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Axiata Group Berhad Additional Discussion Report: HoldCo Cash Upstream

Axiata Group Berhad Additional Discussion Report: HoldCo Cash Upstream

1. Positioning and Treatment

This report is a supplementary report that organises the discussion conducted in the discussion in the context of the existing Axiata issuer summary and 1Q26 issuer flash. Views expressed in the discussion, media-based information, and implications drawn from analyst materials discussed here should not be treated as additional verified new facts.

The confirmed starting point in the existing reports is that Axiata is not a single-country telecommunications operator, but a regional telecommunications and digital infrastructure holding company that supports holding-company debt through dividends, asset sales, and refinancing from CelcomDigi, XLSMART, Dialog, Robi, Smart, EDOTCO, Link Net, and others. In FY2025, Net Debt / EBITDA improved to 2.46x, OpCo dividends of approximately RM1.7bn and a reduction in HoldCo borrowings to approximately RM7.0bn were confirmed. At the same time, because those dividends included a special dividend from XLSMART and Sukuk 2026 was replaced with a RM2.0bn RCF, recurring dividend upstreaming and HoldCo liquidity need to be analysed separately.

The 1Q26 issuer flash confirmed continuing operations PATAMI of RM273.8mn, operating free cash flow of RM509.7mn, Net Debt / EBITDA of 2.51x, HoldCo cash of RM705mn, HoldCo borrowings of RM6.855bn, and dividends received from OpCos of RM165.3mn in 1Q26. These data points reinforce the FY2025 improvement, but they do not establish the repeatability of full-year dividend upstreaming or the terms of the RCF.

2. Main Analytical Read-Through from the Discussion

The central issue across the discussion was whether Axiata’s downside should be assessed not only as deterioration in consolidated EBITDA, but as weakening in recurring cash upstreaming that actually reaches the holding company. The responses in the discussion broadly support this view. However, this is not a conclusion that Axiata’s credit quality is deteriorating immediately; rather, it is a framework for assessing carefully how far the FY2025 improvement can be treated as a repeatable source of debt service.

The discussion presented a conservative view that, if the XLSMART portion of RM390.6mn is fully excluded from FY2025 OpCo dividends of approximately RM1.7bn, the more visible dividend base centred on CelcomDigi and frontier markets is approximately RM1.27bn. This approximately RM1.27bn figure is consistent with the issue identified in the existing reports, but the precise split between ordinary and special dividends from XLSMART is unconfirmed and should not be fixed as a run-rate figure.

Another important read-through is which capital allocation levers Axiata would adjust first under stress. The discussion noted that Axiata places importance on maintaining Net Debt / EBITDA at around 2.5x, while also including maintenance of the 10 sen dividend and DPS growth in its investor narrative. It therefore remains unconfirmed whether, under multiple sources of stress, Axiata would clearly prioritise creditor protection over shareholder returns.

3. Organisation of Q&A Content

3.1 Is recurring dividend upstreaming the first bottleneck?

Question intent
The PM’s initial question was whether, in a credit deterioration scenario for Axiata, the first bottleneck would not be consolidated EBITDA itself, but recurring dividend upstreaming reaching Axiata at the parent-company level from CelcomDigi, XLSMART, Dialog, Robi, Smart, EDOTCO, and others. In particular, the focus was on the run-rate base of FY2025 dividends of approximately RM1.7bn after excluding the XLSMART special dividend.

Key points from the response
The response in the discussion considered this hypothesis broadly reasonable. As confirmed in the existing reports, Axiata’s credit quality needs to be assessed not only through consolidated EBITDA, but through the combination of HoldCo cash, HoldCo borrowings, OpCo dividends, RCF and bank lines, and capital market access. Dividend upstreaming in FY2025 was approximately RM1.7bn, and the discussion organised the components as CelcomDigi RM574.7mn, XLSMART RM390.6mn, and frontier markets RM694.8mn. However, because the XLSMART portion includes a special dividend, the full amount should not be viewed as a recurring source of debt service.

