Weeks after it was reported that Axiata Group and PT Sinar Mas Group were discussing a potential merger in Indonesia, Axiata have confirmed the two are in talks.

In a stock exchange filing, Axiata announced it has "entered into a non-binding Memorandum of Understanding (MoU) to mutually explore a proposed merger of XL Axiata and Smartfren to create a new entity.

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Axiata noted talks are in the early stages, and there's no guarantee that such a deal will materialize.

According to the company, the MoU will look into how a potential merger could create value for shareholders, while also assessing due diligence, preparation of a joint business plan, and agreement on key terms will be the principal activities carried out during the exploratory phase governed by the non-binding MoU.

Such a deal would also require regulatory approval.

"With the intent to create a stronger telecommunications service provider in Indonesia, the proposed merger of XL Axiata and Smartfren is expected to bring together the combined scale, competencies, finances, and deep telecommunication expertise of Axiata and the local scale and market knowledge of Sinar Mas to generate significant value," the filing said.

"Both principals are expected to wield an equitable influence over the strategic direction and operational decisions of MergeCo, bolstered by their respective strengths."

If the deal were to go ahead it would represent more market consolidation in the country, following the merger of CK Hutchison Holdings Ltd. and Qatar’s Ooredoo to create Indosat Ooredoo Hutchison in late 2021/early 2022.

Malaysian-based XL Axiata has close to 60 million subscribers in Indonesia. PT Smartfren Telecom has an estimated subscriber base of 36 million.

Last month, Axiata confirmed it will sell its entire stake in its subsidiary Edotco Myanmar Ltd for $150 million.