combined financial statements do not incorporate the effects of the Pre-Listing Restructuring which is accounted for using purchase method of accounting under FRS 3 “Business Combination”, IPO, Listing and ESOS. Therefore, they are not reflective of the financial position, results of operations and cash flows that would have occurred if the Pre-Listing Restructuring, IPO, Listing and ESOS had been effected on 1 January 2006 or of the future financial position, results of operations and cash flows of Maxis. As part of the Pre-Listing Restructuring, the Company acquired the Subsidiaries and this acquisition was accounted for using the purchase method of accounting in accordance with FRS 3 “Business Combination”. Maxis Mobile Services has been identified as the acquirer and therefore the acquisition of Maxis Mobile Services by the Company was accounted for as a reverse acquisition. Subsidiaries other than Maxis Mobile Services were accounted for using the purchase method of accounting. Further, there was an amount due to MCB of RM4,992.0 million resulting from the Pre-Listing Restructuring. Under FRS 2 “Share-Based Payment”, Maxis will be required to recognise the cost arising from the fair value of the Options granted and the difference between the Institutional Price and the Final IPO Price and the difference between the Institutional Price and the price payable by the Cornerstone Investors for the Offer Share (if any). However, the combined income statements do not reflect the potential cost relating to the Options nor the impact from the difference between the Institutional Price and the Final IPO Price and the difference between the Institutional Price and the price payable by the Cornerstone Investors for the Offer Share (if any) as no Option was granted during the period under review and the Pre-Listing Restructuring, IPO and Listing were only effected after the period under review. These combined financial statements do not reflect the impact of the Pre-Listing Restructuring, IPO, Listing and ESOS, including the interest charge from the amount due to MCB. As the Subsidiaries were part of the MCB group of companies, they did not operate independently as a group. The combined financial statements are, therefore, not necessarily indicative of the financial position, results of operations and cash flows that would have occurred if the Subsidiaries had been an independent stand-alone group during the financial years or periods under review. The combined financial statements are also not necessarily indicative of the future financial position, results of operations and cash flows of Maxis’ business. The proforma consolidated balance sheets have been prepared on the basis that the Pre-Listing Restructuring, IPO and Listing occurred on 30 June 2009. As the proforma consolidated balance sheets are prepared for illustrative purposes only, such information because of its nature, does not give a true picture of the effects of the Pre-Listing Restructuring, IPO and Listing on the financial position of Maxis had the transaction or event occurred at the balance sheet date. Further, such information does not purport to predict Maxis’ future financial position. 5. RISK FACTORS (cont’d) 5.1.28 Purchase price allocation in connection with the Pre-Listing Restructuring may result in changes in intangible assets and in negative net tangible assets ofMaxis. Intangible assets and goodwill are sUbject to annual evaluations and whenever there is an indication of impairment and, as a result, Maxis could be required to impair some or all ofthese intangible assets and goodwill Pursuant to the Pre-Listing Restructuring, Maxis will perform a purchase price allocation exercise in accordance with the requirements of FRS 3 “Business Combination”. Upon completion of this exercise (which will occur within 1 year from the completion of the PreListing Restructuring), the goodwill of RM11 ,029.0 million as illustrated in the notes to the proforma consolidated balance sheet set out in Section 12.5 of this Prospectus may be adjusted and contingent liabilities may be recognised in the consolidated balance sheet of Maxis with a corresponding adjustment to the net tangible liability of Maxis, which is presently illustrated as a net tangible liability of RM2,674.5 million or net tangible liability per Share of RMO.36. In accordance with Malaysian GAAP, Maxis will have to assess the carrying value of its intangible assets (including goodwill) at least annually for impairment and whenever there is an indication of impairment. In addition, any intangible asset identified with finite life will be sUbject to amortisation over its estimated economic useful life. Intangible assets (including goodwill) may be impaired when the carrying amount of the intangible assets exceeds their recoverable amount. Any reduction in, or impairment of, the value of the intangible assets and amortisation of finite life intangible assets will result in a charge against earnings which could materially adversely affect Maxis’ results of operations and financial condition. Events that may give rise to the potential impairment of intangible assets (including goodwill) include the cessation of Maxis’ mobile services business, suspension or cancellation of Maxis’ licences by the Minister or obsolescence or physical damage of Maxis’ operating assets.
