Should Axiata sell tower operator Edotco?

 

There are serious questions about whether local telecommunications giant Axiata Group should be selling one of its major home-grown businesses, the tower business, which it had developed so successfully before, especially since that business appears to be doing so well now after some problems mid-stream.

This is a truly homegrown business, which, with carefully acquired assets overseas, was built into a multi-billion-ringgit Asian powerhouse in the towers business. But first, some explanations.

There is a business associated with telecommunications that is worth billions but is little known by outsiders. This comprises ownership of telecommunications towers, those ugly steel trees you see everywhere, which house equipment that transmits telecommunications signals.

Without these towers, it will be nearly impossible to transmit signals within countries affordably - no cheap telecommunications services. It’s a utility-like business where companies rent or buy land and space for the long-term and obtain all permits necessary to build the towers.

They sell the use of the towers to the telecommunications companies long-term to enable connectivity within countries.

Malaysia’s telecommunications holding company, Axiata Group, is now in the process of selling one such business, which owns some 56,000 telecommunications towers through a 63 percent stake in Edotco Group Sdn Bhd.

Sovereign wealth fund Khazanah Nasional Berhad owns 32 percent of Edotco, while the remaining five percent is held by Malaysian retirement fund Kwap, making it a 100 percent locally owned company, one of the very few examples of a local multi-billion ringgit company built from scratch succeeding regionally.

A whopping sale price

According to news reports, the lead contender to buy this stake is Australia’s Macquarie Asset Management. The sale price values all of Edotco at a whopping US$3.5 to 4 billion (RM14-16 billion). Macquarie and Axiata declined to comment.

Axiata has previously said it intends to sell its Edotco stake, largely to reduce debts. The Edge reported in the Dec 1-7, 2025 weekly issue that Macquarie Group was one of the three shortlisted bidders for Edotco, the others being a consortium led by the Employees Provident Fund and a group led by private equity firm CVC Capital Partners plc.

But the question is whether Axiata should sell or not. The telco tower business has become almost like a utility business, with long-term contracts and agreed-upon payments for the use of the towers, backed by long-term ownership and leases where needed.

While there were earlier risks in the business in countries such as Myanmar and Laos, where there may have been problems, these have been sold, leaving Edotco with much better quality assets spread over Bangladesh, Cambodia, Indonesia, Malaysia, Pakistan, the Philippines and Sri Lanka.

Observers and analysts now say that with the improvement in quality of assets and their utility-like stable cash flow, there will be no problem raising funds or refinancing to reduce interest costs and make increased profits.

Restructure debts, don’t sell

If low valuation of its assets is a problem, then a better alternative could be to keep the assets, restructure the debts and reduce borrowing costs, which will be more than covered by recurrent earnings.

The next step, then, to realise some gains and still take in a share of earnings into Axiata’s accounts, would be to reduce its stake to perhaps as little as 20 percent from the current 63 percent, generating cash flow and keeping a meaningful interest, instead of giving up the business totally.

Besides Edotco, Axiata owns a valuable 33.1 percent of CelcomDigi, the country’s largest telco with a total market value of around RM36 billion, eclipsing Maxis’ RM28 billion and Axiata’s own about RM22 billion.

CelcomDigi was formed by the merger of Celcom and Digi, the latter being owned by Telenor, which also owns a similar 33.1 percent of CelcomDigi.

The news reports say Edotco is valued at as much as RM16 billion, giving the value of Axiata’s holdings at just over RM10 billion, making it an important part of Axiata’s investment portfolio and a source of solid earnings now.

Edotoco is a leading tower company in Asia. According to its website, it has been named Tower Company of the Year at the Twimbit Telecom Awards 2025.

Results for 2024, the latest year for which it is available, showed RM2.86 billion in revenue and RM2.07 billion in Ebitda (earnings before interest, tax, depreciation and amortisation), and a net after-tax profit of RM411 million compared to a loss the previous year.

Sale could weaken Axiata

Considering the increasing importance of Edotco in its asset portfolio, the divestment of the company by Axiata could actually weaken its earnings stream and portfolio diversification to have a better mix of earnings.

In fact, in a recent report early this month, international rating agency S&P Global Ratings warned exactly that, cautioning that Axiata could weaken its earnings quality and increase its exposure to higher-risk markets if it proceeds with the divestment of its stakes in Edotco and Indonesia-based fibre company Link Net Tbk PT.

“The rating agency said it was concerned that Axiata is effectively trading future profits for immediate debt relief. The final price tag will determine if the company actually ends up financially healthier, or simply smaller and more exposed to volatile markets,” the report said.

If Macquarie is confident of buying Edotco and considers it valuable, there’s a good chance that Axiata can do so too, as both it and the other two shareholders, Khazanah and Kwap are similarly very credit-worthy.

Perhaps the best is for Axiata to realise the full value of Edotco by listing it, and in the process reducing its stake in the tower operator to generate some cash if it needs to by selling part of its stake. There should be no problem getting blue-chip investors, including perhaps Macquarie.

That way, even Edotco's debt will be taken off Axiata’s books.

Listing Edotco here in Kuala Lumpur would provide the market with greater depth and keep a locally grown asset within its shores instead of losing it by a premature sale. We don’t want another Malaysia Airports Holdings Bhd, do we?

Remember, MAHB was acquired by a consortium led by a unit of Blackrock and was delisted. The sale faced a barrage of criticism. - Mkini

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P GUNASEGARAM agrees with those who say that the tower business is now a financing problem - sort that out for solid, recurrent earnings.

The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.