KUALA LUMPUR (Aug 16): Axiata Group Bhd will recognise a non-cash impairment of RM3.33 billion in the carrying value of its investment in Idea Cellular Ltd,  which is now part of India’s largest telecom company, Vodafone Idea Ltd.

The RM3.33 billion write-down is expected to have a material impact on the group's earnings, earnings per share, net assets (NA) per share and gearing for the financial year ending Dec 31, 2018 (FY18).

This follows the completion of the merger between Idea, Vodafone India Ltd and Vodafone Mobile Services Ltd, whose accounting standards require Axiata to de-recognise and reclassify its investment in Idea from associate to simple investment, as the group’s shareholding in the combined entity is diluted to 8.17% from 16.33%.

In a filing with Bursa Malaysia today, Axiata said the RM3.33 billion figure was arrived at after including the group's initial investment of RM2.17 billion based on Idea’s market value as at Aug 15, 2018, against the deduction of RM5.44 billion from the carrying value of its investment in Idea.

Axiata also announced that it has relinquished its rights to appoint a representative as a board member and to the board audit committee of Idea, as well as the anti-dilution rights, which will also result in Idea being “reclassified as a financial asset measured at fair value through other comprehensive income”. 

For illustrative purposes, assuming the relinquishment of rights and Idea’s reclassification was completed at end-2017, Axiata said it could have resulted in Axiata’s incurring a net loss in FY17 to the tune of RM2.78 billion, from a net profit of RM909.48 million prior to the changes. 

Its gearing — based on FY17 — would also rise to 0.91 times from 0.78 times previously, while its NA would decrease to RM2.33 per share, a reduction of 40 sen from RM2.73 per share prior to its stake reduction in Idea.

Axiata shares closed 9 sen or 2.06% lower at RM4.29 today, bringing a market capitalisation of RM39.73 billion.