Axiata may face selling pressure on RM2.16b tax bill

Kenanga Research said in a report yesterday Axiata

UALA LUMPUR: Axiata Group Bhd's share price may react negatively on news that it and its majority owned subsidiary Ncell Pte Ltd have been ordered by the Nepal Supreme Court to pay capital gains tax of Rs61bil (about RM2.16bil).

In a research note today, PublicInvest research said its core earnings forecast on the group remain unchanged but headline profit could see a sharp decline should Axiata be compelled to pay this capital gains tax in FY19F.

The Himalayan Times had reported yesterday that Axiata had been hit with the tax bill, which excludes late fees and fines, for its US$1.36bil (RM5.87bil) purchase of Reynolds Holdings Ltd, which has  80% stake in Ncell, in 2015.

The publication cited the Nepalese Large Taxpayers Office chief as saying it would only initiate the process of collecting the tax amount once a copy of the tax verdict was received.

As highlighted by the Himalayan Times, the total amount could be Rs66bil although it is believed that Ncell has already paid intalments totaling Rs21bil, leaving an outstanding amount of Rs40-45bil. 

The research house said the news came as a negative surprise as the tax issues with Ncell were thought to have been resolved following the advance deposit payment of Rs13.6bil by Axiata to the Nepalese tax department in 2017.

"Although our core earnings forecasts and Neutral call remain unchanged, we believe share price would react negatively to this news due to uncertainties and the potential downside to headline profit," it said.

PublicInvest added that Axiata is exposed to higher regulatory and investment risks in high-growth developing markets despite their potential contribution to higher core earnings growth.

In its response to news reports, Axiata said in a statement that it is yet to receive the judgment and order of the Supreme Court and is yet to receive any details of the order.

"Ncell, Reynolds, and Axiata UK were given the full clearance by the Large Tax Payers Office of Nepal [LTPO] of its obligations to withhold any CGT payment on behalf of the Seller in relation to the Transaction via the letter from LTPO dated 4 June 2017, following the full and final payment made by Ncell, albeit under protest on the basis that CGT is not applicable on offshore transactions and even if applicable, any shortfall on payment is the responsibility of the Seller," it said.

The group said it would provide further updates upon receiving the order of the Supreme Court.