RAM Ratings: Proposed merger has no immediate impact on Digi’s AAA sukuk rating

RAM Ratings opines that the merger between Digi.Com Berhad (Digi) and Celcom Axiata Berhad (Celcom) will strengthen the position and operations of the combined entity. The merger will lead to Axiata Berhad and Telenor ASA sharing control over the resultant entity, each with an interest of 33.1% and equal board representation.

The merged entity - Celcom Digi Berhad - should gain synergistic advantages through its improved operating performance, profitability and free cashflow. We also anticipate it to enjoy operational efficiencies in procurements, distributions, network and IT. Meanwhile, both Digi and Celcom are envisaged to retain their distinctive branding as part of their segmentation strategy.

On the flip side, the consolidated financial metrics of Celcom Digi are expected to be softened from a leverage and debt coverage standpoint. This is due to the additional RM1.7 bil debt load of Digi. Nonetheless, we believe that the merged entity will likely have greater flexibility in its capital management policies including the de-risking of its balance sheet, its dividend policy and savings from capital expenditure. 

As with any merger, we will scrutinise the details and the potential impact on Digi’s sukuk rating as more details unfold. These include successful amalgamation of people and cultures as well as procedures and controls (including financial management policies) in operating an expanded business. While we do not discount potential teething issues, we believe that efficiency gains – if well managed - will provide the foundation for structural improvements in the longer run.

We expect merger-related details to be revealed in the coming months, with a definitive agreement to be inked by end-June 2021 and completion slated for the end of this year. We will evaluate the merger’s impact on the ratings of Digi Telecommunications Sdn Bhd’s Islamic Medium-Term Notes and Commercial Paper Programmes once more information is available, especially on operational and financial synergies. 

Published on 16 Apr 2021.

Analytical contact

Jack Kwan

(603) 3385 2532

jack@ram.com.my

Media contact

Padthma Subbiah

(603) 3385 2577

padthma@ram.com.my

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