KUALA LUMPUR: RHB research has maintained a neutral call on the telecommunications sector after a second attempt to have mobile network operators take interests in Digital Nasional Bhd (DNB) came with due diligence and conditions precedent (CPs), making it possibile for the deal to fall through.
On Friday, CelcomDigi, Maxis, YTL Communications, U Mobile and Telekom Malaysia Bhd signed conditional share subscription agreements with DNB to take up 14 per cent each in the company for RM233 million each. They will collectively have a 70 interest while DNB will hold the remaining 30 per cent.
The deal is subject to due diligence and the fulfilment of conditional precentds (CPs), and is slated for completion by early 2Q24 with formal shareholder agreements to follow.
Shareholder approvals are not required for Maxis and CelcomDigi.
In October 2022, Celcom Axiata Bhd, Digi Telcommunications Sdn Bhd, now CelcomDigi, YTL Communications Sdn Bhd and TM executed share subscription agreements (SSA) to take up equity stakes in DNB. Then the MNOs were to own a 65 per cent interest, while DNB retained 65 per cent.
"The deal (signed Friday) is subject to due diligence and conditions precedent (CPs), and hence, could still fall through. We keep our Neutral sector rating, and prefer fixed line plays," the firm said in its note today.
It also made no changes to its top picks for the sector, which are Time dotCom and OCK Group.
According to RHB research, the equity injection represents a shareholder advance in the form of prepayment of 5G access charges.
As expected, RHB Research said one of the CPs included is an undertaking that only investors in DNB are allowed to partake in the second 5G wholesale network (Entity B).
"This compels access seekers to commit to DNB's supply driven/cost-recovery model and coverage target. "Other notable provisions include consent to be procured from the network vendor (Ericsson) for the change in DNB's ownership and board composition," it said.
Meanwhile, RHB Research noted that a term stipulated in the 5G wholesale access agreements inked with DNB allows access seekers to terminate the access agreements if DNB is no longer the 5G single wholesale network provider.
"As DNB's coverage is already extensive and Entity B will take some time to roll out, the firm thinks the latter will still need to "roam" on DNB's network in the interim."
The regulator previously stated that 5G spectrum resources will be equally distributed between both Entity A and Entity B, and the latter will need to ensure its coverage is on par with that of DNB.
"This means that a ministerial direction would be required to cancel DNB's exclusive rights for the provision of 5G access issued on May 31, 2021.