JAKARTA (TheInsiderStories) - Unit of Malaysia’s Axiata Group Bhd, PT XL Axiata Tbk (IDX: EXCL) needs and investment around Rp7.5 trillion (US$535.71 million) to expand the services in this year, said the CEO last week. The budget will be focused on continuing the expansion of the fourth generation (4G) network to support the rises data service, especially outside Java Island.
According to the CEO, Dian Siswarini as quoted by Investor, in facing the tight competition with other telco players, the operator still focused on a number of strategies, including prepared the 5G services. She explained, one of the things the company has doing were testing the dynamic spectrum sharing of 4G and 5G.
To support the plans, the company has pocketed fresh funds Rp2.21 trillion from the tower sales to PT Profesional Telekomunikasi Indonesia (Protelindo), an affiliated provider of Djarum Group. The management of XL Axiata has transfered 1,642 towers to the subsidiary of PT Sarana Menara Nusantara Tbk. (IDX: TOWR) on November 2020.
In the same year, the provider had sold 2,782 towers with total valued Rp4.05 trillion to Protelindo and PT Centratama Menara Indonesia to refinance the debt. The company has seeking the buyers for its 4,400 towers since September 2019 in an effort to reduce debt and raise funds for network investment.
Rated on XL Axiata perpormance, last December, Fitch Ratings, has assigned the BBB rating with a stable prospect. The ratings reflect the credit strength of its parent, based on the strong overall relationship between the two entities. The Indonesian unit is considered to remain the largest contributor to the group EBITDA and capex.
The agency is likely to take negative rating action if Axiata is unable to maintain its credit strength, which will result in a similar rating action for the unit. Omnibus Law, according to Fitch, will provide benefits for the cellular provicer and small telecommunications companies through sharing spectrum for new technologies.
However, Fitch estimates that other operators such as PT Telkom Indonesia Tbk (IDX: TLKM) will continue to dominate the market and lead with strong networks. This because an extensive fiber optic network infrastructure is an important element of the 5G rollout in the country.
The issuer expansion strategy outside Java and efforts to expand its fiber optic network will keep capital spending high, which will contribute to negative free cash flow. Fitch estimates that the company revenues will grow by medium single digits in 2020 - 2022, which is driven by a stable share and average revenue per user. This will offset the lower margin contribution from markets outside Java.
Competition is likely to continue, as mobile operators continue to adopt tactical pricing strategies in specific clusters, which depend on available network capacity and subscribers’ ability to pay. Fitch believes prudent strategy execution and cost control initiatives are essential in the face of an economic slowdown.
US$1: Rp14,000
Written by Editorial Staff, Email: theinsiderstories@gmail.com
