Axiata buys into Axis Telekom

Axiata buys into Axis Telekom
Business & Markets 2013
Written by Shalini Kumar of theedgemalaysia.com
Friday, 27 September 2013 09:51

KUALA LUMPUR: Axiata Group Bhd is expanding its foothold into Indonesia as its subsidiary, PT XL Axiata Tbk (XL), entered into a US$865 million (RM2.78 billion) deal to acquire rival PT Axis Telekom Indonesia.

The acquisition will expand the group’s total subscribers in Indonesia to over 65 million from 54 million, making XL the second largest mobile operator in the country after Telkomsel, with 120 million subscribers.

XL, of which Axiata controls 66.5%, entered into an agreement with Saudi Telecom Co and its wholly-owned subsidiary Teleglobal Investments BV to acquire the entire issued share capital of PT Axis Telekom Indonesia.

In a Bursa Malaysia filing yesterday, Axiata said the acquisition cost a total of US$100 and would be paid in cash. In addition, XL will procure the repayment of about US$865 million of Axis’ indebtedness.

“Under the sale and purchase agreement, Teleglobal will sell [or procure the sale] of the entire issued share capital of Axis,” said Axiata in its filing to Bursa.

“On completion, 95% of the acquisition shares will be held by XL and 5% will be held by a local Indonesian shareholder. All other amounts owing by Axis in excess of the indebtedness, with the exception of working capital, shall be settled by Teleglobal prior to closing,” it said.

In explaining the rationale for the acquisition, Axiata said it was a spectrum-driven asset acquisition.

“The consolidated XL group is expected to have spectrum parity, in particular enhanced and compatible spectrum in the 1,800 MHz bandwidth. This will lead to improvements in the quality of XL’s 2G and 3G services. This acquisition will provide significant benefits to customers and all stakeholders,” it said in the filing.

Axiata CEO Datuk Seri Jamaludin Ibrahim said in a statement that the group is fully supportive of the transaction.

“We are confident we can successfully execute the integration as we did with Hello and Smart in Cambodia as well as Suntel and Dialog in Sri Lanka. Both acquisitions saw a smooth and successful integration both strategically and financially,” he said.

TA Securities said the acquisition would make XL the second largest telco operator in Indonesia, overtaking Indosat, but significantly behind market leader Telkomsel.

The research house said XL would not be able to recognise immediately capital expenditure savings from the acquisition of Axis’ 3G 2.1GHz spectrum, as XL’s 3G capacity is currently underutilised at a mere 30%.

“Therefore, an additional 2.1GHz capacity will result in excess spectrum for XL that is not value accretive in the immediate term. Nevertheless, XL is able to recognise immediate capital expenditure (capex) savings of 50% on 2G investments upon the takeover of Axis’ spectrum,” it said.

TA Securities said XL would continue with its long-term strategy to focus on data services as its main earnings driver.

“Moving forward, XL intends to stand out from its competitors via premium data services with the best data experience. In addition, XL also plans to enlarge its data footprint driven by demand, and therefore, may potentially build or lease new base transceiver stations outside Java island,” it said.

The research house said the acquisition would lead to improved margins over the longer term, but despite efforts to enhance the data network infrastructure, XL’s capex spend had peaked in the 2012 financial year (FY12).

“Management maintained its capex guidance of eight trillion rupiah (RM2.2 billion) to nine trillion rupiah in FY13, but alluded that the final amount would likely end up at the lower range. Therefore, the combination of tapering capex, rationalising competition, accelerating data traffic and rising penetration of smartphones will ultimately lead to improved margins over the longer term,” said TA.

The research house revised its target price upwards for Axiata to RM8.39 and maintained its “buy” recommendation.


This article first appeared in The Edge Financial Daily, on September 27, 2013.