Good day, and welcome to the Telenor Group Investor Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jørgen Rostrup. Please go ahead, sir.
Good morning, everyone. This is Jørgen Rostrup, CFO of the Telenor Group. With me today, I have Head of Investor Relations, Marianne Moe. Also, Håkon Hatlevik from Investor Relations. I have Otto Risbakk, Head of M&A, and Meera Bhatia from Communications. I'm pleased to announce that after having had some high-level talks with Axiata, we have now reached a stage where we have decided to enter into more detailed discussions regarding a potential non-cash combination of our telecom and infrastructure assets in Asia, where Telenor will take a majority stake of 56.5%. We have chosen to inform you now about this, as it going forward will be a process involving many parties and listed subsidiaries.
However, we should say that even though we are now at this point, it is important to state that there is no certainty that this discussion will result in any merger agreement between the parties. I would also like to add that, the companies will, of course, operate separately until a deal is closed. Let me then shortly explain why we are engaging in these discussions. Telenor's strategy is focused on developing and creating value from our core telco assets in the Nordics and in Asia. The potential merger is in line with this strategy, combining size and competence, and thereby unlocking substantial synergies. At this point, estimated to some $5 billion. That is on a net present value basis.
Together with Axiata, we are aiming to create a well-diversified pan-Asian telco, becoming one of Asia's leading telecom players, with a strong regional operation in nine countries and close to 300 million customers. It will also become one of Asia's largest infrastructure companies, operating about 60,000 towers across Asia. This scale, we believe, will also be beneficial for our Nordic operation. We believe that the economies of scale in itself, the competence, and the knowledge will continue in Telenor to be shared and create value across Nordics and Asian operations, as we do today, and even more so in this setup. Telenor's Asian footprint includes, as you might be aware of, Thailand, Malaysia, Bangladesh, Pakistan, and Myanmar. Axiata has operating companies in Malaysia, Bangladesh, Cambodia, Nepal, Sri Lanka, and Indonesia. They also have the tower business, edotco.
This is, in our view, a very complementary footprint. Axiata's mobile operations, Robi in Bangladesh, is not planned to be in scope for the potential merger. Then a few elements to our plans. The transaction is cash-free, so our financial exposure to Asia remain unchanged. However, it will, of course, diversify our Asian holdings. The MergeC o will be a solid cash-generating unit, we believe, which means that we do not see the need for additional funding. Nor will this merger change Telenor's current dividend policy with paying increased dividend year on year. The MergeC o will have its operational headquarters in Kuala Lumpur, and it's planned to be listed at an international stock exchange in addition to at Bursa Malaysia. In Malaysia, the intention is to combine Celcom and Digi, the two telco operations, with MergeC o as the majority shareholder.
As I said, in the beginning, it is anticipated that, Telenor, based on equity values, will own 56.5% of MergeC o. Both parties acknowledge, however, that this is a preliminary figure that will be subject to further discussion and due diligence. Both parties will work towards finalizing agreements in relation to the proposed transaction within the third quarter 2019, following also due diligence investigations. The transaction will be subject to approval from respective shareholders, receipt of regulatory approvals, and other customary terms and conditions. And then, as I mentioned again in the start of my introduction, it is important for me to state that there is no certainty that these discussions will, in the end, result in a merger agreement between the parties, and that it is still early days.
At this point in time, there is not much we either can nor want to say... I would like to open up for a short Q&A session. Thank you very much.
Thank you. If you wish to ask a question, please signal by pressing star one on your telephone keypad. We'll pause for just a moment to allow everyone an opportunity to signal for question. We'll take our first question of Ranjan Sharma from JP Morgan. Please go ahead, sir.
Hi, good afternoon, and thank you for the call. A couple of questions from my side. Firstly, you disclosed about $5 billion in synergies. How would you break that down into revenues and OpEx synergies? Secondly, you're talking about consolidation in some of the markets, especially Malaysia, where I think Digi plus Celcom might be more than 50% of the market. What are the regulatory considerations around this? Thank you.
