KUALA LUMPUR: CIMB Equities Research has upgraded Axiata Group from Hold to Add and raised the target price by 9% to RM4.80 following Axiata/Telenor’s proposed non-cash merger of their Asia operations under a new entity (MergedCo).

It said on Tuesday the MergedCo will see Axiata, Telenor own a 43.5%/56.5% stake. 

MergedCo will include XL (Indonesia), Digi-Celcom (Malaysia), DTAC (Thailand), Telenor Pakistan and Myanmar, Ncell (Nepal), Smart (Cambodia), Dialog (Sri Lanka) and tower assets, but exclude Robi, Axiata Digital Services (ADS) and Axiata’s investment stake in Idea-Vodafone. 

The plan is to sign a binding agreement (after due diligence) by 3Q19, though there is no certainty of that happening at this stage.

Axiata and Telenor will inject the selected assets into MergedCo in return for shares.

 In Malaysia, Digi would acquire Celcom via a share swap, and thereafter Axiata/Telenor would inject their stakes in Digi-Celcom into MergedCo. 

“Based on our understanding, the plan is to keep the listing status of Digi and its other OpCos (DTAC, XL, Dialog), which suggests that MergedCo will seek mandatory general offer (MGO) waivers from the relevant regulatory authorities. 

“The plan also includes an IPO for MergedCo (dual-listing on Bursa Malaysia and another major stock exchange) and the combined tower business in the next few years. 

Nevertheless, the immediate focus post-transaction will be on integration and extracting synergies from the merger,” CIMB Research said.

It said Axiata and Telenor have left out their Bangladesh operations from this potential deal, as the merger of Grameenphone and Robi could potentially be blocked by the regulators given that their combined revenue market share would be in excess of 80%. 

Axiata Digital Services (ADS), which contains Axiata’s core digital businesses (Boost, ada, Apigate) has also been excluded. 

However, Axiata says ADS and Telenor’s digital businesses in Asia may still be injected into the MergedCo at a later stage.