Fund raising for edotco and related party transactions. Axiata and edotco have entered into a binding term sheet with Innovation Network Corporation of Japan (INCJ) to raise up to US$400m (RM1.8bn) in a private placement of new edotco shares. At the same time, Axiata will dispose edotco’s shares to Khazanah for US$200m (RM885m). The Proposed Private Placement and Proposed Divestment are separate transactions and are not inter-conditional.

Brief information about edotco. Established in 2012, edotco Group is the first regional and integrated telco infrastructure services company in Asia, providing end-to end solutions in the tower services sector from tower leasing, co-locations, build-to-suit, energy, transmission and operations and maintenance (O&M). edotco operates and manages a regional portfolio of over 25,000 towers across core markets of Malaysia, Myanmar, Bangladesh, Cambodia and Sri Lanka with 17,100 towers directly operated by edotco and a further 8,100 towers managed through a range of services provided.

Capital injection for edotco’s expansion. According to the management, the additional capital injection will provide edotco with the capacity to execute its growth strategies including expansion within Asia via key acquisitions and further in-country organic opportunities.

Details to be finalised by early 2017. Definitive agreements such as percentage of ownership are expected to be signed and finalised by January 2017 with Axiata remaining as majority shareholder of edotco post-transactions.

Financial impact. The proceeds of US$200m from the disposal will be used for Axiata to repay its debts; and is in line with the group’s plan to bring gross debt/EBITDA down to 2.3x from 2.5x. This proposal will not have material impact on Axiata’s financials in the near term; therefore we made no changes to our earnings projections.

Maintain Hold. Maintain Hold with unchanged target price of RM4.70.

Source: BIMB Securities Research - 14 Dec 2016