Issues explored in the follow-up
The follow-up question asked what sequence of credit-defence measures Axiata would take if recurring dividend upstreaming temporarily fell below RM1.3bn. The discussion concluded that an officially disclosed numbered order of priority could not be confirmed, and that evidence was also weak that shareholder dividend restraint is explicitly positioned as the first defensive measure. In practice, the likely sequence was considered to be preservation of OpCo dividend upstreaming, HoldCo cost reduction, monetisation of EDOTCO / Link Net and similar assets, OpCo special dividends, refinancing, and finally RCF and bank lines. However, this is a discussion hypothesis.

Credit implications
The FY2025 improvement confirmed in the existing reports is credit positive, but if dividend upstreaming excluding the XLSMART special dividend is weaker than expected, and if this coincides with rising RCF usage and declining HoldCo cash, pressure could emerge at the HoldCo level before it is evident in consolidated metrics. The combination to watch is a decline in OpCo dividend upstreaming, delays in EDOTCO / Link Net monetisation, sustained reliance on the RCF, and maintenance of the 10 sen dividend or DPS growth.

3.2 Is XLSMART an ordinary dividend source or a strategic investment asset?

Question intent
The second main question was whether, after the XLSMART integration, the Indonesian business could become not a growth driver but a source of risk that absorbs Axiata’s parent-company financial flexibility through integration costs, additional investment, 5G, spectrum costs, intensifying competition, and rupiah depreciation.

Key points from the response
The discussion concluded that while XLSMART is a growth asset, it has not yet been confirmed to have transitioned into a stable ordinary dividend source from 2026 onward. As confirmed in the existing reports, the FY2025 XLSMART dividend of RM390.6mn includes a special dividend. The 1Q26 issuer flash presents XLSMART’s revenue and profit improvement and integration effects in a positive light, but this is separate from evidence that ordinary dividend capacity to Axiata at the parent-company level has stabilised.

Issues explored in the follow-up
The follow-up question asked whether Axiata sees XLSMART as an investment that pays ordinary dividends, or as a strategic asset that prioritises reinvestment of internal funds for integration, 5G, spectrum, and competition. The response in the discussion was that Axiata expects dividends and capital efficiency from XLSMART, but in the near term is likely to prioritise completion of integration, 5G rollout, network efficiency, and improvement in market position over dividend maximisation. This is a view from the discussion and has not been confirmed as an explicit minimum dividend policy of Axiata.

Credit implications
For XLSMART, the point to monitor is not revenue growth or EBITDA improvement in itself, but the extent to which ordinary dividends reach Axiata at the parent-company level after tax, after investment, and after RM translation. If integration costs, 5G capex, spectrum spending, price competition, and rupiah depreciation coincide, XLSMART may contribute less to HoldCo repayment capacity even if operating performance improves. If Axiata compensates for a shortfall in XLSMART dividends with the RCF or dividends from other OpCos while maintaining shareholder returns, credit concerns would increase.

Question intent
The third question was whether EDOTCO can be used for credit defence as a stable digital infrastructure asset, or whether it could become a source of risk that constrains Axiata’s parent-company liquidity and financial flexibility through refinancing needs, asset sales, minority shareholder considerations, and investment restraint by telecommunications companies.

Key points from the response
The discussion concluded that EDOTCO has both value as a stable infrastructure asset and the risk of absorbing funding. The existing reports describe EDOTCO as an infrastructure-like asset, but also as an asset with debt, leases, foreign exchange risk, country risk, and refinancing risk. In the discussion, EDOTCO was positioned as important not so much as a major recurring dividend source, but as a monetisation candidate for reducing HoldCo debt.

