The Rights Issue Plan of Smartfren (FREN) Will Become a Positive Catalyst

CORPORATE ACTION - JAKARTA. Telecommunication operator issuer, PT Smartfren Telecom Tbk (FREN) plans to conduct a rights issue, also known as capital increase by giving the right to order securities in advance (PMHMETD).

Quoting from the disclosure of information, Wednesday (24/1), FREN will issue 171.45 billion shares with an offering price of Rp 50 per share. Thus, FREN will obtain fresh funds of Rp 8.57 trillion.

About Rp 5.47 trillion from the rights issue funds will be used for FREN's debt and loan interest payments. The rest will be used for FREN's working capital or subsidiary entities.

Just so you know, this corporate action is the third rights issue conducted by FREN in the last six years after November 2018 and April 2021.

Investment Analyst Stockbit Securities Arvin Lienardi observed that historically, Smartfren shares have experienced a significant price increase after completing a rights issue.

"Therefore, this rights issue also has the potential to provide positive sentiment for FREN's price movement," Arvin explained in his research, Thursday (25/1).

Fundamentally, this rights issue will improve FREN's financial position. As of September 2023, FREN recorded a total debt of Rp 11.6 trillion.

Arvin said the funds from the rights issue have the potential to reduce this Sinarmas Group entity's debt by 47.3%. This has the potential to lighten the burden that Smartfren has to bear.

Research Analyst BRI Danareksa Securities Niko Margaronis observed that issuers or companies that merge usually need to take steps to reduce excess debt independently.

Especially there is a potential merger between the third largest operators in Indonesia, namely PT XL Axiata Tbk (EXCL) with Smartfren. This discourse will be a breath of fresh air for the telecommunications industry.

However, FREN still has to bear a large debt burden. According to Niko, the fastest way for FREN to do deleverage is through increasing share capital.