Thanks a lot. Let me talk about synergies first. We believe we have identified substantial synergies with an estimated net present value of $5 billion. There is no revenue synergies included in this. It is only, should I say, cost, cost-related synergies that we have included. I would high level break them into three categories. The first one is consolidation of procurement across the mobile and tower operations in Asia. As you know, we have a procurement company in Singapore, which will be an important tool in this context. The combined entity, I believe, will be one of the largest buyers of mobile equipment, network equipment, site services, digital advertising, whatever, in Asia, so this is important.
The second is the benefit of common operation of tower and sites across Asia. The third one is consolidation of operations where we have overlapping operations, and obviously it's predominantly in Malaysia. I would not go any further on this topic, but those are the three elements. Then on the consolidation in Malaysia, obviously, the parties have addressed this and discussed this, and we believe this will be okay. We will get through with this without too much remedies, but it has to be further explored. Thank you.
All right, thank you, and go-
Thank you. We'll take our next question of Henrik Herbst from Credit Suisse. Please go ahead, sir.
Yeah, thanks very much. I had a few questions, actually. I mean, firstly, in terms of antitrust, and maybe you can say a word on Bangladesh. You didn't mention in your release, but Bangladesh, presumably you're looking to consolidate that market as well. But I guess, Telenor or Grameenphone on its own, it's got a huge market share, so maybe you can say a word on that. And secondly, in terms of the merger ratio, can you give any color on how you got to the merger ratio? If it's a similar valuation or valuation metrics on both businesses? And then thirdly, on the tower company, could there be potential to list the larger tower company once you've merged sort of the Telenor tower? Thanks very much.
Yeah. On Bangladesh, this is excluding Robi. So Robi is kept out of the plans, which should imply that we don't anticipate any issues in Bangladesh on the Telco side. I have no further comment as of now on the valuation. So this is the number post synergy that we have reached at. And regarding listing of the tower company, yes, that could be one next step for the tower company. But again, it's early times, nothing is decided regarding that, and we'll just have to see how these things are developing. Anyway, it's of course a value for such a large entity to have a close relationship to the professional tower environment.
So we'll look at that when we are there.
Great. Thanks. Thanks very much.
Thank you. We'll take our next question of Tami Roy from IDLC. Your line is open. Please go ahead.
Hi, good morning. So, just following up the previous question, in the Bangladesh market, Robi and Grameenphone,
Excuse me, it's, it's very hard. It's very hard to pick up the question. There is a lot of echo in the room. Can you try to get closer to your microphone or something?
Yeah, sure. So, just following up the previous question,
...In the Bangladesh market, both Grameenphone and Robi are significant players, and the current significant market power guideline by the Bangladesh government may not kind of operation or synergy. In that case, what's your plan to proceed on this issue? Where the regulatory environment interferes with your plans.
So it was very hard. I could. We were not able in this room to pick up the question. But if it was regarding significant market power and the situation in Bangladesh, again, what I would say is, first of all, Robi is kept out of this deal, so there will be other solutions for Robi, and we should anticipate that they will be a good and strong competitor of Grameenphone also in the future. Second, I would just like to add that we respect the regulations which are preventing that any players are unduly using size and strength to take a unreasonable role in the market.
What we do not appreciate is if it is transferring value from one company to the other, and we assume no government will do that. Next question.
Thank you. Again, if you would like to ask a question, press star one on your telephone keypad. We'll take our next question of Frank Maao from DNB. Your line is open. Please go ahead, sir.
Yes, good morning, everyone. So, thanks for taking my question. And apologies if it has already been answered or commented on, because I was a bit late onto the call, due to the queue. But, my question is basically regarding consolidation. It's the first question: do you, as from a Telenor standpoint, expect to be consolidating this in the overall Telenor group, given that the 56.5% equity basis ownership that you indicate in the press release? And the next—and to follow up on that, you know, if you're going to have both a dual listing on this, this entity, this Asian entity, including an international listing, where will those listed shares come from?
Would there be any plans from Telenor side to sell any stake, or would you raise capital? How do you could you give some more color on that? And then lastly, could you comment on the tax effect? Is that counted into the NPV $5 billion synergy number or not? Is that pre-tax or post-tax? Thank you.
Okay, thank you. So, it was regarding consolidation. I would answer it this way. Telenor, we have a strategy of being a majority shareholder in the assets we are investing in. This is important for us, and this enable us to also use our strength in operations and in procurement and in technology to its full value for us, but also for our joint shareholders. We are used to that, and we are finding ways to do that, which are bringing value to all, to all shareholders. But we have a strategy of majority.
