KATHMANDU, Feb 9: Shares of Axiata Group fell sharply on Friday following a report that the Supreme Court of Nepal has asked the company to pay $530.5 million in capital gains tax following its purchase of Ncell in Nepal, reported Japan's financial newspaper Nikkei Asian Review on Saturday.
According to the report, analysts have widely expected the stock of the largest Malaysian telecommunications company by revenue to stay under pressure in the near term as regulatory risk weighs.
"This may lead to negative knee-jerk reactions over the short-term," the newspaper quoted Kenanga analyst Cheow Ming Liang, who cut the target price of Axiata share to 4.50 ringgit from 4.60 ringgit, as saying.
"Besides, the group may also potentially provide for some non-core impairments related to its legacy equipment," said the analyst.
A full bench of the Supreme Court on Wednesday had directed Ncell and Axiata to pay capital gains tax to the government.
“The tax dispute arose after Axiata had bought Reynolds Holding, which held a majority stake in Ncell, from Sweden's TeliaSonera at around $1.03 billion in 2015. Axiata has paid Rs 23.56 billion under capital gains tax to Nepal's central bank, and has claimed to have cleared all tax liabilities,” the report has said.
The Japanese newspaper reported that the Axiata Group issued a statement claiming that “none of the Axiata-linked parties to the litigation has received the judgment and order of the Supreme Court following its ruling. It also doesn't possess any detail of what was ordered by the Supreme Court”.
Malaysia's state-backed Axiata has been expanding its footprint outside the country in a bid to boost earnings driven by the so-called regional champion initiative advanced by the Malaysian government, the statement said adding that as a group, Axiata currently commands over 260 million subscribers in Southeast Asia and South Asia.
According to the report, most recently, Axiata agreed in January to acquire 80% stake in Mekong Tower Company for $1.48 million in its foray into Laos.
In December, the company bought another 325 telecommunication towers in Cambodia.
"Although Axiata is able to deliver higher core earnings growth owing to its footprint in high-growth developing markets, this latest development would also mean that Axiata is exposed to higher regulatory and investment risks in these markets," the report quoted Public Investment Bank Analyst Eltricia Foong as saying.
According to the report, Axiata's net profit tumbled 44% to 132.07 million ringgit in the third quarter from a year earlier mainly due to lower operating income and currency loss on loans.
“The quarterly revenue slipped 3.2% year-on-year to 6.00 billion ringgit. The company is expected to release its latest financial results on February 22,” it said.
“Shares of Axiata have fallen as much as 9% since Thursday when trading resumed after a two-day Lunar New Year break. The stock fell 4.4% on Friday to 3.73 ringgit, sharply outpacing the benchmark FTSE Bursa Malaysia KLCI's 0.4% loss.”