Axiata's tower unit edotco gets US$100 mil from new investor KWAP

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By Goh Thean Eu | Apr 19, 2017

KWAP, INCJ and Khazanah will now own 37.6% in edotco. Axiata Group remains as controlling shareholder with 62.4%.
Investment will help edotco to continue with its expansion plans, lift pressure for IPO, said analysts

Axiata Group Bhd's tower unit edotco Group Sdn Bhd has received a large sum of fresh funding, after pension group Kumpulan Wang Persaraan (KWAP) agreed to invest US$100 million into edotco.

The additional investment, which is done via an equity private placement deal, will see KWAP acquiring some 136 million edotco shares.

The deal is expected to be completed end of this month. Once completed, KWAP, Innovation Network Corp of Japan (INCJ) and Mount Bintang Sdn Bhd (a wholly-owned unit of sovereign wealth fund Khazanah Nasional Bhd) will collectively own 37.6% in edotco. Axiata Group will still have control of edotco with a 62.4% stake in it.

The private placement deal between edotco and KWAP came about four months after edotco and Axiata sealed private placement deals - worth US$600 million - with INCJ and Khazanah. INCJ will be investing up to US$400 million in new edotco shares, while Axiata will be divesting US$200 million worth of edotco shares to Khazanah.

According to Axiata Group in its filing to Bursa Malaysia, the selection of KWAP as an investor was made based on the same process and valuation of the earlier private placements to INCJ and Khazanah -- which values edotco at close to US$1.5 billion, and an enterprise value to FY2016 Ebitda multiple of 12.5 times.

"The upsize of US$100 million and the structure of the offering marks another achievement in our maiden private placement exercise. edotco now has the advantage of funding flexibility as well as the balance sheet capacity to continue to grow the business confidently and capitalise on potential acquisition opportunities," said edotco chief executive officer Suresh Sidhu (pic above) in a statement.

Axiata president and group CEO Jamaludin Ibrahim also welcomes the investment by KWAP.

"As an existing long-standing investor in Axiata, KWAP's take up of this placement not only validates our long-term growth strategy but also of edotco's strong business fundamentals, its exceptional long-term prospects and experienced management team," Jamaludin said.

Meanwhile, KWAP CEO Wan Kamaruzaman Wan Ahmad said that he was impressed by edotco's growth over the past five years, and "would like to be part of its growth journey, towards becoming one of the leading tower players globally by 2020."

"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. The target is to allocate 3% of our assets in private equity by 2020," said Wan Kamaruzaman.

Overall, analysts are positive on KWAP's investment into edotco. This is because the investment will help fuel the company's rather aggressive expansion plans over the next few years.

"The US$100 million funding from KWAP, as well as the funds raised from the earlier private placements, will help edotco to expand aggressively. At the same time, it will also reduce its pressure to go public urgently," said a research head from a local brokerage.

"This also allow edotco to better focus on increasing its towers' tenancy ratio, and operational efficiency."

Currently, the company owns about 16,000 towers across Malaysia, Sri Lanka, Bangladesh, Cambodia and Myanmar. It hopes to have 20,000-25,000 towers over the next few years.

While growing its tower assets by up to 50% may seem like an ambitious plan, achieving 25,000 towers will not be able to significantly close its gaps with the huge tower players.

For example, India's Indus Towers - owned by Vodafone India, Aditya Birla Telecom and Bharti Infratel Ltd - has more than 117,579 towers. China Tower - a venture firm which China's three main mobile operators have stakes in - has potentially more than 700,000 towers in its portfolio.

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