This article first appeared in The Edge Financial Daily on May 24, 2018

KUALA LUMPUR: Axiata Group Bhd will likely recognise a technical impairment of between RM2 billion and RM3 billion once the merger between its Indian associate, Idea Cellular Ltd, and Vodafone plc is completed.

The merger will likely happen in the second quarter of this year, pending two regulatory approvals, according to Axiata president and group chief executive officer Tan Sri Jamaludin Ibrahim.

“Due to the technical impairment, and if the ringgit is still strong, it will be tough. We are cautiously optimistic. We are still doing well in most of our companies,” he told reporters when asked about the group’s outlook for the year ahead after Axiata’s annual general meeting here yesterday.

He also assured that the impairment is non-cash and will not impact the group’s normalised earnings or dividend-paying ability.

Axiata announced on Tuesday that it had slipped into the red in the first quarter ended March 31, 2018 (1QFY18), with a net loss of RM147.41 million versus a net profit of RM239.02 million a year ago, due to a higher share of losses from Idea (RM124.3 million). Excluding Idea’s impact, the group said its net profit would have been up 34.6% or RM386.9 million.

Its quarterly revenue was down 2.3% year-on-year to RM5.75 billion from RM5.88 billion, due to foreign exchange translation impact as the ringgit strengthened significantly against all operating companies’ regional currencies.

A day after the 1QFY18 results announcement, Axiata shares fell 64 sen or 12.62% to RM4.43, trimming its market capitalisation to RM39.91 billion.

Meanwhile, Jamaludin said the group is “very confident” that its investment in the loss-making Idea will turn around in two to three years, on the back of more rational competition in India’s telco scene following a period of intense competition brought on by rival Reliance Jio Infocomm Ltd with some US$33 billion (RM131.34 billion) investments.

“The next one year will still be a challenge for India. We are very confident of the turnaround but not in the short term,” Jamaludin said, adding India’s 1.2 billion population and annual industry revenue of US$30 billion make it an attractive market in the medium to long term.

Post-merger, Axiata’s stake in Idea is expected to reduce to around 8% from 16% currently. “This will result in the reclassification of Idea from affiliate to a pure investment,” he added.

Axiata is hoping to seal one or two large acquisitions related to the telco tower infrastructure business, to help push the group upwards in the tower infrastructure space to the fifth spot by 2021 from No 8 currently, said Jamaludin.

“The plan is to be among the fifth-largest in the world from [its]  eighth [spot] currently. We plan to grow the company aggressively, organically and inorganically,” he said.

Including a recently-concluded US$940 million telco tower deal in Pakistan, Jamaludin said, “Axiata has done three large deals so far. Maybe a small one is coming this year, and one or two more big deals coming later.”

Jamaludin said Axiata has not set a specific deadline to complete the said acquisitions, which will be within Asean and South Asian regions. It is looking for firms that have bright industry growth.

Currently, Axiata’s telco tower infrastructure business is managed by its wholly-owned edotco Group Sdn Bhd, which operates a portfolio of 40,000 towers across Malaysia, Sri Lanka, Bangladesh, Cambodia, Pakistan and Myanmar.

Last week, Axiata said edotco had secured approval to raise funds from Pakistani lenders to complete the US$940 million acquisition of 13,000 tower assets from Deodar Pte Ltd.

On valuation, Jamaludin said independent advisers had appraised edotco at US$1.9 billion, and that edotco is weighing its option on whether to pursue a bourse listing via an initial public offering (IPO), or placements.

“It (edotco) might or might not necessarily pursue an IPO route. Last month, we talked to the bankers and asked them how to fund this huge growth. We are getting the necessary advice,” he said.

“Until then, I can’t say if we will get to the IPO track, and if we do, I cannot even say when. But we are seriously looking at all alternatives”.