Accounting complexities seen in telco reorganisations in Asia, India: Moody’s

Amid low penetration, fixed broadband presents growth opportunities.

Organisational restructuring efforts by telecommunication firms in Asia are expected to deliver operational benefits over the long term, although challenges remain as accounting complexities emerge, according to Moody’s Investors Service.

The rating agency said in a note that the wave of telco reorganisations can boost valuations, generate better return on capital, improve infrastructure efficiency and enhance customer experience in the long run.

“While such deals can bring operational benefits and enhance longer-term value of assets, they also introduce financial and accounting complexities,” Moody’s said.

Aimed at capturing the high growth potential in fixed broadband, it said the respective reorganisations at Telekom Malaysia Berhad and Telekom Indonesia will improve operational efficiencies overall but they also add another layer in their group structures, which may increase reporting and financial complexities moving forward.

These strategies, nonetheless, remain aligned with their fixed mobile convergence initiatives and should streamline processes, eventually leading to cost reduction.

In the Lion City, the latest reorganisation move by Singapore Telecommunications Ltd to set up a standalone digital infrastructure called Digital InfraCo in April could enhance valuations and create more monetising opportunities through public listing or having strategic partners, since the unit has been separated from the services business.

“Accounting complexities could potentially arise through intragroup transactions between the Digital InfraCo and Singtel's operating subsidiaries,” Moody’s noted.

Malaysian telco conglomerate Axiata Group, meanwhile, considers trimming its stake in its regional tower subsidiary edotco Group to less than 50% from 63%. Depending on the use of proceeds, the rating agency expects the move to bring down Axiata’s consolidated leverage as edotco was its subsidiary with highest gearing.

In the Philippines, telco giant PLDT is one of the few firms to let go of passive tower assets despite the string of portfolio sales it has entered into since April of last year.

PLDT still owns 37% of its tower portfolio, presenting monetisation opportunities that could generate an estimated PhP58b (US$1.06b).

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