So the majority position from our side, combined with obviously, for example, free flow requirements at the international stock exchange of listing, will obviously affect the free flow. It's too early to go into that. We don't anticipate that there will be any new issue of equity in relation to such an IPO, but again, it's very early, and we have to go back to that. It's a pre-tax calculation. But again, I'm not going to go further into valuation issues as of now.
Okay. Thank you.
Thank you. We'll take our next question of Prem Jearajasingam from Macquarie. Your line is open. Please go ahead, sir.
Hi. Thank you for the opportunity. Just one question from me, please. You know, could you comment on the future management of the merged entities? I understand it's still early days, but could you help me understand, outside of procurement, what areas do you think Telenor brings the most value to this merged entity?
Well, I think first of all, both present companies bring a lot of value to the merged entity, simply because it is good, good, strong, advanced companies with significant management and operational capacity. So, I really believe that this is a merger of two strong environments that will benefit the total shareholder group going forward, if we get there. And then, from Telenor's point of view, it is very often better to let other evaluate what the strengths and the weaknesses are and not yourself. But we believe we see procurement as one strong side.
We believe we see our technology understanding and agility, our willingness to test out, to try new operating models within technology, combined with a very clear foundation in network qualities and how we execute in that area, both from the Asian terrain, but also from a strong knowledge base out of our important business in Norway, in that sense. Thirdly, I believe we get comments that we are hands-on and energized in our way of executing as management. And if that is correct, again, I need to be careful.
But if that is correct, that we are running efficient operations and hands-on operations, then that could also be hopefully continue to be to the benefit now for a larger system. But first and foremost, we are bringing together capacity and capabilities from two strong environments, and then it is an execution issue to get that to work.
Thank you.
Thank you. We'll take our next question from Alex Goh, from AmBank. Your line is open. Please go ahead, sir.
Thank you for the opportunity. I have two questions. The first is, could you start, give us some indication of the key risks or obstacles that could potentially prevent this merger from taking place? I mean, could you give us a bit of comments on what are the potential political sensitivities, or in the case of, Axiata Nepal investment, are there, capital gains tax or regulatory issues that can come out of this? That's my first question. And my second question is, for Robi, it looks like, it is going to operate independently. So what are the synergies or, economies of skill that can come out of this? And, you know, since it is going to be excluded from any merger.
Yeah. Let me take the latter first. Robi is then excluded from the potential transaction, which means that it will be handled as a separate unit through strict clean teams mechanisms. So there will be, whatever nationality we put on the walls, there will be clear walls between how we operate or how Axiata is operating this company in going forward and the rest of the work to combine the two companies. And there will be no synergies in Bangladesh on the telco side for that reason. And we are not alluding to that. We are alluding to potential synergies in Malaysia. Then second, key risks.
I believe that there is always an implicit risk, are we able to finalize the agreements and conclude? It has been very fruitful and energized and inspirational talks so far. I believe we have two parties who see great benefits both from scale synergies, but also from competence and technology in this opportunity. But there is still a way to go. And as I said in my introduction, we are early in the process. We simply decided to go out early because we need to play a little bit and discuss a little bit more in the open. So there is simply a process risk there.
Obviously, we are going to go through due diligence of both sides, and there is a lot of work. So I would actually say that that is the key risk.
Okay. Thank you.
Thank you. If you wish to ask a question, press star one on your telephone keypad. Pause for just a moment to allow everyone an opportunity to signal for a question. We'll take our next question from Calvin Wong. Your line is open. Please go ahead.
Yeah. Hi, good morning. Thank you for taking my question. Yeah, just clarifying, is this a potential non-cash combination of this telecom infrastructure assets in Asia, right? Is this an asset-only deal, or will Digi.Com be delisted in this case? Would there be an MGO for Digi, or is there any cash needed for this deal? Thank you.
It is anticipated that this is asset-only, non-cash transaction. That is important for both parties, and that is the plan. How we do a Malaysia in this context, we will have to revert to. But yes, we are also talking about the combination of two companies in Malaysia, but we will have to revert to how we do that, should I say, technically?
... All right, thank you.
Thank you. We'll take our next question from Stefan Gauffin from DNB. Your line is open. Please go ahead. We'll take our next question from Stefan Gauffin. Are you there, sir?
