Axiata to clock RM150mil loss from Idea dilution

• Dilution due to Axiata not participating in Idea preferential share issuance
• Telco likely to divest its entire stake in Idea

AXIATA Group Bhd announced on Feb 13 to Bursa Malaysia that it will be recognising a loss on dilution amounting to RM151.5 million for its 2018 financial year, due to the dilution of its stake in associate company  (Idea).

According to Axiata, its shareholding in the Indian mobile operator has been diluted from 19.7% to 18.1% following its non-participation in Idea’s preferential share issuance.

As highlighted by PublicInvest Research in a report on Feb 14, Idea is India’s third largest wireless operator with around 200 million subscribers. The mobile operator has plans to undertake an INR67.5 billion (US$1.05 billion) capital raising exercise that could involve preferential issuance of Idea shares, institutional placement or rights issue.

“As part of this exercise, Idea has raised INR32.5bn through a preferential share issuance of 326.6 million shares at INR99.50 (US$1.55) per share on Feb 12, 2018. Axiata did not participate in this issuance and as a result, its shareholding in Idea has been diluted by 1.6% to 18.1%,” the research house explained in its report.

Following this dilution, Axiata will recognise the over RM150 million loss, which PublicInvest thinks will result in a drop in its financial year 2018 profit forecast for the telco. However, its core net profit forecast remains unchanged, the research house said.

It noted also that Idea continues to be a loss-making entity due to intense competition in India, following the entry of a new player that disrupted the industry’s landscape. Furthermore, Idea is in the process of completing its proposed merger with Vodafone, which is expected to be completed by the first half of this year.

On March 20, 2017, Idea and Vodafone India announced that their respective boards had approved a merger of the two telcos, which is expected to create the largest telco in India by subscribers and by revenue.

“Post-merger, Axiata’s holding in the merged entity would fall below 10%. Given the insignificant stakeholding and tough business environment in India, we believe Axiata would eventually divest its entire stake in Idea. Moreover, its non-participation in Idea’s cash call exercise may suggest the absence of long-term commitment in Idea’s future growth,” PublicInvest said. 

“At this juncture, we maintain our core earnings forecasts and target price of RM5.60. We reiterate our Neutral call on Axiata,” it concluded.

Axiata bought a 19.96% stake in Idea back in 2009. For its third quarter ended December 31, 2017, Idea posted higher losses of INR12.84 billion (US$199.58 million) saying that a "sharp" cut in call connect charges and "unrelenting" rate pressure hit its earnings.

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