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Nikkei Markets

Mitsui to buy strategic stake in Axiata's digital business

Investment to fund growth of digital services of $500m enterprise value

Axiata is among the largest telecom companies in Asia with some 150 million subscribers in Southeast Asia and South Asia.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysia's Axiata Group said Friday Japanese conglomerate Mitsui & Co is making minority investment into its digital services arm that prices the business at an enterprise value of $500 million.

Axiata Digital's businesses include Boost, an electronic wallet service in Malaysia and Indonesia; ada, an independent digital marketing agency; and Apigate, an application programming interface platform company.

"Mitsui will become a strategic shareholder and business partner" at Axiata Digital Services' core businesses, according to a company statement. The investment amount wasn't disclosed, but Axiata Digital said funds raised will fuel next phase of growth for its core businesses.

Analysts said the deal will help set a value to Axiata Group's digital businesses that may be either loss-making or generating little or no revenue when growth prospects remain blurry.

"It's a sort of recognition," said J.F. Apex Securities' Analyst Lee Cherng Wee. "These start-ups can be hard to value."

Axiata is among the largest telecom companies in Asia with some 150 million subscribers in Southeast Asia and South Asia. However, the company has been shedding non-core assets as it sharpened focus on key operating markets such as Indonesia and Malaysia, and its nascent digital businesses.

Axiata Digital was established in 2013 and has to-date invested in 30 brands in businesses ranging from financial services to digital advertising. After cumulative investment of $244 million, the unit has since been reorganized into three core businesses.

"We are targeting our digital businesses to be profitable by 2022," Axiata Group Chief Executive Jamaludin Ibrahim said at a news conference. The first unit expected to turn in a profit would be ada, followed by Apigate and Boost, he said.

Mitsui's investment comes hot on the heels of an investment by Pegasus 7 Ventures, a fund managed by Gordian Capital that valued Axiata Digital's digital venture assets at $140 million. Apart from the three core units, Axiata will transfer the rest of the digital portfolios to Pegasus.

Combined, the two investments peg Axiata Digital's entire portfolio at $640 million, the company said.

In February, Axiata sold its 29% stake in Singapore's M1 for 1.65 billion ringgit ($404.6 million) amid stiff competition and high capital expenditure requirements. In 2018, it exited the bleeding Indian venture Idea Cellular after a merger with the local unit of Britain's Vodafone.

Shares of Axiata Group rose 2.3% to 4.04 ringgit on Friday, while the benchmark FTSE Bursa Malaysia KLCI was 0.3% higher.

--Gho Chee Yuan and Jason Ng

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