30 November 2016
Axiata is looking to sell its 20% stake in Idea Cellular as the Malaysian company believes the Indian telecom provider’s valuation will remain subdued for at least the next three years given the likelihood of a pricing onslaught stemming from the entry of Reliance Jio Infocomm, said three people familiar with the plan.
Formerly Telekom Malaysia, Axiata had originally asked Idea’s parent, the Aditya Birla Group, to buy back the holding but was turned down. The Malaysian company is said to have informally asked investment bankers to seek buyers for the stake. Axiata has passed a board resolution to sell its stake in Idea, said one person, although that couldn’t be independently verified by ET.
“They (Axiata) have the right to sell to any investor and barring a few strategic companies, are welcome to sell to anyone,” said one of the people cited above.
However, buyers for a minority stake in an Indian telecom company may be hard to come by, said an investment banker, adding there may be more interest in a majority stake.
The estimated share value of Idea Cellular on Axiata’s books has been pegged at Rs 155 apiece. That compares with Idea Cellular’s closing price of Rs 79 on Tuesday, down from a record Rs 145 last year.
The Aditya Birla Group owns 42% of Idea while the rest is held by institutional and retail investors. The parent had declined a bid by Axiata to raise its stake from 20% a few years ago. The company has come under competitive pressure in Malaysia with a new entrant selectively offering free services to customers ahead of a launch that could disrupt pricing.
“Axiata can use the cash, or at the very least needs to go back to focus on its home market,” said one of those cited above. “It has no control over what happens to the minority stake.” Spokespersons for Axiata and Idea Cellular declined to comment.
Axiata’s entry into India was a careful one, beginning with an investment in Spice Telecom in 2006. It subsequently backed Idea Cellular’s acquisition of the Punjab-based operator, paying just short of $2 billion in 2008 for its stake.
Idea quickly rose to third place in terms of revenue in 2009, but the Malaysian investor wrote off around $360 million in 2010 as competition intensified and the market got crowded with more than a dozen rivals.
At the same time, Vodafone Plc had written down about $3 billion in its Indian arm.
Idea Cellular is seeking to reposition itself as a data player in response to faster-than-expected 4G adoption. Reliance Jio offering voice services at no cost to customers is likely to hit Idea the worst. Its revenue per data unit has been dropping amid Jio’s free trial service.
Moreover, Idea is expected to be the worst hit among incumbent operators following the demonetisation of Rs 500 and Rs 1,000 notes earlier this month.
“It is the Rs 100-150 recharges that have been hit and the pain will be seen for a quarter,” said a person close to the company.
To be sure, the government has said mobile recharge topups can be paid for in old Rs 500 notes until December 15.
A 2% fall in revenue because of the move could lead to a 4-5% impact on earnings per share, further eroding Idea’s share price in the coming six months, an analyst said.
That could make it even more difficult to find a buyer for the stake, the person said.
CREDIT: Economic Times (India Times), by Deepali Gupta, ET Bureau, India Times