Issues explored in the follow-up
The follow-up question asked to what extent Axiata is assuming EDOTCO monetisation as a basis for HoldCo debt reduction. The discussion organised EDOTCO / Link Net and similar monetisations, based on media-reported company comments, as important tools for reducing HoldCo debt and lowering debt service costs. At the same time, sale price, multiple, stake to be sold, buyer, timing, tax, minority shareholder handling, and allocation to EDOTCO’s own debt and investments were treated as unconfirmed. There was also a point raised in the discussion that S&P is concerned about deterioration in earnings quality from asset sales, but this report treats that as a media- and discussion-based view.

Credit implications
EDOTCO / Link Net monetisation would be credit positive if a high multiple, early execution, receipt of funds by Axiata at the parent-company level, and clear allocation to HoldCo debt reduction are confirmed. Conversely, if a low multiple, lack of progress during 2026, absorption of funds within EDOTCO, reduction in net proceeds due to minority shareholders, tax, or regulation, or diversion of sale proceeds to shareholder returns or growth investment becomes visible, the monetisation would become an execution risk rather than a defensive buffer. The least desirable outcome would be the loss of stable future EBITDA through a sale without the expected debt reduction.

3.4 Are frontier markets dividends a high-yielding source or a cash-haircut risk?

Question intent
The fourth question was whether frontier markets such as Bangladesh, Sri Lanka, and Cambodia, while being high-dividend sources under normal conditions, also carry the risk that cash upstreaming to Axiata at the parent-company level could suddenly stop due to foreign exchange controls, currency depreciation, tax changes, political intervention, and tariff regulation.

Key points from the response
The discussion concluded that FY2025 frontier markets dividends of RM694.8mn are a core component of recurring dividends after excluding the XLSMART special dividend. Even if the operating performance of Dialog, Robi, and Smart is improving, the view was that operating EBITDA alone is insufficient because local-currency profit becomes HoldCo cash only after dividend declaration, withholding tax, remittance, and RM translation.

Issues explored in the follow-up
The follow-up question asked how far Axiata can manage foreign exchange, remittance, and tax risk through increased dividend frequency and earlier upstreaming. In the discussion, Dialog was identified as a possible case where Axiata may be seeking to reduce currency depreciation and remittance-delay risk through quarterly dividends and earlier upstreaming. At the same time, whether similar high-frequency dividends are possible at Robi and Smart remained unconfirmed. In Bangladesh, the remaining issue is the gap between the formal ability to remit and practical foreign-currency liquidity and approval procedures; in Cambodia, withholding tax, tax treaty application, and tax authority approval remain issues.

Credit implications
Frontier markets dividends are a core component of Axiata’s recurring cash upstreaming, but the amount to monitor is not local profit; it is the actual amount received by Axiata at the parent-company level after tax, after remittance, and after RM translation. Suspension of Dialog’s quarterly dividends, delays in Robi / Smart dividends, increases in withholding tax or telecommunications tax, a longer period between dividend declaration and remittance, and a decline in RM receipts due to currency depreciation would be early warning indicators for HoldCo liquidity. If a delay in XLSMART becoming an ordinary dividend source and a delay in EDOTCO monetisation occur at the same time, the sensitivity to impairment in frontier markets dividends would increase further.

3.5 Conflict between maintaining Net Debt / EBITDA at 2.5x and shareholder returns

Question intent
The final main question was how strongly Axiata’s management intends to defend the improvement in Net Debt / EBITDA to around 2.5x, and what it would adjust first among shareholder dividends, growth investment, additional M&A, asset sales, and RCF repayment if multiple sources of cash upstreaming weakened.

Key points from the response
The discussion concluded that Axiata places importance on leverage management around 2.5x, and that achieving 2.46x in FY2025 demonstrates execution capability. At the same time, because Axiata includes maintenance of the 10 sen dividend and future DPS growth in its investor narrative, whether it would cut shareholder returns first under stress remains unconfirmed. The existing 1Q26 flash also shows Net Debt / EBITDA rising slightly from FY2025-end to 2.51x, which does not suggest a large cushion.

