China Mobile Said to Have Held Talks on Buying Axiata Stake

China Mobile Ltd. has held talks about purchasing a minority stake in Axiata Group Bhd., Malaysia’s largest wireless carrier by market value, people with knowledge of the matter said.

The Beijing-based company asked to buy about 20 percent of Axiata, a stake that would be valued at more than $3.7 billion based on yesterday’s closing price, said one of the people, asking not to be named as the information is private. No agreement was reached, as Axiata and its largest shareholder Khazanah Nasional Bhd. are unwilling to sell that much stock and consider the indicated offer price too low, they said.

China Mobile, the world’s biggest phone company by users, has been seeking overseas acquisitions after its cash rose to $69 billion by the end of March, according to data compiled by Bloomberg. It agreed in June to buy 18 percent of True Corp., Thailand’s third-largest phone company, for $881 million. A $3.7 billion investment in Axiata would mark China Mobile’s biggest overseas acquisition and the biggest telecom deal in Southeast Asia since 2007, the data show.

“China Mobile might need to pay a decent premium, as Axiata does not urgently need a strategic investor,” Steven Liu, a Hong Kong-based analyst at Standard Chartered Plc, wrote in a research note today. “We do not expect China Mobile to contribute much to Axiata’s operations in the medium term, though some cooperation is likely in procurement.”

Khazanah Stake

Axiata’s valuation has more than doubled in the past five years to 8.1 times the latest year’s earnings before interest, taxes, depreciation and amortization, from 3.6 times Ebitda in 2009, data compiled by Bloomberg show. China Mobile trades at 5.6 times on that basis, according to the data.

It wasn’t immediately clear exactly how much per share China Mobile was willing to pay for Axiata. Khazanah, Malaysia’s state investment company, owns 38.8 percent of Axiata, data compiled by Bloomberg show.

Axiata shares have advanced 0.7 percent this year, giving it a market value of 59.6 billion ringgit ($18.6 billion). They were down 0.3 percent at the close today in Kuala Lumpur. China Mobile shares slipped 1.3 percent in Hong Kong trading today, trimming gains this year to 5.3 percent.

The Chinese carrier’s cash balance will rise an average 95 billion yuan ($15 billion) annually through 2020, Sanford C. Bernstein & Co. analysts led by Chris Lane wrote in a July 23 report. The swelling funds are a “constant source of controversy” for investors, who are concerned the company will overspend on overseas acquisitions, Lane wrote in the report.

Market Share Loss

“We generally preach against international M&As and prefer to see the cash returned to investors,” he wrote. “However, in comparison to earning meager interest in a bank account, we believe M&A is the lesser evil.”

Rainie Lei, a spokeswoman for China Mobile, declined to comment on whether China Mobile had been in talks with Axiata, citing quiet period restrictions ahead of reporting earnings. Axiata said in an e-mailed statement that it “does not comment on reports speculative in nature.” Asuki Abas, a spokesman for Khazanah, couldn’t immediately be reached.

China Mobile last year scrapped an agreement to buy a stake in Taiwan’s Far EasTone Telecommunications Co. after the island wouldn’t ease curbs on mainland ownership. Its parent company first expanded outside its home market by acquiring control of Millicom International Cellular SA’s Pakistan unit in 2007 for $284 million, data compiled by Bloomberg show.

The Chinese carrier in April posted a third straight drop in quarterly profit as costs for subsidizing Apple Inc.’s iPhone and building networks increased. Sales in the first quarter rose about 7.8 percent to 154.8 billion yuan. China Mobile has been losing market share in the country as it trailed competitors like China Unicom (Hong Kong) Ltd. in offering the iPhone.

Axiata has operations in nine countries in Southeast and South Asia, according to its website. The company, whose Indonesian unit paid $865 million to acquire a local operator this year, has more than 250 million customers, the website shows.

Before it's here, it's on the Bloomberg Terminal.