June 19, 2017 7:55 pm JST

Maxis aims to raise up to $403.9 million via new share sale

KUALA LUMPUR (Nikkei Markets) - Maxis, Malaysia's second-largest mobile telecom company by revenue, said Monday it is selling 300 million new shares that could raise up to 1.725 billion ringgit ($403.9 million) in a bid to boost its finances.

The shares are being marketed at between 5.52 ringgit and 5.75 ringgit apiece, representing a discount of between 2.2% and 6.1% to its last closing price on Friday, a term sheet reviewed by Nikkei Markets show. Shares of Maxis were suspended from trading on Monday and last traded at 5.88 ringgit apiece.

"The company is proposing the equity fund-raising exercise to strengthen financial position by reducing part of the existing borrowings," Maxis said in an exchange filing. "The benefits of this will include enhanced cash flows, liquidity, interest costs savings and improved gearing levels."

Placement of the shares, equivalent to about 4.0% of its existing equity capital, follows Maxis' first quarterly net profit decline in nearly two years as operating costs rose amid depleting customer base and ballooning debt.

Maxis has guided for this year service revenue, absolute earnings before interest, tax, depreciation and amortization, or EBITDA, and base capital expenditure to remain at levels similar to 2016. The company booked 8.46 billion ringgit in service revenue and 4.55 billion ringgit in EBITDA, while it spent about 1.19 billion ringgit last year.

Maxis said the share placement will also "create financial flexibility to fund its future spectrum assignment fees, expansion plans and its growth strategy should opportunities arise."

"Additional cash from the fundraising exercise will result in interest savings of about 70 million ringgit per annum," estimates Thong Pak Leng, an analyst at BIMB Research. "Net gearing will be reduced to 1.2 times from 1.9 times," he added.

Analysts said shares of Maxis will likely come under pressure in the near-term due to earnings dilution following the share placement.

"I expect Maxis' share price to see correction and may fall to the indicative issue price level," said Hong Leong Investment Bank's analyst Tan J. Young. "Having said that, the stock still offers a decent dividend yield of 3.5% following the corporate proposal."

Maxis said the deal is expected to be completed by July. Books will close at any time at the discretion of the book runners - CIMB Investment Bank and Credit Suisse - the term sheet said.

The indicative issue price "reflects the weak sentiment of the telecommunication sector in view of high capital expenditure and challenging operating environment ahead," said Kenanga Investment Bank's analyst Cheow Ming Liang.

Mobile penetration in Malaysia is high at over 100% and more than half of the subscribers own a smartphone. The industry has typically been highly profitable with Axiata Group, Maxis, and DiGi.Com each commanding about a third of the total mobile subscriptions and operating on 36%-52% profit margin.

However, in the recent past, Malaysian telecommunication companies have been facing pressure due to escalating cost and intensifying competition. Axiata Group, Malaysia's largest telecom company by revenue, slashed its dividend after swinging to a net loss in the fourth quarter last year--and warned of tougher times ahead.

Shares of Maxis will resume trading on Tuesday.

--Jason Ng and Gho Chee Yuan

Asia300

Maxis Bhd.

Malaysia

Market(Ticker): KLS(6012)
Sector:
Industry:
Communications
Major Telecommunications
Market cap(USD): 9,785.00M
Shares: 7,510.51M

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