Issues explored in the follow-up
The follow-up question asked at what point Axiata would tolerate suspension of DPS growth or a dividend cut below 10 sen if it could no longer maintain Net Debt / EBITDA around 2.5x. The discussion concluded that, in the early stage of stress, Axiata would likely respond through suspension of DPS growth, restraint of non-essential growth investment and additional M&A, earlier OpCo dividend upstreaming, and acceleration of EDOTCO / Link Net monetisation. A cut below 10 sen would be credit positive, but when the company would tolerate such a cut remains unconfirmed. Extension of RCF and bank lines is possible as a liquidity response, but would be credit negative if it became structural.

Credit implications
Downgrade risk is likely to intensify not from Net Debt / EBITDA temporarily exceeding 2.5x in itself, but if Axiata remains committed to DPS growth or maintaining the 10 sen dividend in that situation and bridges the gap through RCF usage, lower HoldCo cash, and reliance on asset sale expectations. Conversely, if suspension of dividend growth, dividend cuts where necessary, clear allocation of asset-sale proceeds to HoldCo debt reduction, and restraint of non-essential investment are confirmed, the company’s commitment to maintaining its rating would be more credible even under multiple sources of stress.

4. Items for Ongoing Follow-Up

  1. XLSMART’s transition to ordinary dividends and actual receipts by Axiata at the parent-company level
    It has been confirmed that FY2025 XLSMART dividends include a special dividend, but the precise split between ordinary and special dividends and the ordinary dividend policy from 2026 onward remain unconfirmed. Continue to monitor the risk that operating improvement at XLSMART does not translate into HoldCo dividends due to integration costs, 5G capex, spectrum burden, rupiah depreciation, and renewed competition.

  2. Execution timing, multiple, and use of proceeds for EDOTCO / Link Net monetisation
    EDOTCO / Link Net are important candidates for HoldCo debt reduction, but price, timing, stake to be sold, buyer, tax, minority shareholder handling, and final use of proceeds remain unconfirmed. If the multiple is low or execution is delayed, the monetisation becomes an execution risk rather than a credit-defence buffer.

  3. RM-based actual receipts from frontier markets dividends
    Confirm the amounts reaching Axiata at the parent-company level after tax, after remittance, and after RM translation, rather than focusing only on the local performance of Dialog, Robi, and Smart. Key issues are whether Dialog continues quarterly dividends, whether similar earlier upstreaming is possible at Robi / Smart, and whether withholding tax, telecommunications tax, and foreign-currency liquidity reduce actual receipts.

  4. HoldCo liquidity and the risk of structural dependence on the RCF
    The maturity, interest rate, covenants, collateral or guarantees, undrawn availability, and repayment plan for the RM2.0bn RCF that replaced Sukuk 2026 remain unconfirmed. If the RCF becomes not a temporary refinancing bridge but a structural funding source that covers OpCo dividend shortfalls or maintenance of shareholder dividends, that would be credit negative.

  5. Conflict between maintaining Net Debt / EBITDA at 2.5x and shareholder dividend policy
    Axiata achieved 2.46x in FY2025 and maintained the 10 sen dividend, but the triggers for dividend cuts or suspension of dividend growth in the event of Net Debt / EBITDA exceeding 2.5x, approaching 2.7x to 3.0x, or rising RCF dependence remain unconfirmed. If HoldCo cash declines while DPS growth is maintained, the degree of creditor protection embedded in the financial policy should be questioned.

  6. Capital allocation priorities under multiple simultaneous stresses
    If delayed ordinary dividends from XLSMART, delayed EDOTCO monetisation, and impairment of frontier markets dividends occur simultaneously, it remains unconfirmed which levers Axiata would adjust first among non-essential investment, additional M&A, shareholder dividends, use of asset-sale proceeds, and RCF repayment.

5. Candidates for Transfer to issuer_notes.md

This exercise does not update issuer_notes.md. The following are candidates that should be considered for transfer to follow-up on management strategy, investment plans, and financial policy in future updates.

6. Unconfirmed Items

7. Reference Context