XL Axiata, Indonesia’s second-largest mobile operator, has agreed to acquire smaller rival Axis Telekom for a symbolic cash consideration of US$100 plus the assumption of US$865m in debt.
The consideration will be financed using funds generated by XL,…
XL Axiata, Indonesia’s second-largest mobile operator, has agreed to acquire smaller rival Axis Telekom for a symbolic cash consideration of US$100 plus the assumption of US$865m in debt.
The consideration will be financed using funds generated by XL, a shareholder loan from Axiata and borrowings.
The deal, which has been in the pipeline for the past months, will see XL Axiata, 66.5%-owned by Malaysian giant Axiata, buy 95% of the Saudi Telecom (STC)-held operator. The remaining 5% will be owned by a local Indonesian shareholder in line with local regulations.
STC, which has an 80.1% direct stake in Axis, decided in July to sell the company because of its poor performance. After reclassifying its investment in the unit as “held-for-sale” in Q2, the Saudi operator “re-measured the net assets related to the investment at fair value and recognised a realised loss of SR705m [US$188m]” as of 30 June.
A medium-sized carrier, Axis operates in a highly competitive mobile market, home to 10 companies. The transaction could help trigger further consolidation, encouraged by local authorities. Even before a deal was agreed, XL Axiata had received approval in principle from the communication ministry.
The merger will give XL Axiata the mobile spectrum it needs to expand in Indonesia. In an announcement to the local stock exchange, the operator said “the consolidated XL group post closing is expected to have spectrum parity, in particular enhanced and compatible spectrum in the 1800 MHz bandwidth. This would lead to improvements in the quality of XL’s 2G and 3G services.”
XL Axiata, which expects to have 65 million customers post merger, was advised by Merrill Lynch on the deal. Axiata mandated CIMB for the proposed acquisition. Earlier reports suggested that Lazard has been advising STC.
The transaction, subject to regulatory approval, is scheduled to complete by 31 March 2014.
US$1.2bn loan dispute to be solved
In separate announcements, both Axiata and STC said that Axis debts with its lenders and vendors will be settled. These include a US$1.2bn shariah-compliant loan secured by Axis in 2011 to buy equipments.
In mid-August it was suggested that several banks, including Deutsche Bank, HSBC, Citi and China Development Bank, were hesitant about restructuring the US$1.2bn loan as they feared losses of up to US$600m.
Earlier this year, the Indonesian operator breached some of the loan’s terms, because of declining performance, and therefore asked lenders to restructure the facility in order to reflect its true value of US$600m-US$800m. It mandated Moelis to help it in the negotiations.
Most of the sale proceeds are now expected to go towards refinancing the US$1.2bn loan.