5.1.29 Breach of customer data protection could materially affect Maxis’ reputation and business and subject Maxis to liability Maxis has a large database of customer information which is stored in various business systems and used in many business processes company-wide. Maxis is required under its licences to take all reasonable steps to ensure that parties who have access to its customer information in the ordinary course of business do not disclose such information without the prior consent of the customer. Under the Malaysian General Consumer Code (“GCC”), any service provider that collects consumer information has a responsibility to adopt and implement a policy that protects the privacy of identifiable information, and should take steps that foster the adoption and implementation of an effective policy on the protection of consumer information by the service providers with which they interact, for example, by sharing best practices with business partners. There can be no assurance that any of Maxis’ employees and agents will release customers’ personal information without authorisation. Such a breach could expose Maxis and its officers to violations under the Malaysian GCC (which carries a fine not exceeding RM100,000, imprisonment not exceeding 2 years or both), possible liability suits from customers, damage to reputation and business loss. 5. RISK FACTORS (cont’d) 5.1.30 Maxis is seeking significant indebtedness which may contain restrictive covenants Maxis is seeking indebtedness of RM5,000.0 million which may contain covenants that could limit Maxis’ operating and financing activities or could grant to the lender(s) liens over certain of Maxis’ properties. In addition, such indebtedness could increase Maxis’ leverage and result in higher interest expenses going forward and may lead to higher future costs of borrowing for Maxis. Events of default under any such indebtedness could give rise to a right by a creditor to accelerate the relevant indebtedness or enforce any security granted in relation to that indebtedness, and may result in a cross default on other indebtedness, which would have a material adverse effect on Maxis’ financial condition and results of operations. 5.2 Risks relating to the Shares 5.2.1 There has been no prior market for the Shares There has been no prior market for the Shares. There can be no assurance as to the liquidity of any market that may develop for the Shares, the ability of holders to sell their Shares or the prices at which holders would be able to sell their Shares. Application will be made to Bursa Securities for the listing of and quotation for the entire share capital of Maxis (including the Offer Shares) on the Main Market and it is expected that there will be an approximate 9-Market Day gap between closing of the Retail Offering and trading of the Shares. However, there can be no assurance that the Shares will be accepted for trading on the Official List. In the event that the Shares are not admitted to the Offici.al List within 6 weeks from the date of this Prospectus, then Maxis will withdraw its application for listing and monies paid in respect of any application for the Offer Shares will be returned to applicants without interest. If any such monies are not repaid within 14 days after the Selling Shareholder becomes liable to repay it, the provision of subsection 243(2) of the CMSA shall apply accordingly. The Shares could trade at prices that may be lower than the Institutional Price or Final IPO Price depending on many factors, inclUding prevailing economic and financial conditions in Malaysia, Maxis’ operating results and the markets for similar securities. The Company, MCB, as the Promoter and Selling Shareholder, and the Joint Managing Underwriters have no obligation to make a market in the Shares or to maintain the Listing. In addition, the market for securities in emerging markets has been subject to disruptions that have caused intense volatility in the prices of securities similar to the Shares. There can be no assurance that the market for the Shares, if any, will not be SUbject to similar disruptions. Any disruptions in such market may have a material adverse effect on the holders of the Shares. 5.2.2 There may be a delay or failure in trading of the Shares The occurrence of certain events, including the following, may cause the delay in or termination of the Listing: (i) Maxis is unable to meet the public spread requirement as determined by Bursa Securities, i.e. having at least 25% of its issued and paid-Up Shares in the hands of at least 1,000 public shareholders holding at least 100 Shares each at the point of Listing; and
(ii) Maxis is unable to obtain the approval of Bursa Securities for the Listing for whatever reason.
