Axiata Said to Weigh Bid for Saudi Telecom’s Axis Indonesia

Axiata Group Bhd., Malaysia’s largest mobile-phone operator, is evaluating a bid for PT Axis Telekom Indonesia, three people with knowledge of the matter said.

Any offer for Axis would be made by Axiata’s Indonesian unit, PT XL Axiata, the people said, asking not to be identified as the information is private. Purchasing the Indonesian carrier would give XL Axiata the mobile-phone frequencies it needs to expand in Southeast Asia’s most crowded wireless market, one person said.

Axis, majority owned by Saudi Telecom Co., is valued at about $1 billion including debt, according to an estimate from Saudi Fransi Capital. Malaysia’s Maxis Communications Bhd. also holds a stake in the company.

Ten operators compete for subscribers in Indonesia’s mobile market, the second-highest number in Asia after India, in what XL Axiata on May 1 called an “unsustainable situation.” Buying spectrum would allow XL Axiata to add services and coverage areas after the company this month reported first-quarter profit slumped by more than half to 315.5 billion rupiah ($32 million) from a year earlier.

“There’s no information that I can share at this point in time,” XL Axiata President Director Hasnul Suhaimi said in a text message response to questions from Bloomberg. A spokeswoman for Kuala Lumpur-based Axiata declined to comment, while representatives of Saudi Telecom, Axis and Maxis Communications weren’t immediately available.

Consolidation Benefits

Kuala Lumpur-based Axiata announced today an 8.7 percent increase in first-quarter net income to 614.6 million ringgit ($203 million), missing a mean estimate of 673 million ringgit of two analysts surveyed by Bloomberg News.

Any purchase of Axis would require approval from the Indonesian government, which holds stakes in the two largest telecom operators -- PT Telekomunikasi Indonesia and PT Indosat -- one person said.

XL Axiata, with 46 million subscribers, would be “happy to play a role” in consolidation of Indonesia’s mobile telecom industry, Suhaimi said on a May 1 conference call with investors.

“Ultimately, it might become not even attractive to continue investing,” unless the industry structure improves, he said, according to a transcript of the call.

Indonesia’s three major operators, including XL Axiata, would benefit from acquisitions as eased competition would allow them to raise prices, according to Riaz Hyder, an analyst at Macquarie Group Ltd.

Stock Underperforms

“We expect the acquisition will most likely prove to be dilutionary to XL Axiata’s earnings given the extent of Axis’s losses currently being incurred,” Hyder said today in a note.

XL Axiata was unchanged at 5,200 rupiah in Jakarta today after earlier falling as much as 1.9 percent, taking this year’s decline in the shares to to 8.8 percent. The stock has underperformed the Jakarta Composite Index’s 21 percent gain this year, and trades at a lower price-to-earnings multiple than Telekomunikasi Indonesia and Indosat, data compiled by Bloomberg show.

Saudi Telecom owns 84 percent of Axis, while Maxis holds the remainder. Saudi Telecom’s stake in Axis is valued at $880 million, Saudi Fransi Capital analyst Roy Cherry said in February. Saudi Telecom’s Chief Executive Officer Khaled Al Ghuniem quit the parent company in March after less than a year in the post.

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