Malaysia’s Axiata and Norway’s Telenor have agreed to merge their mobile telecommunications operations in the south-east Asian country, creating a $12bn entity that will seek to capture rising demand for digital services.

The deal, announced on Monday, comes two years after the pair abandoned plans to merge their regional operations in a deal that would have created the biggest telecoms operator in south-east Asia.

Under the agreement, the two groups will each own 33.1 per cent in the merged business, which will be valued at nearly RM50bn ($12bn). The companies said the new entity, which is set to be listed in Kuala Lumpur, would seek to capture the increasing demand for digital services in Malaysia. The country aims to start the rollout of 5G connectivity by the end of this year.

The deal, which is subject to regulatory and shareholder approval, is expected to be completed by the second quarter of 2022.

“With this merger we bring together competencies, financial strength and scale to go beyond connectivity and implement technology that further advances our customers’ digital experience,” said Jorgen Rostrup, executive vice-president and head of Asia at Telenor.

With an estimated 19m customers, the merged entity is expected to generate earnings before interest, tax, depreciation and amortisation of RM5.7bn and a profit after tax of RM1.9bn, the companies said.

“Assuming a smooth transition [and] post integration period, we are expecting to see improvement in ebitda and cash flow margins in the combined entity in step with our ongoing commitment to maximise dividend payout for our shareholders,” said Izzaddin Idris, president and group chief executive at Axiata.

Under the agreement, Axiata will transfer full ownership of its mobile operator Celcom to Digi, Telenor’s Malaysian unit, for nearly RM18bn, which will be settled via new shares and RM1.7bn in cash from Digi and nearly RM300m in cash from Telenor, according to an Axiata exchange filing on Monday.

The filing said the deal would “protect Malaysia’s national interests with Axiata and key Malaysian institutional shareholders” set to own more than 51 per cent of the merged entity.

Shares in Axiata were 2.2 per cent lower on Monday following the deal’s announcement.

Two years ago, the companies blamed the ending of merger talks on “complexities”. The collapse of the plan came after then Malaysian prime minister Mahathir Mohamad voiced concerns about potential job losses at Khazanah Nasional. The sovereign wealth fund, which he previously chaired, is Axiata’s main shareholder.