Five MNOs has finally signed share subscription agreements (SSAs) to acquire a collective 70% equity stake in Digital Nasional Bhd (DNB) from the Ministry of Finance Incorporated (MOF Inc). MIDF says it views this positively as the new shareholder structure would put DNB in a better position to drive the development of the 5G infrastructure, in particular its near-term goal of achieving 80% 5G coverage in populated areas. The latter would also lead to the creation of the second wholesale 5G network operator i.e., “Entity B”. Note that as at end of Octobe 2023, 5G coverage has reached 73%.
Nonetheless, the house said it remains NEUTRAL on the telecommunication sector at this juncture. This is pending the achievement of the 80% target, possible changes to DNB’s mandate, divulgement on the details of the second network operator as well as the exit clause for MNOs to divest DNB.
With the SSA DNB is valued at more than RM2bm, the five MNOs which comprises of CelcomDigi Bhd, Maxis Bhd, Telekom Malaysia Bhd, U Mobile Sdn Bhd and YTL Communications Sdn Bhd finally inked share subscription agreements (SSAs) with DNB and the Ministry of Finance Incorporated to subscribe to a 14% stake each in the government-owned 5G network infrastructure outfit for RM233.2m. MOF Inc will hold 30% stake in DNB.
In addition, there is also a put option that MOF Inc can exercise should it decide to totally divest its stake in DNB once the 80% milestone is achieved. As a result, each of the MNOs would need to fork out an additional RM190m for the remainder 6% stake. This will boost the respective MNOs stake to 20%. Premised on this, DNB will be valued at approximately RM2.1b. The SSAs are expected to be completed between February and April 2024, subject to a due diligence process being completed by the MNOs.
The proposed transaction is expected to be funded via a combination of internally generated fund and/or borrowings. Looking at the respective balance sheet, the house does not see much issue for the MNOs to come up with the required funding. However, we are concern if there are additional funding required for DNB to meet its targets.
Better resources to complete the task. To recall, during the early days, DNB managed to secure a working capital financing package worth RM400m from Deutsche Bank (Malaysia) Bhd. It has also secured a loan worth RM800m from United Oversea Bank to finance its first tranche with Ericsson (Malaysia) Sdn Bhd. Thus, MIDF views that the SSAs will provide better resources to help DNB achieved the 5G goal.
The house also notes that details on Entity B is scarce at this juncture. There has not been much detail on the formation of Entity B. Nonetheless, the Government will hold no stake in the second entity. It will be entirely commercial. Also, at this juncture, MIDF is only aware that China’s Huawei may participate as the network provider for the Entity B. MCMC also guided that the wholesale prices for 5G will not increase with the second network rollout.
To recall, a second network would provide redundancy and counter any issues of DNB as a monopoly given its position as the 5G single wholesale network. This is apart from providing an alternative to access seekers.
