KUALA LUMPUR (Feb 2): Axiata Group Bhd, which owns 66.4% of Indonesian operator PT XL Axiata Tbk (XL), intends to fully subscribe to the pro rata rights entitlement under the rights issue announced by XL yesterday.

"XL is integral to Axiata and is a significant contributor to the group. As a committed, long-term investor to XL, our intention to fully subscribe to our pro rata entitlement is a testament we believe in XL's growth potential and are pleased with the progress of its transformation agenda," said Axiata president and group chief executive officer Datuk Seri Jamaludin Ibrahim in a statement today.

The remainder of the rights issue is expected to be fully underwritten.

Jamaludin also said the rights issue to repay its US$500 million shareholder's loan will help XL improve its debt to earnings before interest, tax, depreciation and amortisation (ebitda) ratio.

"(This exercise) will further strengthen XL's balance sheet, giving it enough room to invest for future growth as it embarks on the next chapter of its growth story," he added.

The rights issue is subject to XL shareholders' approval at an extraordinary general meeting on March 10.

XL Axiata's rating is supported by improved operating performance in FY15, Moody's said.

In a separate statement, Moody's Investors Service said XL's financial results for the year ended Dec 31, 2015 (FY15) were in line with expectations and support its Ba1 ratings.

XL saw its revenue for FY15 decline 2.5% to IDR22.9 trillion.

However, its adjusted ebitda rose to IDR12.3 trillion as of FY15 from about IDR11.9 trillion for FY14, and adjusted ebitda margin increased to 54% from 51% during this period, mainly attributed to the company's strategic shift to focus on more profitable subscribers and maintain better cost controls.

Moody's said despite its improvement in FY15, the rating agency expects margins to contract, albeit slightly, in FY16 due to lower revenues from XL's higher margin tower leasing operations post sale of its second tranche of towers, coupled with the increasing proportion of data services revenues.

"The company is also likely to continue facing forex pressures on margins.

"Nonetheless, XL has achieved early success in raising prices, and could gain further traction through management's commitment to focus on higher-average revenue per user customers and prudently priced data packages," said Moody's.

Moody's also noted that XL intends to sell a second tranche of towers through a tender process, which is expected to close by the first quarter of 2016.

"The pending tower sale is viewed as credit positive by Moody's as it allows the company to monetise its non-core tower assets. This will improve the liquidity profile of XL as the company had publicly stated the proceeds were [intended] to pay down debt," it said.

Moody's believes that the current cash on hand of IDR3.3 trillion as of Dec 31, 2015 and expected operating cash flow for the next 12 months of around IDR17.5 trillion will not be sufficient to cover XL's capital expenditure requirements of IDR7.0 trillion, dividend payment of approximately IDR0.5 trillion and debt maturities of IDR4.3 trillion.

However, the cash proceeds from the pending sale of the second tranche of towers in the coming months will help fund the cash requirement, it said.

Shares in Axiata closed up 20 sen or 3.57% at RM5.81 today, giving it a market capitalisation of RM51.2 billion.