XL Axiata (EXCL IJ)

Merger Plan Advancing Smoothly: Securing Approvals, Buyback Readiness and Valuation Upside

 

  • Merger plan progresses smoothly as EXCL secures approvals from creditors, vendors, Komdigi all expected before the March 25th
  • Funding secured for buyback of Rp3.09tr initially at Rp2,350/sh, backed by Axiata’s RM1bn facility and DSSA IJ from Sinar Mas side.
  • Maintain BUY rating on EXCL; Axiata’s 13.14% stake sale at Rp3,189/sh sets a benchmark for the mergeCo XLSmart, implying a 40%+ upside.

 

EXCL-FREN Merger is well on track; securing approvals well before 2H25

EXCL has secured approvals from bondholders for parent Axiata’s dilution, while two creditors have granted conditional approvals, and vendor objections have been resolved. Smartfren and Smart Telecom have also obtained all required creditor approvals, totaling Rp6.9tr. Komdigi’s approval for the merger and Smart Telecom’s spectrum transfer to EXCL IJ remains in process, with a possibility of spectrum return. According to XL’s timeline, these approvals are expected before the March 25th EGMS, where shareholders will vote on the merger plan.

 

Providing funding readiness for share buyback for dissenting shareholders

The merger plan includes a share buyback of up to 10% of XL Axiata’s outstanding shares, amounting to Rp3.09tr at Rp2,350/sh with strategic shareholders may increase the buyback size based on demand. XL Axiata aims to soon submit an adequacy statement regarding funding for dissenting shareholders. Axiata Investments Indonesia Sdn. Bhd. has access to a RM500mn (~Rp1.84tr) credit facility from CIMB Islamic Bank Berhad, with an additional RM500mn facility available for any shortfall. Bali Media Telekomunikasi (affiliated with Sinarmas), has secured sufficient funds through loans from Dian Swastatika Sentosa (DSSA IJ) to execute buybacks from Smartfren, Smart Telecom, and XL Axiata.

 

Significant share price discount to implied merger price; maintain Buy rating

XL will propose a Rp85.7/sh dividend at the March 25 AGMS, reflecting a 62% payout ratio and a ~3.8% yield. The indicative timing implies that current shareholders will be eligible for the dividend (before changes in shareholders’ composition). Meanwhile, EXCL’s disclosure reaffirmed Axiata Investments’ plan to transfer a 13.14% stake in the merged entity to Sinar Mas BMT for US$475mn, implying a Rp3,189/sh valuation. This represents a premium to the current and merger transaction price (Rp2,350), reflecting expected merger synergies. We maintain Buy rating on EXCL based on attractive standalone performance (TP of Rp2,800), with a potential upgrade upon further clarity on synergy value. Risks are delays in the merger process and significant spectrum return.

 

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