Link investor

PNB and EPF, represented on the board of directors, vote against the purchase of Indonesian Link Net by Axiata

IF it had not been known that at least two major shareholders – the Employees Provident Fund (EPF) and Permodalan Nasional Bhd (PNB) – were against Axiata Group Bhd’s proposed acquisition of the supplier Indonesian broadband and cable television company PT Link Net Tbk, or had not paid attention to the details of the electronic poll voting result just before the conclusion of the extraordinary general meeting (EGM) to solicit the shareholder approval on May 26, there was virtually no indication of opposition to the RM2.57 billion purchase which only needed a simple majority to pass.

Yet it’s not just dissenting votes from major institutional investors. PNB and EPF are represented on Axiata’s Board of Directors by Syed Ali Syed Salem Alsagoff and EPF Strategy Director Nurhisham Hussein as non-independent and non-executive directors respectively.

Of the 1,069 shareholders and representatives holding 8.37 billion shares present at the EGM, only 129 or 12.07% of participants voted against the agreement. But they represented 3.53 billion shares or 42.17% of those present and voting at the virtual EGM which began shortly after noon after the conclusion of Axiata’s annual general meeting (AGM).

Up to 88% or 3.1 million of the 3.53 million shares that voted against the deal could be owned by PNB and its associated funds under AmanahRaya Trustees (17.94%) and EPF (16.95% ), whose collective shareholding amounted to approximately 31.7% of the total. votes cast at the EGM, according to the list of Axiata’s 30 main shares as of March 31, 2022, and the latest deposit on EPF holdings.

Admittedly, it is not easy, but not impossible, to surpass Axiata’s largest shareholder, Khazanah Nasional Bhd, which owns 3.37 billion shares or 36.74% stake and accounts for 40.2% of the total votes cast at the EGM, our back-of-envelope calculations show.

Make your intentions known

Observers believe PNB and EPF did not aggressively lobby to roll back the deal announced in late January – as there was no public lobbying ahead of the vote – but simply wanted to voice their concerns.

PNB, which discloses the direction of its vote at shareholder meetings on its website almost immediately, if not before voting, said it voted against the Link Net deal because “the PNB Group fears that the proposal will not have a negative impact on the financial performance of the company in the immediate term due to the potential increase in the level of indebtedness weighing on its cash flow and its results, coupled with a lack of visibility on the impact of geopolitical developments on certain international operations of Axiata”.


EPF, which also reveals how it votes on resolutions on its website (although usually a day after the meeting), did not say why it voted against the Net Link deal. He declined further comment.

When asked if he voted against the deal because he wanted Axiata to increase its dividend payments faster instead of potentially spending more money to build its presence in Indonesia, the spokesperson of PNB referred to its online statement and said that it “evaluates the companies’ proposals based on various aspects, including its merits and financial impact on the acquirer,” adding that voting transparency is the one of its ESG commitments which is in line with its aspiration to inculcate stronger management practices.

On whether PNB re-evaluates its investment in Axiata, the former would only say, “As PNB views its investment in Axiata Group as one of the leading telecom groups in Asia, we will continuously evaluate all business proposals objectively, as we do with our other investments.

PNB – which through AmanahRaya Trustees Bhd (Amanah Saham Bumiputera) alone held 1.095 billion shares or an 11.94% stake in Axiata at the end of March – had not yet made any additional disposals, based on mandatory stock market deposits made by those over 5 years old. % participation, at the time of writing. EPF, which held 1.56 billion shares (17.03% of the capital) at the end of March, had reduced its stake from around seven million shares in the past two months to around 1.555 billion shares ( 16.949%) as of May 23, according to filings.

Dividend pressure

In response to questions posed by shareholders at the EGM, Axiata Group Chairman and CEO Datuk Izzaddin Idris said that “subject to market conditions” it could take around 10 years for Axiata to recoup its investment. in Link Net – sooner if additional investments are made. to accelerate mobile and fixed convergence with XL Axiata by leveraging Link Net’s reach to 2.9 million homes and over 2,400 enterprise customers – but assured that the return on investment (ROIC) for the deal is greater than its weighted average cost of capital (WACC) of 12%.

If debt of RM2.5 billion is incurred to finance the purchase of the initial 66.03% of Link Net from Asia Link Dewa Pte Ltd (private equity firm CVC) and PT First Media Tbk (Lippo Group), indebtedness would drop from 1.17 to 1.4. time. The RM1.3 billion that may be needed to fund the subsequent mandatory tender offer for the remaining 33.97% minority shareholders could be funded from internal cash, Axiata says. This includes RM2 billion which will come after the completion of the Celcom-Digi merger expected in the second half of this year. Asked why the sellers were pulling out, Izzaddin said private equity funds like CVC have limited investment horizons while Lippo could make its investments to focus on its core real estate-related operations.

