EPF, as well as other global Towerco Companies and PE Funds, could be looking to purchase a stake in Edotco. Are TowerCo acquisitions on the move again since interest rates are no longer expected to continue to rise?

Source: Various articles over the internet including Axiata's interview with the Edge about 6 months ago.

"Sources" say that EPF is conducting its due diligence on Edotco while Khazanah and Japan-based INCJ Ltd is looking to exit.

Edotco, the world's 6th largest Towerco, has 4 main shareholders : $AXIATA / 6888 (AXIATA GROUP BERHAD) 63%, INCJ 21.14%, Khazanah 10.57% (which also owns 37% of Axiata), and KWAP 5.29%.

Being a very capital intensive business, Edotco is said to be looking for yet another round of fund raising. In light of the current high interest rate environment, they are not keen to undertake an IPO right now, so they are said to be exploring Private Equity.

In 2017, Edotco was valued at USD 1.5bil (around RM 6.6+bil at the time). At that time, they owned and managed about 26,000 towers across the region. Since then, they had made aggressive acquisitions from debt, in part due to the low interest rate environment, and increased their Tower portfolio to almost 58,000 towers across Malaysia, Indonesia, Myanmar, Cambodia, Philippines, Pakistan and so on. Noticed how I wrote "owned and managed"? The actual number of towers owned is 32.7k with average Tenancy of 1.64x while 25.4k are managed towers.

I covered many of the (rather high profile) acquisitions back in 2020-2022. Anyway...

In the same period of time (fy17-fy22), their liabilities climbed from ~RM 700mil to over RM 8.4bil. Meanwhile net profit only increased from RM 170mil to RM 200 mil in FY22, in large part due to rising USD, and also high finance costs.

In 2023, the Liabilities would have climbed even more-- they took a USD 700mil syndicated loan and a RM 1.4bil SUKUK issuance on top of that, of which the interest rates are not disclosed but is expected to be high.

In an ideal situation, a towerco should take borrowings if the returns from the acquisition can service the loans with sufficient returns. However, the sudden sharp rising of interest rates is putting Edotco and other towercos into an awkward position as investors have more options for low risk steady yields rather than investing in utility and recurring income companies.

Axiata's CEO reportedly said that they aren't looking to pump more money into Edotco, as Axiata themselves are not in a healthy balance sheet position and would consider giving up its majority stake if the valuation is right.

In other news, plenty of other parties are said to be interested in bidding for that stake-- including Japan's NTT Docomo together with Mitsui & Co, CVC Capital Partners, and so on, with Docomo+Mitsui looking for about USD 750mil for a majority stake. It wasn't specified how big a stake it could be, as majority stake could typically mean 50%+1 or more-- or in some cases as low as 33.3%.

Let's drill into Edotco's numbers a little bit more, so it's easier to compare with the other listed company with towerco exposure in Malaysia namely $OCK / 0172 (OCK GROUP BERHAD) and $REDTONE / 0032 (REDTONE INTERNATIONAL BERHAD) to a lesser extent.

Numbers at FY2022

Edotco
Total towers owned: 32.7k with TR of 1.64x ; Managed: 25.4k
Revenue of RM 2.5b
EBITDA of RM 1.6b
PATAMI of RM 191mil
Total Liabilities of RM 8.4b
Most Recent Publicly Known Valuation (2017) : RM 6.6bil

valuation ratios based on latest financials:
P/S : 2.64x
P/EBITDA: 4.13x
P/E : 34.56x

How does that compare with the others?