Published November 7, 2008

Downsizing at online finance firm Tune Money

'Budget' company's move comes amid losses and after CEO's resignation

By S JAYASANKARAN
IN KUALA LUMPUR
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TUNE Money, Malaysia's first online 'budget' finance house, is downsizing amid losses and shareholder disagreement that led to the resignation of its chief executive last week.

On Oct 31, Tune's CEO and 10 per cent shareholder Tengku Zafrul Tengku Abdul Aziz quit abruptly and without explanation. No successor has been named yet.

Tune is a spin-off from AirAsia, Asia's largest budget airline. Inspired by Air-Asia's success, its founder and driving force Tony Fernandes moved to create a host of other budget services including Tune Money and Tune Hotels.

Its business model was simple. Mr Fernandes reckoned financial services such as insurance, for example, were more expensive than they need be because they involved middlemen who took commissions and racked up costs.

He thought the way around this was the Internet, so Tune began by selling insurance online at cheaper rates by cutting out the middleman.

The insurance cover and debit cards offered by Tune came from CIMB, Malaysia's largest investment bank, which took a 25 per cent interest in Tune Money, initially capitalised at RM26.6 million (S$11 million) back in 2006.

Executives familiar with the boutique finance house said CIMB boss Nazir Razak and Mr Fernandes persuaded Tengku Zafrul to head the outfit.



Tune's other shareholders are Lim Kean Onn (8 per cent), Kallimullah Hassan (8 per cent) and Mr Fernandes's various private companies (49 per cent).

Mr Lim and Mr Kallimullah are partners in ECM-Libra, one of Malaysia's smaller investment banks. Tengku Zafrul used to head Avenue Assets, a broking house bought by ECM-Libra almost three years ago.

The executives said disagreement between Tengku Zafrul and his other partners, notably Mr Lim and Mr Kallimullah, began surfacing after he sought to grow the business faster than either of them thought he should.

A particular grievance was Tengku Zafrul's idea to start a unit trust business and hire heavy hitters at relatively high salaries.

Resentment began building because shareholders were asked to support cash calls fairly regularly at a time when Tune was making losses, according to the executives.

According to documents lodged with the Companies Commission, Tune made a net loss of RM8.6 million for the year to end-December 2007 after a loss of slightly over RM1 million the previous year.

Matters came to a head last month during a meeting to consider another cash call of over RM5 million from shareholders, according to the executives. Mr Kallimullah and Mr Lim flatly refused to subscribe to the call and, in subsequent discussions, the unit trust scheme was jettisoned.

Tengku Zafrul handed in his resignation soon after the meeting and, given that the unit trust plan had been abandoned, the resignations of the more recent hires are likely to follow, the executives added.