Axiata expect growth from India and Indonesia
Filed Under (Business News) by Webmaster on 04-04-2009
Tagged Under : Axiata, growth, India, Indonesia, TMI
AXIATA Group Bhd, formerly known as TM International Bhd, will see growth in 2009 driven by its operations in Indonesia and India, while a steady Celcom (M) Bhd will provide the bedrock for strong cashflow.
“Axiata isn’t just a name change. We are transforming from good to great,” says its president and group CEO Datuk Seri Jamaludin Ibrahim (pic) in an interview with StarBizWeek.
He says by end of this year, Axiata’s debt to earnings before interest, tax, depreciation and amortisation (EBITDA) ratio, a measure of a company’s ability to repay debt, will improve from 4.6 times (x) as of December 2008 to 2.95x post rights issue and further debt repayment.
It will also complete all changes among its board members, management team, operating companies as well as middle management in its operating companies, says Jamaludin, pointing out that major improvements in talent, procurements and processes are even more vital during tough times.
The Indonesian headache
One of Axiata’s growth catalyst going forward will be its Indonesian unit PT Excelcomindo Pratama Tbk (XL), which disappointed in the fourth quarter ended December 2008 when it announced a surprise 15.1 billion rupiah (RM4.63mil) net loss.
During that period, Axiata sank into the red with a net loss of RM515.25mil from a net profit of RM519.91mil in the previous year, as a result of lower contributions from XL, forex losses and negative growth from Sri Lanka’s Dialog Telekom Ltd.
XL is presently the third largest player in Indonesia with a market share of 18%.
Indonesia has been one of the sore points among telco analysts due to its burgeoning fourth quarter losses, huge debts and funding requirements.
Since a high of RM7.85 in April last year, the counter has been on a downhill ride. More recently, it fell to a low of RM2.16 (March 18) when investors balked at the company’s cash call on concerns that it would be earnings dilutive. XL typically requires capital expenditure of some US$600mil to US$700mil annually. Nonetheless, the company only generates operating cashflow of some US$416mil. Hence, there are concerns as to how XL will fund this shortfall.
Furthermore, XL also has a debt obligation of some US$559mil due over the next two years.
“From a funding point of view, we’re in good shape. We can fund all our debt requirements. More importantly, we will be able to meet all the covenants of the banks,” says Jamaludin. He explains that due to XL’s huge expansion in 2008, XL will require a capital expenditure of only US$300mil to US$400mil this year from its typical US$600mil to US$700mil.
“Last year, we spent US$1.25bil on capex, which was a bit of an over-expansion. As such, we have huge capacity this year and don’t have to spend as much,” he says.
As to concerns on XL’s ability to repay its debt of US$559mil over the next two years, Jamaludin says it is exploring the possibility of raising between US$300mil and US$400mil through a bond issue.
“If we really have funding requirements, it can come from other companies within the group, namely Celcom,” says Jamaludin.
Meanwhile, Axiata will also launch its 3G services in India by this year.
Indeed, come June, Axiata will emerge leaner post renounceable rights issue of RM5.25bil.
Addressing debt
Axiata has paid Telekom Malaysia Bhd (TM) RM2bil of the RM4bil owed to the latter arising from the demerger of the companies last year.
The remaining RM2bil owed to TM will be repaid by the end of April in accordance with the terms of the de-merger. The RM4bil is due by April 24. There has been concern over the takeup rate of the cash call, particularly given softer earnings outlook against a challenging environment. Jamaludin says it ought not to be a worry as Axiata’s parent company, Khazanah Nasional Bhd, which owns 44.5%, will subscribe to its entire entitlement under the rights issue and subscribe to an additional 20% in the event of a shortfall.
The rights shares will be offered on the basis of five rights shares for every four existing TMI shares held at RM1.12 per rights share. It goes ex on April 10. KAF Research says the rights issue will increase Axiata’s share base by 125%, allows net interest savings of 2 sen on the enlarged share base and improve net gearing from 108% to 43%. “Our name change to Axiata reflects something bigger. It is our vision to be a regional champion and we improve in terms of size, values processes and the people that we have.”
“Despite the economic slowdown, I will not sacrifice my budget on talent management, and will continue to launch leadership development programmes,” he says.
Focus areas
Jamaludin says there are two main focuses for Axiata. The first is to concentrate on organic growth within the 10 countries it operates in; performance and processes will be coordinated and efficiency raised.
“The second is to be an MNC company. Our benchmarks are the likes of Shell and IBM. For this, we have to bring in people from MNCs. We must have the best. That is why, if you look at our management team, you wouldn’t know whether they come from an MNC or a GLC.”
Jamaludin admits that all the rhetoric in the world will be pointless if none of its subsidiaries see any traction in growth.
“Yes there are challenges. There are risks, as the countries that we are in, are not yet mature. If I sold all our subsidiaries today, I am sure our share price will rise. But over the long term, would that be wise?” he says. – The Star
