Axiata may take charge on Idea holding

Axiata may take charge on Idea holding

Kuala lumpur: Malaysia’s Axiata Group Bhd is on track to meet its 2010 key performance indicators (KPIs) but it may have to take a charge on the value of its stake in associate Idea Cellular Ltd, its chief executive said.

Jamaludin Ibrahim said he was comfortable with analysts consensus expectations of 15.4 billion ringgit in revenue for 2010.

“We are very much on track. In fact, at least two of the three KPIs we should overachieve," he said. The other two KPIs are Axiata’s Ebitda margin and its return on capital (ROC).

Axiata’s published KPIs for 2010 are a 12.1% on-year increase in revenue, 14.1% increase in Ebitda and 10.7% for its return on capital.

Any impairment of Idea’s holding value was not yet set in stone, Jamaludin said, and the decision will largely depend on Indian regulators.

“We are very comfortable where we are... In principle, we think we might have to review a possible impairment... We would rather be conservative and do some impairment than not do at all," he said.

At the time of the merger in 2008, Idea Cellular’s shares were trading around Rs100 apiece, but fell by more than 40% over the last two years. It has since recovered to trade around the Rs75-rupees mark.

Jamaludin said the market price was not the only consideration adding the implications of Indian regulatory policy were more important.

“The impairment does not have to be in relation to the market price. It is one of the indicators, but doesn’t have to be... is extremely sensitive to many assumptions. I have on my desk today easily 10 possible scenarios. Depending on what happens to the 2G issue, my numbers will change completely," Jamaludin said.

Indian carriers and the industry regulator are in dispute over 2G spectrum fees.

No approach from Etisalat

Jamaludin said that Axiata has not been approached by Abu Dhabi telco Emirates Telecommunications Corp. (Etisalat) on the possibility that it wanted to buy a stake in Idea.

There has been media speculation linking the two.

“They have not spoken to us nor has it been confirmed with our partner," Jamaludin said, adding that he had no objections in principle to Etisalat’s entry.

Etisalat has a long-standing working relationship with Axiata after acquiring a 16 percent stake in XL Axiata (then known as Excelcomindo) in 2007.

While Axiata’s earnings continue to be anchored by Celcom Axiata in Malaysia and Pt XL Axiata Tbk, the more exciting growth story is in the Indian sub-continent.

Axiata’s interests there include its 85 percent-owned Dialog Axiata PLC in Sri Lanka, Robi in Bangladesh and its 20 percent stake in Idea.

None of those companies were expected to overtake Celcom or XL Axiata in terms of contributions over the next five years, Jamaludin said, but said the company’s Indonesian operations may become the group’s biggest contributor.

“We have seen over the last two years an emerging trend, between Celcom and XL. For the first time in the first quarter of this year, XL’s EBITDA is higher than Celcom. That’s an interesting trend," he said.

Axiata posted a 9.5 percent increase in second-quarter profit driven by improved contributions from overseas and said it plans to start dividend payments in 2011.

Axiata shares have risen 49.5 percent this year outperforming a 12 percent rise by Bursa Malaysia’s main index. (Writing by Fong Min Hun; Editing by Muralikumar Anantharaman) REUTERS