This article first appeared in The Edge Financial Daily on January 3, 2019
KUALA LUMPUR: Having recently acquired 325 telecommunications towers in Cambodia, edotco Group Sdn Bhd is still hot on the acquisition trail as it chases its goal of becoming the world’s fifth largest tower company (towerco) by 2020.
The growth focus of Axiata Group Bhd’s subsidiary will be on the six countries where it already has a presence — Malaysia, Myanmar, Cambodia, Bangladesh, Sri Lanka, and Pakistan — and Southeast Asia.
“We hope we will announce at least one or two deals in 2019. For example, we are currently exploring the Philippines, where the government has indicated they want to have towerco operators,” edotco CEO Suresh Sidhu told The Edge Financial Daily in an interview recently.
“We have people working on business development there, working with the government, trying to see whether we can enter or not. The countries of interest also include Thailand and the rest of Indochina. These are probably the areas we would be most interested in.”
edotco’s largest shareholder telco, Axiata Group Bhd, owns 63% of the company, followed by Innovation Network Corp of Japan (21.14%), Khazanah Nasional Bhd (10.57%), and Retirement Fund Inc or KWAP (5.29%).
“(Our) first priority of growth is always with the six countries, and that includes not just organic build-to-suit, but also includes acquiring towers from other parties, whether small or large,” Suresh said.
Last week, edotco announced its acquisition of 325 telecom towers in Cambodia from South East Asia Telecom (Cambodia) Co Ltd (Seatel Cambodia). Without disclosing the acquisition price, edotco said the deal was recently approved by the Telecommunication Regulator of Cambodia, and would allow the group to draw on the Cambodian market’s increasing demand for increased network capacity and speed owing to the steady growth of 4G mobile networks in the country.
Suresh assured edotco would not rush into any mergers and acquisitions (M&A) just to achieve the group’s vision of being the world’s fifth largest towerco — a status which would require a portfolio of about 40,000 towers at today’s standards.
Edotco will have its work cut out given it only owns 17,791 towers as at third quarter ended Sept 30, 2018 (3QFY18). Its September termination of a plan to acquire 13,000 towers in Pakistan from Pakistan Mobile Communications Ltd in a deal valued at the time it was proposed in August 2017, at some US$940 million, is a big setback.
Shrugging off the letdown, Suresh maintains: “We would rather ensure a stronger and sustainable portfolio. We are somewhere just outside (the) top 10. Next year, organically, we expect to go past the 20,000-tower mark, but we hope with M&A, we can push the numbers up. Top five is around 40,000 towers, it won’t happen [to us] next year, unless there is a big deal.
Axiata president and group chief executive officer Tan Sri Jamaludin Ibrahim revealed to The Edge in a recent interview that the cancellation was due to uncertainties arising from changes of leadership at Pakistan Telecommunication Authority.
Suresh, who has been leading edotco since August 2014, said the company prefers to take a prudent approach when uncertainties arise.
“When things are not 100% clear, you should always take a prudent approach and not force the deal through. That said, Pakistan is still a key market. We are very keen, and we have done quite well, as we recently got one big order from one of the mobile network operators to build up 300 sites, so it is still a good market.”
Notwithstanding the cancellation of the Pakistan deal, Suresh said 2018 was still a good year for edotco based on its organic growth.
“I think there has been a bit of good revenue growth, and we should expect the same low-double digits year-on-year (growth) in 2018.”
“Ebitda (earnings before interest, tax, depreciation and amortisation) this year is flat, but I think next year should be double digits as well. Main reason for that is there were some provisions we have to make, due to some past clean up,” he said.
For the cumulative nine months ended Sept 30, 2018, edotco’s revenue grew 13.5% y-o-y to RM1.29 billion, while Ebitda declined marginally by 1.17% to RM509 million.
Suresh maintained there has been much progress since edotco was carved out of Axiata five years ago and allowed to be an independent towerco.
“We feel (the) market and industry have got used to the concept of tower-sharing in all the countries we are in, and edotco is probably the leading party in all those countries, and seen as a fair, independent partner.”
“When we started, the proportion of non-Axiata was below 20%. I believe we have done a good job in demonstrating ethics and independence,” Suresh said.