Yes, hello.
The line is open, yes.
Hello. Yes. I just have a question on how the MergeC o will be governed. Who will nominate the CEO, CFO, chairman of the board, of this company, and then also for the local entities?
Yeah. It's a little bit early to go into details on this. But, obviously, Telenor has a majority in MergeC o, and that gives a real influence. In addition to that, we obviously have discussions and agreements to put down and to conclude on, so that there is a good balance, a good balance of two, when we kick it off and when we continue this journey. So, so there will be a... The intention is to continue to have a company and a bigger company, which is listed on a stock exchange, transparent, operating according to best practices at the stock exchange where we are listed.
Also have a good mix of key people and key competence from the two companies. When it comes to-
Okay, perfect. Thank you. Okay.
Thank you.
I will. You can continue if you want to.
No, I'm fine. Thank you.
Thank you. We'll take our next question from Srini Rao from Deutsche Bank. Your line is open. Please go ahead.
Hi. Thank you very much. I have two questions, I mean, if you can help us. First is, in the context of Malaysia, how will the competition regulation view this combination, given that the merger will create a company with almost probably a 60% revenue share, as we speak right now? So, and secondly, on spectrum, do you see any, you know, any challenges there, or the regulator requiring you to make some concessions in order for this merger to happen? Thanks.
I don't have much to comment on that. As I said, earlier, obviously, Malaysia has been discussed. It's an important part of this. It has been discussed, and we believe we will get the approvals that we need. But this is a process going forward with the involved parties from the regulator, et cetera, so we will have to revert on that.
Understood, understood. If I may also ask that, just to confirm, that Myanmar is also part of this transaction. Is that my correct understanding?
Yes, that is correct. So the entire telco operation of Telenor is included, and the entire excluding Robi from Axiata on the telco side is included. And not the ownership position in India, but except for that, everything.
Understood. Thank you so much. This is helpful. Thank you.
Thank you. We'll take our next question from Mr. Frank Maao, from DNB. Your line is open. Please go ahead.
Yes, thanks for taking my second question. So just, for European investors that are not that familiar with the ownership behind Axiata, but they are familiar with your history and partnerships, where it's very important to have good relationships with owners of partnering companies. Could you say a little bit about that? About the ownership side and the key owners in Axiata?
Yeah, I will let you study that yourself, actually. But Axiata has some significant investors, large fund, both the government's investment fund and also pension funds and similar, and also an international investor base to it. So it's a company, in that respect, similar to many other companies. So it's a professional company, listed for a long time, with a robust domestic and international portfolio. But I will let you, I will give you time to study a little bit yourself, and then we can discuss it.
Okay. Thank you.
Thank you. We'll take our next question from Alex Goh, from AmBank. Your line is open. Go ahead.
Hi. Thanks for the opportunity again. Could you just tell us, since it looks like you're going for dual listing, other than Malaysia, which other country would this merge entity be listed in?
Yeah. Thank you, thank you for that question. We have simply said now an international stock exchange. We have not concluded, and we will revert to that in due time. But that is also probably an issue we have a little bit time to conclude. So it's about finding the best stock exchange for such an asset that will be the decisive factor.
Okay, thank you.
Thank you. We'll take our next question from Ranjan Sharma from JP Morgan. Your line is open. Please go ahead.
Hi, one quick follow-up from my side. Regarding Digi, do you intend to take the company private so the merged co owns 100% to get the most out of the synergies flowing into the merged co? Thank you.
Now, we haven't concluded how we want to do that, so we have to get back on that. It's simply a little bit too early to say. What we will do is to act as a good owner in Digi and do what is good for us and for the rest of the owners of Digi. So but we will come back to that.
Okay, thank you.
Thank you. Again, press star one to ask a question. It appears there are no further question at this time. I'd like to turn the conference back to the speaker for any additional or closing remarks.
Yeah, I don't think I have any more comments than just thank you all for participating, and also for appreciate what I sense is at least some understanding that we are early in a process that will take some time. So I'm sure we will talk more about that at a later point in time. But for now, we have probably addressed what is possible to talk about. Thank you very much, and have a nice day.
That concludes today's conference. Thank you everyone for your participation. You may now disconnect.