Axiata, edotco on track to unlock shareholders’ value with agreement signing
KUCHING: Axiata Group Bhd (Axiata) and wholly-owned subsidiary edotco Group Sdn Bhd (edotco) are on track to unlock shareholders’ value with the recent signing of definitive agreements.
In a media release on Bursa Malaysia, Axiata and edotco announced the signing of definitive agreements of the group’s record equity private placement deal of US$600 million with Innovation Network Corporation of Japan (INCJ) and Khazanah Nasional Bhd ( Khazanah) for primary and secondary edotco shares, respectively.
“As the largest 2016 placement exercise in the tower sector announced on December 13, 2016, the transaction is expected to close by end January 2017,” Axiata said.
“Based on edotco’s portfolio at close, the maximum committed placement of US$400 million from INCJ and US$200 million from Khazanah would result in the new investors collectively owning 34.1 per cent of edotco, with Axiata remaining the majority shareholder at 65.9 per cent.”
Management had highlighted in its announcement that this private placement, as concluded by the investors, values edotco’s final portfolio at equity value of close to US$ 1.5 billion and an enterprise value of financial year 2016 (FY16) earnings before interest, tax, depreciation and amortisation (EBITDA) multiple of 12.5-fold, which the research arm of Kenanga Investment Bank Bhd (Kenanga Research) believed was fair and comparable to regional peers.
“The final portfolio takes into account the potential injection of tower assets in Cambodia and Sri Lanka at a later date with a resultant increase in Axiata’s shareholding in edotco.
“The valuation was arrived based on a competitive process which included several other international and domestic parties,” the group added.
According to Kenanga Research, the deal comes at a time when Axiata is considering an initial public offering of edotco in 2018 to unlock the value of the group’s tower and infrastructure assets.
The research arm noted that the cost of investment of the sale shares is approximately RM273.3 million, according to management, thus implying a disposal gain of RM2.4 billion.
The proceeds from the share placement is set to fund edotco’s growth strategies – including expansion within Asia via key acquisitions and further incountry organic opportunities – as well as repayment of borrowings and for working capital purposes.
“This is not a surprise as edotco has expressed intention to become one of the top five global towercos,” it said.
“The group needs to acquire an additional 10,000 tower to anchor among the top 10 or additional 15,000 to 20,000 towers to reach the global top five position.”
All in, Kenanga Reseasrch made no changes to its Axiata’s financial year 2016/2017 estimate (FY16E/ FY17E) earnings forecasts for now, pending the upcoming results release.
Kenanga Research also reiterated its Axiata’s target price at RM4.81 per share, based on an unchanged targeted FY17E EV/forward EBITDA of 6.6-fold, representing an unchanged -1.5fold standard deviation (SD) below the stock’s two-year mean.
The research arm maintained ‘market perform’ on Axiata as the share price has rebounded from its low recently, thus providing limited upside from here.