Axiata rises as Telenor merger on track

Discussions are on track and there are no significant changes to the preliminary details revealed in May, says group CEO


AXIATA Group Bhd’s share price rose 0.6% after the telecommunication giant denied speculations that the proposed merger with Telenor ASA’s Asian operations would fall through.

The telecommunications company (telco), which is in the process to ink one of the largest corporate deals in the country’s history, also reported stronger quarterly earnings for the April through June period.

The company’s share price climbed from a low of RM4.30 in May this year to a high of RM5.28 at the end of July, boosted by the proposed merger deal.

Axiata president and group CEO Tan Sri Jamaludin Ibrahim (picture) said discussions are on track and there are no significant changes to the preliminary details revealed in May.

“The discussion is still ongoing. When we announced in early May, we said the agreement might take three to six months which will be by early November. In that respect, we are on track.

“It’s not as fast as most people think it should happen but it’s still within the range of what we expected. So, it does not reflect any problems. It just reflects that there is a lot to be discussed,” he said on the telecommunication group’s financial results in Kuala Lumpur yesterday.

Several reports suggested that the merger of among the two largest telecommunication giants in the region had hit a snag and could fall through.

Jamaludin, who is “optimistic” on taking the deal across the line, said about 70% of the due diligence works have been completed.

Axiata and Norway-based Telenor in May said they intended to combine their Asian operations to create an international merged company (MergedCo).

The merger was intended to address rising data monetisation cost, heightened competition and the need to increase capital expenditure (capex) in a sector which was experiencing flat revenue.

“There’s no stumbling block per se, but there are areas we need to agree on. This deal involves 14 entities across nine countries, so you can imagine how big and complex this is.

“Most deals also centre on the commercial aspect, (but) our deal involves — equally important — national interest and staff interest. That’s why there are a lot of terms to be agreed upon,” Jamaludin said.

Under the proposed deal, which also involves plans to merge Axiata’s Celcom Axiata Bhd and Telenor’s Digi.Com Bhd into the country’s largest mobile operator, Telenor will own 56.5% of the MergedCo due to its larger asset size, while Axiata will hold 43.5%.

Both Axiata, which is majority-owned by Khazanah Nasional Bhd, and Telenor had said the merger would not result in job losses.

Telenor had also said there would be representatives on the board of the MergedCo that reflected the shareholding.

Axiata will have the right to appoint the chairman and Telenor will have the right to appoint the CEO.

Despite the complexity of the deal, Jamaludin said there would be “generally, no change” to the “overall agreement in principle” announced in May.

“No major significant changes. If at all, perhaps something we want, even better than what we have initially discussed,” he said, adding that there would be “no retrenchment, period”.

Axiata posted a net profit of RM204.09 million in the second quarter ended June 30, 2019 (2Q19), versus a net loss of RM3.36 billion a year ago, attributed to operational improvements across most of its markets and the absence of losses from investment in India.

Revenue rose 4.8% to RM6.15 billion in 2Q19 from RM5.87 billion last year on better performances in all operating markets apart from Malaysia and Nepal.

Earnings before interest, tax, depreciation and amortisation (Ebitda) climbed 13.1% to RM2.3 billion on higher revenue and cost efficiencies. Ebitda margin was at 38.1%.

In Malaysia, revenue fell 8.3% year-on-year to RM1.66 billion amid a “subdued industry environment”, although Ebitda rose 43.5% to RM710.1 million with an Ebitda margin of 42.7%.

“We don’t think it’s going to get worse than what it is today but we don’t think it’s going to get a lot better. The industry is highly saturated,” Jamaludin said.

The company’s focus is on reducing Celcom’s network operating costs, which are currently higher compared to the industry, he added.

The telco said it’s likely to exceed its headline key performance indicators (KPIs) for Ebitda growth and return on invested capital, which were initially targeted to range between 5% to 8% and 5.2% to 5.6% respectively for the financial year ending Dec 31, 2019 (FY19).

Headline KPI growth for revenue in FY19 is maintained at a target of 3% to 4%, while capex is likely to remain below the guided RM6.8 billion due to ongoing capex rationalisation. The group has proposed a dividend of five sen per share for FY19.