Telenor and Axiata in advanced discussions to merge Malaysian operations

Telenor Group and Axiata Group Berhad (Axiata) are in advanced discussions over a potential merger of their Malaysian mobile operations in which the parties will have an equal ownership of 33.1 percent each.

The new company will be a leading provider of telecommunication services in the country, with competence and scale to meet increasing expectations and demand from a digitally connected society.

According to the talks, the new company would be named Celcom Digi and will continue to be listed on the Malaysian stock exchange.

Under the terms of the proposed deal, Axiata will receive newly issued shares in Digi representing a 33.1 percent post-transaction shareholding and a cash equalization amount of around US$480 million, of which RM1.7 billion will come from Digi as new debt, and the remaining RM300 million from Telenor.

Combination of Celcom and Digi

Axiata said it has the right to nominate the first chairman and CEO of Celcom Digi and, following discussion with Telenor, has named Celcom’s existing chairman and chief executive, Dato’ Izzaddin Idris and Idham Nawawi respectively, as holders of the same positions in the new company.

“While the possible combination of Celcom and Digi has been on the cards before, drivers such as 5G rollout and the government’s decision to intervene has shaken up the industry recently,” said Mark Robinson, Asia Pacific head of TMT at Herbert Smith Freehills.

Malaysia, which plans to roll out the 5G telecommunications spectrum in stages by the end of this year, has set up a special purpose vehicle, Digital Nasional Berhad, to oversee the infrastructure and network deployment.

“It is no secret that the telecommunications industry continues to face long-term structural headwinds of slower growth, increased operating costs and lower profits,” Axiata’s CEO Izzaddin Idris said in a statement.

Global partnerships

He said that as a commercially stronger and more resilient entity, Celcom Digi Berhad, the merged company, will help “restore long-term growth and capacity to the industry, especially in terms of improved profitability”.

Izzaddin said that the merged group, with its significant financial capacity, will also be able to attract and create prominent global partnerships.

Local ownership will exceed 51 percent with Malaysian institutional investors owning at least 17.9 percent of shares in Celcom Digi, Axiata said.

The combination of the country’s second and third largest mobile services providers would create a company that is estimated to have annual revenue of $3 billion, with core profitability of $1.4 billion from a subscriber base of about 19 million customers.