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T XL Axiata Tbk (EXCL) acknowledged that the costs of acquiring PT Axis Telekom Indonesia would pare profits in the short term, but expected future savings in capital expenses and gains from the sale of assets to rectify the bottom-line in the longer term.

'€œThe acquisition of Axis will definitely have a negative effect on our profits in the short term,'€ EXCL finance director Mohamed Adlan bin Ahmad Tajudin said on Wednesday after a shareholders'€™ meeting.

EXCL has earned shareholder approval to carry on with the Axis deal.

He added that its debts would rise to approximately Rp 27 trillion (US$2.2 billion) post merger and acquisition, given that the mobile network operator had to raise $865 million in loans to fund the deal.

EXCL will source $500 million from EXCL shareholders, and obtain the remaining $365 million from financial institutions. Axiata Investments (Indonesia) Sdn. Bhd., a unit under Malaysian-based Axiata Group Berhad, owns shares of 66.5 percent in EXCL.

Axis booked a loss of Rp 7.2 trillion in the first nine months of 2013, while EXCL recorded a net profit of Rp 917 billion, a 58 percent decline year-on-year.

Adlan further added that EXCL'€™s current net debt to EBITDA (earnings before interests, taxes, depreciation and amortization) ratio was at 1.9 times. '€œWith the external loans we are going to raise to fund this acquisition, that ratio will go up three times,'€ he pointed out.

The net debt to EBITDA ratio indicates the number of years required by a company to pay off its debts.

However, Adlan noted that the pressure of additional debts would wear off in the mid- to long-term period of within five years on the deepening integration of Axis'€™ assets and operations with those of EXCL.

EXCL previously pointed out that it could see revenues grow by 8.4 percent annually, instead of 7.2 percent, in the next five years with the merger and acquisition.

'€œEssentially, EXCL will obtain additional spectrum on the 2G network, in addition to physical assets such as telecommunication towers, through the acquisition,'€ he said.

'€œWe could reduce the usual capital and operational spending on our networks because we have already gained additional spectrum. Moreover, we could monetize the towers down the line,'€ he added.

The Communications and Information Ministry has permitted EXCL to retain 15 megahertz (MHz) of spectrum on the 1800 MHz frequency, intended for 2G services, under the acquisition.

However, the government took back 10 MHz of spectrum on the 2,100 MHz frequency previously run by Axis.

Adlan added that Axis individually owned approximately 1,600 telecommunication towers, while EXCL owned around 8,500 telecommunication towers. He further said that the savings EXCL booked from the reduced operational and capital expenses would '€œallow for positive cash flow generation'€.

'€œThis will enable us to repay the debts we already have and those we incurred during Axis'€™ acquisition,'€ he noted.