Asian operator group Axiata inked a deal to acquire Indonesian operator Axis, a move that will lead to the creation of the second biggest operator in the market.

Axiata has entered into a “conditional sale and purchase agreement” with current owner Saudi Telecom Company (STC) and its Teleglobal Investments arm.

Axiata’s Indonesian unit, XL Axiata, will acquire 95 per cent of Axis, in a transaction which values Axis at $865 million on a cash-free and debt-free basis.

The deal is subject to regulatory clearance, shareholder approval and “spectrum retention”.

Previously, it was reported that there was a dispute between STC and its bankers over a $1.2 billion loan made in 2011, since when the operator has suffered from a downturn.

Axiata said that “the purchase consideration will be utilised towards payment of a nominal value for Axis equity and redemption of Axis indebtedness”.

Bloomberg said that Axiata is paying $100 cash for the share capital of Axis, with the rest of its payment going to clear debt.

In the second quarter of 2013, STC recorded a loss of $188 million related to a revaluation of Axis, Reuters reports, with the full impact of the Indonesian venture on its results to be determined once the transaction is concluded.

According to GSMA Intelligence figures for Q2 2013, XL Axiata is the third biggest operator in the market, with its 54.2 million connections putting it just behind Ooredoo’s Indosat (56.5 million connections) – but both lag dominant Telkomsel, which has 125.1 million connections.

However, adding fifth-placed Axis’ 16.9 million connections to Axiata puts the combined unit into a clear second place.

Axiata said the deal “consolidates the industry further and paves the way for more prudent, growth-focused expansion with a more efficient capex profile”.

It will also provide XL with additional spectrum (subject to approval), leading to “significantly enhanced quality of service and network experience on both 2G and 3G” and “enhanced asset utilisation, particularly on XL’s towers and network equipment, with tangible reduction in capex and opex spends”.

Dato’ Sri Jamaludin Ibrahim, group CEO of Axiata, said: “We are a long term investor and the acquisition is in line with our strategy of continued investment in every country we operate in and supporting in-market consolidation where it benefits all parties.”

“We are confident we can successfully execute the integration as we did with Hello and Smart in Cambodia as well as Suntel and Dialog in Sri Lanka. Both acquisitions saw smooth and successful integration both strategically and financially,” he added.