April 18, 2017 9:00 pm JST

Malaysia's Retirement Fund to buy stake in Axiata's tower unit for $100 million

KUALA LUMPUR (Nikkei Markets) - Axiata Group, Malaysia's biggest telecom company by revenue, said Tuesday state-run Retirement Fund Inc has agreed to buy a stake in its tower infrastructure unit edotco Group for $100 million.

The pension fund, which manages assets worth over 124 billion ringgit on behalf of Malaysian civil servants, will now join state investment arm Khazanah Nasional and Innovation Network Corporation of Japan as major shareholders of one of the world's largest tower companies.

"edotco now has the advantage of funding flexibility as well as the balance sheet capacity to continue to grow the business confidently and capitalize on potential acquisition opportunities," said edotco Chief Executive Suresh Sidhu.

Retirement Fund Inc, also known as KWAP, will buy 136.63 million shares in a deal that values edotco at $1.5 billion, Axiata said in an exchange filing. At close, KWAP, Khazanah, and INCJ will collectively hold 37.6% in edotco with Axiata remaining as largest shareholder with a 62.4% stake.

The KWAP deal will help the company raise a total of $700 million by privately placing its shares, $100 million more than Axiata's initial aim. edotco owns and manages telecom towers in Malaysia, Cambodia, Myanmar, Bangladesh, Sri Lanka, and Pakistan.

"We have been very impressed by edotco's rapid growth in the past five years, and would like to be part of its growth journey," said KWAP Chief Executive Wan Kamaruzaman Ahmad.

Analysts said the stake sale to KWAP would give edotco another anchor investor if the company pushes ahead with an initial public offering.

"edotco has enough large investors and enough towers for a potential listing exercise, but it still needs to be more convincing in terms of its track record of profitability and plans for expansion," said Lee Cherng Wee, an analyst at brokerage JF Apex Securities.

Axiata had earlier flagged a possibility of unlocking the value of its tower and infrastructure assets through an IPO and had said such an exercise could happen any time after late-2018. However, it wants to maintain at least 50% stake in edotco "in the foreseeable future" and retain management control.

For KWAP, the second largest pension fund in Malaysia, the investment in edotco dovetails with the fund's plan to boost investments in private equity.

"Domestic private equity has been an area of growth and on a trajectory to provide attractive investment income to the fund in recent years and we would like to continue building our portfolio in this area," Wan Kamaruzaman said. "The target is to allocate 3% of our assets in private equity by 2020."

Shares of Axiata rose 0.2% to 5.09 ringgit on Tuesday while the benchmark FTSE Bursa Malaysia KLCI ended 0.4% higher.

--Jason Ng and Gho Chee Yuan

--Nikkei Markets is a real-time financial news service for South East Asia's markets published by Nikkei NewsRise Asia Pte Ltd, a Nikkei and NewsRise joint venture company. Nikkei Markets provides wide companies coverage in the region, including the Nikkei's Asia300 companies.
Asia300

Axiata Group Bhd.

Malaysia

Market(Ticker): KLS(6888)
Sector:
Industry:
Communications
Wireless Telecommunications
Market cap(USD): 10,332.22M
Shares: 8,974.02M

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