KUALA LUMPUR (March 2): S&P Global Ratings has cautioned that Axiata Group Bhd (KL:AXIATA) could weaken its earnings quality and increase its exposure to higher-risk markets if it proceeds with the divestment of its stakes in tower company Edotco Group Sdn Bhd and Indonesia-based fiberco Link Net Tbk PT (LinkNet).

The rating agency is concerned that Axiata is effectively trading future profits for immediate debt relief. The final price tag will determine if the company actually ends up financially healthier, or simply smaller and more exposed to volatile markets.

Early 2026 estimates from CGS International Research and CIMB Securities Research suggest that a 63% stake sale in edotco could generate proceeds of between RM4 billion and RM6.6 billion. Combined with the LinkNet sale, total disposal proceeds could reach RM10.9 billion.

"The sale amount would determine to what extent any divestment would help to offset the lost earnings," S&P said, noting that LinkNet and edotco contributed an estimated 25% to 30% of Axiata's adjusted earnings before interest, taxation, depreciation and amortization (Ebitda) in 2025.

A core concern for S&P is that roughly 70% of the group's consolidated adjusted Ebitda comes from the frontier markets of Bangladesh, Sri Lanka and Cambodia.

"Exposure to these higher-risk markets will rise further if the sale of the two infrastructure assets proceeds. LinkNet entails exposure to Indonesia; and Edotco exposure to Malaysia, Indonesia, and the Philippines," it noted.

While the higher-risk markets may offer higher growth potential than mature markets, they also present greater regulatory and volatility risks that could "weaken and constrain the ratings", offsetting any benefit of deleveraging.

"A sell-down could also further reduce Axiata's revenue and earnings base... Removal of this (LinkNet and Edotco's contributions) could affect the company's long-term earnings resiliency," S&P said.

edotco currently operates and manages more than 55,000 towers across seven countries — Malaysia, Indonesia, Bangladesh, Cambodia, Sri Lanka, Pakistan and the Philippines. Khazanah has a 31.71% stake in the company, while the Retirement Fund Inc (KWAP) holds 5.29%. Khazanah is also Axiata’s biggest shareholder, with a 36.7% stake.

Axiata has been deleveraging over the past year using operating cashflows, proceeds from a merger in April 2025 with XLSmart, and the June 2025 sale of edotco's Myanmar operations. Axiata recently reiterated its intention to monetise its digital infrastructure assets, expecting to complete these deals by end-2026.

"If the sales do not proceed, we still project the company's leverage to modestly improve over the next two years. We expect adjusted Ebitda to be flattish in 2026 and grow 4%-6% in 2027, owing to data demand growth, stabilising economic conditions and rational competition.

"Appreciation of the Malaysian ringgit and the absence of special dividends from Indonesian telco XLSmart Telecom Sejahtera Tbk PT will weigh on the company's earnings in 2026," S&P added.