KUALA LUMPUR: Axiata Group Bhd, the mobile telecommunications company with a presence in eight countries, is expanding into Nepal by acquiring an 80% stake in the number one mobile operator there, Ncell Pte Ltd, for US$1.365bil (RM5.907bil).
Analysts said Axiata caught the market offguard with this announcement after having suspended the stock yesterday morning. Analysts said they were expecting Axiata to make an announcement related to a planned fund-raising exercise at its Indonesian unit.
But the analysts added that they were not entirely surprised by the Nepalese deal as Axiata had been saying that it continuously sought new opportunities and that it would embark on mergers and acquisitions that were “opportunisitic” in nature.
The price tag of buying into the Nepalese telco worked out to an enterprise valuation over earnings before interest, tax, depreciation and amortisation (EV/EBITDA) of five times, Axiata said.
The acquisition could raise Axiata’s gross debt over EBITDA to 2.3 times from 2.0 times.
Axiata, the regional mobile champion with over 260 million subscribers, has signed a conditional sale and purchase agreement with TeliaSonera UTA Holdings BV and SEA Telecom Investments BV for the 100% acquisition of Reynolds Holdings Ltd.
“The acquisition of Reynolds for the purchase price of US$1.365bil plus customary adjustments at closing effectively secures Axiata an 80% equity interest and controlling stake in Ncell,” it said.
Axiata added that Ncell was the number one player in the market with 13 million subscribers, representing 48.8% of the subscriber market share. It is a strong brand in Nepal, providing best-in-class services and customer care.
Ncell has delivered a revenue compounded annual growth rate of 19.9% between financial year 2013 (FY13) and FY15, with an EBITDA margin of 62.2% in FY15. Its return on invested capital was over 70% in FY15.
“The scarcity of a controlling stake and very sizeable, high-quality assets within our target region with a strong number one market leadership position makes Ncell a rare opportunistic asset to come by,” Axiata president and group chief executive officer Datuk Seri Jamaludin Ibrahim said.
“We are also encouraged by the attractive valuation of this acquisition. Its implied trading multiple from the purchase price including a controlling premium is 5.0 times, which is below comparable companies within the region and precedent transactions,” he said.
Jamaludin added that by consolidating Ncell to Axiata’s FY14 pro forma, the new asset would be immediately accretive to the group.
The acquisition will not affect Axiata’s dividend policy.
The move, he added, would contribute 9% to revenue and 19% to profit after tax and minority interest and would make it one of the highest contributors to earnings for the group.
“Ncell’s strong cashflow-generating ability would provide further support to the group’s dividend policy,” he added.
Ncell has a free cash flow of US$217mil and cash balance of US$307mil.
“As with all our investments, we see our entry into Nepal as a long-term strategic move for the group. At the same time, Axiata is also committed to playing a major part in the development of the country by offering high-speed data connectivity and products on par with its economic progress. Being a responsible corporate citizen and major contributor to the country’s economy is key to our long-term vision,” Jamaludin added.
Axiata said Nepal was one of the emerging economies with a steady gross domestic product growth in Asia.
“With a mobile penetration of unique subscribers of 51%, the country has experienced an average mobile subscriber growth of 18% from 2012-2014,” it said.
Ncell has a stronghold of nearly a 57.5% revenue market share and 48.8% subscriber market share in Nepal.
Following the acquisition of Ncell, Axiata would have contiguous presence and reach in five key countries across South Asia.
JP Morgan Malaysia Ltd is the international financial adviser to Axiata while CIMB has been appointed the principal adviser to Axiata for the proposed acquisition.
