PETALING JAYA: Axiata Group Bhd , the regional telecommunications firm that is controlled by Khazanah Nasional Bhd, has been the subject of quite a bit of newsflow in the past few days.
News has emerged that Mumbai-based Idea Cellular Ltd, in which Axiata has a 20% stake, would merge with London-based Vodafone Group plc’s Indian business to create India’s biggest cellular company while on the home front, a merger between Axiata and Telekom Malaysia Bhd (TM) could be brewing.
Axiata said in a stock exchange filing in relation to the Idea Cellular-Vodafone merger that the company’s shareholders’ position “are best addressed through among others, any industry consolidation or development”. The company will also analyse all potential impact arising from the proposed merger and its next course of action will be based on the outcome of the analysis.
Kenanga Research said the TM-Axiata merger would create more doubt than confidence whereas analysts preferred Axiata to exit both the India and Singapore markets as they see them as non-performing assets.
The merger between Idea and Vodafone will see Axiata’s stake being diluted to 10% with the merged entity having over 400 million users and a 35% market share of India’s 1.2 billion cellular subscribers.
Earlier Axiata’s head honcho Tan Sri Jamaludin Ibrahim told StarBiz that “we will stay...its so dynamic and it has been our best performer (before), why leave? We know it is extremely competitive, it will balance out and we want to be with our partners in India.”
While Axiata has not said what its next move for Idea would be, the company announced last Friday that it and other substantial shareholders of M1 Ltd, Singapore Press Holdings Ltd and Keppel Telecommunications & Transportation Ltd, were exploring options including a sale in M1 as Singapore gears up for a new entrant into the wireless market, aimed at introducing more competition to drive down rates and increase service quality. Axiata has 28.32% stake in M1.
Kenanga Research remained positive on a disposal in M1, which it believed could potentially drag the company’s future earnings momentum while raising additional cash to reduce the high net debt.
AmInvesmtent Bank estimated that a sale of stakes in M1 and Idea could raise RM7bil cash for Axiata, RM1.8bil from M1 and RM5.1bil from Idea. This could “lead to significant earnings enhancement of 20% to Axiata’s FY18F earnings.”
But Affin Hwang Investment Bank believed Axiata could be raising its stake rather than selling in M1, as being a regional player, Axiata needed to be among the top two players in a country. If true, it could end up with 60% stake in M1.
However, it could also use the money from the sale to pare down debts, which stood at RM22.3bil as at end 2016.
On the TM-Axiata merger reported by StarBiz, some experts said the promoters should leave the companies as they are. TM was demerged in 2008 to create Axiata.
“They will just complicate matters in a highly competitive market as a merger will create a monopoly.
“This will not be healthy for the market as other players have invested billions of ringgit in their infrastructure and rely on TM for the fibre feed.
“A merger will give TM clear advantages, which is not in the spirt of competition,” said an industry observer.
Khazanah has 26.2% and 37.6% stakes in TM and Axiata respectively.
Kenanga Research believed finding synergies would not be too complicated, but remained doubtful that the synergies, besides the usual merger-associated benefits, such as staff, network and marketing rationalisation, could be material enough to create further value to shareholders.
Shares of Axiata gained 11 sen to close at RM5.08 a share, while TM added eight sen to RM6.40 in yesterday.