5. RISK FACTORS (cont’d) In such an event, investors will not receive any Offer Shares and the Selling Shareholder will return in full, without interest, all monies paid in respect of any application for the Offer Shares in compliance with the provision of sub-section 243(2) of the CMSA. 5.2.3 Like other companies in the telecommunications Industry, Maxis’ share price may be volatile The price of the Shares may fluctuate as a result of variations in its operating results. If the trading volume of the Shares is low, the price fluctuations may be exacerbated, particularly as no stabilising transactions can or will be undertaken in respect of the Shares in connection with the IPO or thereafter. Since Maxis’ prospects are intricately linked with technology and Maxis and its businesses are to a great extent driven by technology, the price of the Shares may rise and fall in tandem with announcements of technological or competitive developments, acquisitions or strategic alliances by Maxis or its competitors. The price of the Shares, as are typical of those of companies in telecommunications sectors, are also prone to news regarding the gain or loss of significant customers or key personnel, as well as changes in analysts’ estimates of its financial results or recommendations. 5.2.4 Maxis may not be able to fulfil its dividend policy in the future or realise dividends from the Subsidiaries Maxis intends to adopt a policy of active capital management. It proposes to pay dividends out of cash generated by its operations after setting aside the necessary funding for network expansion and improvement and working capital needs. As part of this policy, the Company targets a payout ratio of not less than 75% of its consolidated PAT under Malaysian GAAP in each calendar year, beginning the financial year ending 31 December 2010, subject to the confirmation of the Board and to any applicable law, licence and contractual obligations and provided that such distribution would not be detrimental to its cash needs or to any plans approved by its Board. Dividend payments are not guaranteed and the Board may decide, in its absolute discretion, at any time and for any reason, not to pay dividends or to change its dividend policy. If Maxis is unable to fulfil its dividend policy, or pay dividends at levels anticipated by investors, the market price of its Shares may be negatively affected and the value of the investment in the Shares may be reduced. Further, Maxis’ dividend policy, to the extent implemented, may adversely affect its ability to fund unexpected capital expenditure as well as its ability to make interest and principal repayments on its debentures and loans. As a result, Maxis may be required to borrow additional money or raise capital by issuing equity securities, which may not be possible on attractive terms or at all. Further, in the event Maxis incurs new borrowings subsequent to the Listing, Maxis may be subject to covenants restricting its ability to pay dividends. The Company is an investment holding company which conducts all of its operations through its subsidiaries. Accordingly, an important source of income for the Company, and consequently an important factor in the Company’s ability to pay dividends on the Shares, are dividends and other distributions received from its subsidiaries. The subsidiaries’ ability to pay dividends or make other distributions to it are subject to the availability of distributable reserves, applicable legal restrictions contained in their loan agreements and to their having sufficient funds which are not needed to fund their operations, other obligations or business plans. In addition, changes in Malaysian GAAP may affect the ability of the subsidiaries (and consequently, the Company) to declare and pay dividends. As the Company is a shareholder of its subsidiaries, its claims as such will generally rank junior to all other creditors and claimants against its subsidiaries. In the event of a subsidiary’s liquidation, there may not be sufficient assets for the Company to recoup its investment. For a description of Maxis’ dividend policy, refer to Section 12.6 of this Prospectus. 5. RISK FACTORS (cont’d) 5.2.5 The sale or the possible sale of a substantial number of the Shares in the public market following this IPO could adversely affect the price ofthe Shares Following the sale of 2,250.0 million Offer Shares, 30% of the Shares will be publicly held by investors participating in this IPO, and 5,250.0 million Shares, or 70% of the Shares will be held by MCB. The Offer Shares sold in this IPO (other than the Offer Shares sold to the Cornerstone Investors) will be tradable on the Main Market without restriction following the Listing. While the Company, MCB and the Cornerstone Investors have entered into the lock-up arrangements as set out in Section 4.9.2 of this Prospectus, it is possible that Company may issue additional Shares after the end of the lock-up period in connection with financing activities or otherwise in the future, and it is possible that MCB or the Cornerstone Investors may dispose of some or all of their Shares pursuant to their own investment objectives. If the Company, MCB or the Cornerstone Investors sell or are perceived as intending to sell a substantial amount of Shares, the market price for the Shares could be adversely affected. MCB will own the balance of the remaining Shares not offered under the IPO, which will be subject to a moratorium in accordance with the SC’s requirements and the lock-up arrangements. For a description of the moratorium and lock-up arrangements, refer to Sections 9.3 and 4.9.2 of this Prospectus.