Earlier at the AGM, Izzaddin told shareholders that dividends this year could be “a bit restricted”, especially for his 83%-owned company Dialog Axiata, which operates in Sri Lanka, where the government had made default on debt payment and the country is undergoing an economic and political crisis after being hit hard by the pandemic and soaring inflation. He also told shareholders that the former Cukai Makmur is valued at between RM80 million and 100 million, largely thanks to profits from his Malaysian subsidiaries Celcom and edotco.

Izzaddin however reiterated that Axiata remains committed to gradually increasing its dividend payout to 20 sen per share by 2024. The group paid a dividend of 9.5 sen per share in fiscal 2021, up from seven sen. per share in fiscal year 2020 and corresponding to that of fiscal year 2018 and FY2019.

This may be a disagreement between investors with longer-term horizons and those with different considerations, including the right balance of short-term rewards for investors like EPF and PNB, who may not think be not only to the performance of their own fund, but also have the desire to help their members replenish their savings which have been drained during the pandemic. What is certain is that the pressure on companies to achieve better and sustainable returns would only intensify as more investors exercise their rights and make informed decisions.

Meanwhile, on May 27, Axiata said that Izzaddin – who took the helm on January 1, 2021, at the height of the pandemic after serving as the group’s deputy CEO since January 2020 and a board member since November 2016 – would step down as Chairman and CEO of the Axiata Group effective May 31, “based on a mutual termination of his service contract”. Axiata’s CEO for Telecom Business and Group Executive Vice President, Dr. Hans Wijayasuria, and Group Chief Financial Officer Vivek Sood will act as interim Group CEO effective June 1.

Axiata Chairman Tan Sri Shahril Ridza Ridzuan said Izzaddin was committed to translating Axiata 5.0’s vision into execution and was instrumental in shaping the group’s strategic response to unprecedented challenges. precedent, and thanked him for his wisdom, leadership and contributions. Assuring stakeholders that the group “has always had a strong culture of succession planning”, Shahril said the board “does not expect to make any additional structural or management changes in the short term”.

Will DNB have nine players equally sharing a 70% stake by June 30?

More details were revealed last week on how the government would stay on top of the country’s 5G rollout with a 30% minority stake plus a preferred share in Digital Nasional Bhd (DNB), even after divesting 70 % of capital to nine players comprising six networks. operators and three spectrum holders.


Although the government has not outright rejected the bid by the country’s four largest mobile operators – Celcom Axiata Bhd, Digi Telecommunications Sdn Bhd, Maxis Bhd and U Mobile Sdn Bhd (CDMU) – to gain control of 51 % of DNB, Communications and Multimedia Minister Tan Sri Annuar Musa told reporters on May 26 that the government was firm that no telecom company had a higher stake than other peers who have been invited to the negotiating table for an equity stake in DNB. (Giving CDMU 51% in DNB would leave only 19% to be split between five versus 7.78% for each of nine – which only implies up to 31.1% for CDMU, assuming Celcom and Digi (who are in fusion train) will each get to keep a ninth of the 70%.)

The minister also told reporters at the launch of “Yes 5G for All” that the government will hold 30% of the capital regardless of the number of the nine guests on board, adding that he was not going to “wait for anyone” when asked him about the June 30 deadline for industry to flesh out details of DNB’s equity stake and make meaningful progress on wholesale 5G deals.

Although the Minister did not name the nine, he confirmed that they consisted of six network operators and three spectrum holders.

The top six are clearly CDMU, Telekom Malaysia Bhd (and/or Webe Digital) and YTL Communications Sdn Bhd (YES). The other three spectrum holders are expected to be Altel Communications Sdn Bhd, Redtone Engineering and Network Services Sdn Bhd (and/or SEA Telco Engineering) and Asiaspace Broadband Sdn Bhd.

Altel has been allocated spectrum in the 2600 MHz band, Redtone in the 2300 MHz and 2600 MHz bands and Asiaspace in the 2300 MHz band, in accordance with Ministerial Instructions dated December 2021 on the Malaysian Communications Commission website and multimedia.

While Altel’s name was not found on the spectrum allocation register for the 900 MHz band alongside CDMU, a ministerial instruction dated December 9, 2021 shows that it was also reallocated a 2×5 block MHz in the 900 MHz frequency band in December 2021 – the same block that was previously granted to it briefly on May 15, 2020, before being canceled on June 3 of the same year.

Whatever the government’s justification, clarity by June 30 would also remove a significant excess (read: discount) that is weighing on sentiment. “Everyone is just tired and wants it to be over and over…to move on,” says one observer.