Axiata may incur RM3b impairment loss on India’s Idea
PublicInvest estimates potential impairment of about RM3b
THE imminent impairment of Axiata Group Bhd’s investment in India’s Idea Cellular is expected to weigh on the group’s shares.
Public Investment Bank Bhd (PublicInvest) analysts had estimated a potential impairment of about RM3 billion as Idea’s market price had fallen below Axiata’s carrying value.
However, they said the impairment would be treated as noncore and had no cash flow impact. Therefore, PublicInvest kept Axiata’s normalised profit forecast for financial year 2018 intact.
PublicInvest said there could be a downside bias to Axiata’s current share price although it maintained its “neutral” call on the stock with a target price of RM5.
Axiata rose 1.14 per cent, or six sen, to RM4.33 on Friday.
The company announced that Idea’s merger with Vodafone India had been approved by the Indian authorities on Friday. This paved way for the merged entity to become India’s largest and one of the world’s biggest telcos.
Together, Vodafone Idea will serve a customer base of 440 million, representing 39 per cent of the total market share while its revenue market share is estimated to be at 37.5 per cent. Revenue is forecast to be in excess of US$10 billion (RM40.6 billion).
In its statement on Friday, Axiata said the merger of equals between Vodafone India and Idea, first announced in March last year, would dilute the group’s stake at completion to below 10 per cent from about 20 per cent initially.
The group said at the completion of the merger, accounting standards had required it to derecognise and reclassify its investment in Idea from associate to simple investment, as the group’s shareholding in the combined entity was diluted to 8.17 per cent.
“According to Malaysian Financial Reporting Standards, there will be a technical non-cash accounting adjustment of RM1.5 billion to RM3 billion based on the share price at the point of the reclassification date and not based on the forecast price that would normally be used in an impairment valuation.
“This accounting treatment will be captured in the group’s second-quarter unaudited accounts. The reclassification date and, therefore, the exact technical impairment, will be known on the final completion of the merger, which is expected to be within next month,” said Axiata.
The group said as it was purely a non-cash technical treatment, the exercise did not have any impact on its underlying performance and cash position.
Its cash balance stood at RM5.7 billion as of end-March, with debts well within covenant.
“It will not be a factor to impact Axiata’s dividend policy and payment for this year. Additionally, the reclassification also signifies that Idea’s profit or losses will bear no further impact to the group’s financials going forward,” Axiata added.