State-controlled telco giant Axiata revealed yesterday it will take a minority stake in a merger of Asian operations with Norwegian counterpart Telenor, in a huge deal expected to unlock the value of the Malaysian firm's extensive holdings in the region.
The merged entity will be the largest telco in South and South-east Asia, with a combined revenue and profit of RM50 billion (S$16.4 billion) and RM20 billion, respectively. It will serve 300 million mobile customers in nine markets.
"The proposed transaction has the potential to deliver up to around RM20 billion incremental value in synergies," a media statement said.
In Malaysia, Axiata's wholly-owned Celcom and DiGi, 49-per cent owned by Telenor, will control more than half of the mobile market when merged.
Both Axiata and Telenor's Malaysian-listed entities were suspended from trading yesterday ahead of the announcement, which came three months after Axiata offloaded its stake in Singapore's M1 to a Singapore Press Holdings and Keppel consortium.
Axiata, whose largest shareholder is Malaysia's sovereign wealth fund Khazanah Nasional, has a wider Asian footprint although both companies operate in Malaysia, Thailand, Myanmar, Bangladesh and Pakistan.
But the Malaysian firm, which boasts a market capitalisation of nearly RM40 billion, will have only a 43.5 per cent stake in the merged entity, according to the media release. It added that Robi in Bangladesh will continue to be managed independently by Axiata.
Telenor will gain a presence in Cambodia and Sri Lanka, but executives familiar with the deal said the prized jewel is mobile service provider XL in Indonesia, a huge market that is set for major growth.
Grameenphone, a joint venture between Telenor and Grameen Telecom, is already the top mobile company in Bangladesh, and sources say Axiata will look to offload Robi.
Axiata's largest shareholders are Khazanah, savings fund Permo-dalan Nasional Berhad and the Employees' Provident Fund, all controlled by the government.
Analysts believe the deal will suit Khazanah despite Axiata not controlling the new entity.
AmInvestment analyst Alex Goh said Axiata's weakened share price should draw closer to the actual value of its assets, thanks to "Telenor's proven track record".
Khazanah's new management, installed after Pakatan Harapan came into power last year, has focused on increasing its dividend contributions to state coffers as the government aims to trim more than RM1 trillion in liabilities which it says it inherited from the previous administration.
Last November, it divested a 16 per cent stake in healthcare group IHH for RM8.4 billion.
"Telenor sold its east European operations last year so it can focus on growth markets in Asia," said a financial executive familiar with the deal. "It has a lot of capital to deploy and the Malaysian government want more dividends from Khazanah. So the partnership works."
Although the deal is still termed a "proposal", Axiata chief executive Jamaludin Ibrahim confirmed yesterday that Khazanah has given the green light for it.
The announcement, surprisingly, did not exclude Axiata's troubled Ncell, which is in dispute with the Nepalese government over RM1.45 billion in capital gains tax.
Axiata's returns trail behind others in the Khazanah stable, contributing 2.7 per cent annually on invested capital between 2004 and 2017, against 9.9 per cent or higher at six other major listed companies.
It was also the heaviest hit by a slump on the Malaysian bourse last year, shedding RM5 billion in value, in part due to a RM3.3 billion write-off in the Indian cellular market in August, an investment that saw a RM1.1 billion impairment in 2011.