5.2.6 After giving effect to the Pre-Listing Restructuring, Maxis will be in a NTL position Following the Pre-Listing Restructuring, Maxis will be in a NTL position. Based on the proforma consolidated balance sheets in Section 12.4 of this Prospectus, the NTL presently illustrated in Proforma I is RM2,674.5 million or RMO.36 per Share, which is derived after deducting the intangible assets of RM11, 136.0 million from the total net assets of RM8,461.5 million. 5.3 Risks relating to Malaysia 5.3.1 Developments in Asia and globally may negatively impact Maxis Malaysia’s economy has been affected by the global economic crisis that began in late 2007, as evidenced by the decrease in its rate of gross domestic product (“GOP”) growth to 4.6% in 2008 (compared to 6.3% in 2007). According to Bank Negara Malaysia, Malaysia’s central bank, GDP fell in the first quarter of 2009 by 6.2%. This was attributed to a slowdown in the global GDP during the same period. Further adverse economic developments in Asia could have a material adverse effect on Maxis’ financial condition and results of operations. 5.3.2 Political, economic and social developments or other changes in tax law or other regulations in Malaysia may adversely affect Maxis . Maxis’ business, prospects, financial condition and results of operations may be adversely affected by political, economic, social and legal developments in Malaysia. Such political and economic uncertainties include, but are not limited to, the risks of war, terrorism, nationalism, or nullification of contract, changes in interest rates and methods of taxation. Negative developments in Malaysia’s socio-political environment may adversely affect the business, financial condition and results of operations of Maxis. In addition, changes in tax laws or other regulations or actions taken by the Government to partially or wholly nationalise Maxis or its operating assets could adversely affect Maxis’ results of operations and financial condition. 5. RISK FACTORS (cont’d) 5.3.3 SARS, avian flu, Influenza A (H1N1) and other infectious diseases may adversely affect Maxis In 2003, Taiwan, The People’s Republic of China (including Hong Kong), Singapore, Malaysia and other places experienced an outbreak of Severe Acute Respiratory Syndrome (“SARS”), which adversely affected the economies in Southeast Asia. In late 2003 and January 2004, outbreaks of avian influenza occurred in several countries in Asia. In 2006, outbreaks were reported in other parts of the world including Europe, the Middle East and Africa. Several cases of bird-to-human transmission of avian influenza were reported. The World Health Organisation (“WHO”) and other agencies continue to issue warnings of a potential avian influenza pandemic if there are sustained human-to-human transmissions. In June 2007, new cases of human infection of avian influenza in China and Indonesia were reported. In early 2009, outbreaks of Influenza A (H1N1) occurred in Mexico. In May 2009, the first cases were detected in Asia, and in June 2009, the WHO declared a global flu pandemic. The outbreak of an infectious disease such as avian influenza, SARS or Influenza A (H1N1) in Malaysia or elsewhere in Southeast Asia could have a negative impact on the region’s economy and thereby adversely impact Maxis’ business, financial condition and results of operations. There can be no assurance that any precautionary measures taken against infectious diseases would be effective. (The rest of this page has been intentionally left blank)