Axiata ... May11

Despite a number of reports to the contrary, Axiata’s stake in Indian Communications operator Idea Cellular Ltd remains unchanged.

 

In early April 2011, it was repored that Idea’s other major shareholder, the Aditya Birla Group was looking to dispose of its stake in the telco. Axiata holds 19.1% stake in Idea Cellular.

 

While market talk then was that Axiata would pare its Idea stake in three tranches, speculation now is that the Malaysian telco is looking to increase its investment. Certainly, increasing its stake in Idea is not new to Axiata. Axiata paid INR157 a share for Idea in 2008.

 

At the moment, however, that does not appear to be on the cards. Its spokesman would like to reiterate its long term commitment to Idea which represents an important strategic stake for Axiata. It also said that there are no plans for the company to sell or pare down its stake in Idea.

 

However certain developments in India have added fuel to speculation that Axiata is looking to sell.

 

In early April 2011, reports had surfacd that the Aditya Birla Group, which holds around 49% stake in Idea, was in talks to sell its stake. When the group denied the speculation, it was then reported that it was Axiata that was looking to opt out.

 

Undoubtedly, there are ongoing issues with Idea that lend credence to the notion that Axiata is planning to exit. First, Axiata had booked an impairment charge of rm1.08 billion on Idea in 4QFY2010, which led to a headline loss of rm367 million in the quarter.

 

Then there is the ever changing landscape of India ’s telecommunications market. India ’s Dept of Telecommunications slapped a penalty of INR27.65 crore on Idea and Spice for delay in the rollout of services in five circles.

 

And in March 2011, Idea had received cancellation notice from DoT for its mobile licence in Punjah. On April 2011, it was reported that Idea is in the process of filing for an application to the Delhi High Court to vacate the ex-parte stay on its merger with Spice. The latter event is likely to hinder Idea’s expansion into a number of areas.

 

Even with the roadblocks, however, there are bright spots. While Axiata does not deny there are tough times ahead, Idea is definitely strengthening its position in India ’s telecommunications market. It is now number 3 player in terms of revenue market share from Number 5 three years ago.