KEY INSIGHTS ON AXIATA MERGER: AXIATA’S GAME-CHANGING MERGER IN INDONESIA

On 24th March 2025, Axiata Group Berhad (“Axiata”) convened an Extraordinary General Meeting (“EGM”) to vote on the landmark merger proposal uniting PT XL Axiata Tbk (“XL Axiata”), PT Smartfren Telecom Tbk (“Smartfren”), and PT Smart Telecom (“ST”).

The shareholder mandate was overwhelming: 99.9958% of shareholders voted in favor of the merger proposal, with merely 0.0042% voting against. This mega-consolidation creates an agile, formidable telecommunications powerhouse in Southeast Asia’s largest economy. Below is a comprehensive legal and commercial analysis extracted from the Circular to Shareholders.

Summary of the Transaction Architecture & Rationale

Following an initial non-binding Memorandum of Understanding signed on 15 May 2024 with the Sinar Mas Group, definitive transaction agreements were executed on 10 December 2024:

• Conditional Merger Agreement: Establishing the statutory merger framework under Indonesian corporate law;
• Shareholders’ Deed: Outlining mutual covenants, interim covenants, and closing obligations;
• Conditional Share Purchase Agreement (Proposed Equalisation): Whereby Axiata disposes of a 13.14% interest in the merged entity to PT Bali Media Telekomunikasi (“BMT”) for USD 475 million to achieve equal joint ownership; and
• Shareholders’ Agreement: Governing board composition, reserved matters, and corporate governance post-completion.

Upon completion, Smartfren and ST will dissolve without liquidation, while XL Axiata assumes all their assets, liabilities, and operations. The surviving entity will be renamed PT XLSmart Telecom Sejahtera Tbk (“XLSmart” / MergeCo) and will remain listed on the Indonesia Stock Exchange (IDX). Axiata and Sinar Mas will each hold an equal 34.80% joint controlling interest, with public shareholders holding 30.40%.

Corporate Structure Comparison: Before vs. After Proposed Merger

Figure 1: Corporate Shareholding Structure Prior to the Proposed Merger

Figure 2: Resulting Corporate Structure of MergeCo (PT XLSmart Telecom Sejahtera Tbk)

Legal Opinion & Cross-Border Regulatory Safeguards

According to the Indonesian legal opinion rendered by Assegaf Hamzah & Partners:

• Title & Capacity: All shares of Smartfren and ST are validly issued, fully paid up, and owned by the Sinar Mas shareholders without undisclosed encumbrances;
• Enforceability of Foreign Awards: SIAC arbitral awards are enforceable in Indonesian courts pursuant to the New York Convention 1958 and Law No. 30 of 1999;
• Foreign Ownership Limits: While certain telecom segments restrict foreign investment, MergeCo—as a publicly listed corporation on the IDX—is statutorily exempt from foreign ownership caps; and
• Foreign Exchange & Dividend Repatriation: There are no restrictions on dividend repatriation, subject to routine compliance and reporting to Bank Indonesia.

Indonesian Taxation Policy Insights (PwC Report)

The tax assessment prepared by PricewaterhouseCoopers Taxation Services Sdn Bhd (PwC) highlights several critical considerations:

• Corporate Income Tax (CIT): Standard CIT rate of 22% applies to resident companies, with exemptions available for domestic inter-company dividend income;
• Transfer Pricing: Entities with direct or indirect shareholding of 25% or more must price related-party transactions at arm’s length, maintaining Master Files, Local Files, and Country-by-Country Reports (CbCR);
• Transaction Taxes: 2.5% final tax on land/building transfers; 0.1% final withholding tax on the gross sale proceeds of listed shares on the IDX;
• Controlled Foreign Company (CFC) Rules: Deemed dividend rules apply to undistributed active/passive income where shareholding exceeds 50%; and
• Withholding Tax & Treaty Relief: Standard 20% withholding tax on dividends, interest, and royalties is substantially reduced under the Malaysia-Indonesia Double Taxation Agreement. Notably, technical and management fees are not subject to withholding tax if services are rendered wholly offshore.

Advisers, Due Diligence & Financial Commitments

The merger process was stewarded by top-tier institutional advisers:

• Principal Adviser: Maybank Investment Bank Berhad;
• Independent Fairness Opinion: Alliance Islamic Bank Berhad, which confirmed the fairness of the Combination Consideration and Issue Price;
• Indonesian Legal Counsel: Assegaf Hamzah & Partners; and
• Taxation Expert: PricewaterhouseCoopers Taxation Services Sdn Bhd.

As of 31 January 2025, Axiata has committed RM1.29 billion in capital expenditures for property, plant, and equipment, while managing contingent liabilities of RM742.7 million arising from ongoing litigation and disputed claims.

Conclusion

The merger creating PT XLSmart Telecom Sejahtera Tbk establishes a formidable, highly competitive scale player in Indonesia, positioned to drive 5G rollout, digital infrastructure, and AI integration. Supported by sound legal governance, international arbitration protections, and clear tax structuring, XLSmart stands as a premier example of high-stakes cross-border corporate reorganization in ASEAN.

Disclaimer: This article is for informational purposes only and does not constitute formal legal or investment advice. For inquiries regarding cross-border corporate mergers, regulatory approvals, or commercial joint ventures, please contact Hasrina Hakimi Advocates & Solicitors directly.