Axiata Ncell stake sale a positive derisking factor

PETALING JAYA: Following the announcement that Axiata Group Bhd has sold its stake in Ncell Axiata Bhd by disposing of its shares in Reynolds Holdings Ltd, and has exited Nepal, analysts are upbeat on what this may mean for the company.

In a statement last Friday, the local telecommunications and digital conglomerate said it had disposed of its shares to London-based Spectrlite UK Ltd (SSUK) with a fixed consideration of US$50mil, to be paid over four years and a conditional consideration.

The conditional consideration consists of the forward distributions declared by Ncell until 2029, which included net distributions and any windfall gains secured by SSUK.

For the fixed consideration, US$5mil is payable within six months, whilst the remainder is payable after four years.

Kenanga Research said it was neutral on this transaction as Axiata was willing to compromise on valuations and conditions, as long as it would be able to exit the country.

“We believe it is in Axiata’s best interest to dispose of NCell, given untenable conditions and coupled with risks of future legal repercussions. Moreover, Axiata is able to remove the drag from Ncell, which was revealed to be earnings dilutive,” it said.

Kenanga Research added based on Axiata’s earlier indication, Ncell’s estimated fair value on its books amounts to RM378mil.

This includes foreign exchange reserves of RM360mil that fluctuates in accordance with the exchange rate movement between the Nepalese rupee and ringgit.

“Therefore, we believe there is a possibility of Axiata booking a slight disposal gain on this sale,” it said.

To recap, the decision to sell was driven by Axiata’s view that it was unsustainable for Ncell to operate under unfair taxation and regulatory uncertainties in Nepal.

This was underpinned by risks including double taxation on capital gains tax, expropriation of Axiata’s stake by the Nepalese government and the non-renewal of Ncell’s mobile licence following its expiry in 2029.

Kenanga Research said it will maintain its “outperform” call with a lowered target price (TP) of RM3.10 from RM3.55, but will maintain its forecasts.

Maybank Investment Bank (Maybank IB) Research said it will reiterate a “buy” call on Axiata with a lower TP of RM3 from RM3.10, as it views the overall risk-reward as being positive, with sequential net profit recovery and asset monetisation being potential re-rating catalysts.

The research house said the disposal will ensure Axiata is indemnified against existing and future Nepalese tax claims in relation to Ncell.

“Axiata had acquired Reynolds for US$1.37bil in 2016 and settled US$421.9mil in capital gains tax in 2016 to 2020. Ncell was however further assessed in January 2021 for another US$433.6mil, with collection being suspended by an interim court order,” Maybank IB Research said.

It added that the Large Taxpayer Office in Nepal has not withdrawn the assessment despite Axiata’s success with international arbitration, which carries the possibility of an expropriation of Axiata’s stake in Ncell by the government, with Ncell’s mobile licence expiring in 2029.

Meanwhile RHB Research said it has maintained its “buy” call with a lower TP of RM3.03 from RM3.18, as it believes the expeditious sale of Ncell removes a key overhang and addresses the concerns that the group may not be able to find a suitable buyer.

“Axiata remains a key sector laggard from its historical mean. A stronger re-rating should accompany better clarity on its asset delayering and balance sheet deleveraging initiatives,” it said.

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Axiata , Ncell , Kenanga Research


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