Malaysia’s Axiata Group Berhad said on Friday it has recorded a non-cash impairment charge of 3.33 billion ringgit ($810 million or Rs 5,687 crore) on its investment in Indian telecom operator Idea Cellular Ltd.
The Malaysian company has also relinquished certain rights as part of its June 2008 share purchase agreement with Idea, Axiata said in a stock-exchange filing. These included the right to nominate a director on Idea’s board.
Axiata has also de-recognised billionaire Kumar Mangalam Birla-led Idea as an associate company and now lists it as a simple investment. This comes after Idea agreed to merge with the local unit of Vodafone Group Plc. The merger, announced in March 2017, was cleared by India’s telecom department last month.
After the merger, Axiata’s stake in the combined entity will fall to 8.17% from the 16.33% that it held in Idea. In fact, Axiata had bought a stake of almost 20% in Idea in tranches by 2011.
In its filing with Bursa Malaysia, Axiata said it arrived at the 3.33 billion ringgit de-recognition loss after deducting the carrying value of the investment in Idea from the telecom company’s market value.
The market value of Axiata’s investment in Idea as on 15 August was 2.17 billion ringgit while the carrying value of its investment was a loss of Rs 5.44 billion ringgit, the Malaysian company.
Axiata had said last month that the impairment charge was purely a non-cash technical treatment and that the exercise won’t have any impact to its underlying performance and cash position. The group’s cash balance was 5.7 billion ringgit at the end of March 2018. Also, the reclassification means that Idea’s profit or loss will no longer impact Axiata’s financials in the future.
The Malaysian company had also said that since its initial investment in Idea in 2008 up until 2015, the Indian mobile-phone operator had contributed about 1 billion ringgit in operational profits to Axiata.
Meanwhile, the merged entity, Vodafone Idea Ltd, will be the largest telecommunications company in India. Vodafone Idea will have 440 million customers, representing 39% of the total market share. Its revenue market share is estimated to be at 37.5% and its revenue is forecasted to be in excess of $10 billion.
The merger implied an enterprise value of $12.4 billion for Vodafone India and $10.8 billion for Idea. The deal came after the entry of billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd in 2016 threw India’s telecom industry into turmoil and prompted several carriers to either merge with others or sell their businesses.