Singtel has agreed to sell a 3.3 per cent direct stake in its regional associate Bharti Airtel for $2.25 billion to help fully fund its 5G and expansion plans.

 

In a statement on Thursday (Aug 25), the teleco said it expects to net a gain of $600 million from the sale of the stake to Bharti Telecom, its joint venture with India&rsquo s Bharti Enterprises. 

 

This will leave Singtel with a 29.7 per cent effective stake in Airtel comprising a 19.2 per cent indirect stake through Bharti Telecom, and a 10.5 per cent direct stake.

 

" As long-term strategic investors and partners, the value of our stakes in our regional associates has risen substantially over the years but has not been properly reflected in our share price. This sale in Airtel will be our first ever and seeks to address this gap by illuminating the sizeable value of our holdings in Airtel," said Mr Arthur Lang, group chief financial officer of Singtel.

 

Proceeds from the sale will help Singtel fully meet its needs for 5G and growth initiatives in the years to come, Mr Lang said.

 

It will also put the group in a " strong position to grow (its) dividends in a sustainable way in line with (its) dividend policy" , he added.

 

Following the transaction, Singtel also plans to increase its stake in Intouch Holdings, the parent company of its Thai regional associate AIS, as well as partially divest Airtel Africa as part of its recent capital management initiatives to rebalance and optimise Singtel' s associates portfolio.

 

Singtel has been streamlining its portfolio as it focuses on 5G operations and seeks new growth engines. It&rsquo s disposing off advertising platform Amobee and is said to be weighing options, including selling its cyber security business Trustwave Holdings and a possible stake sale in some fiber assets.

 

Singtel is not the only operator divesting assets. Vodafone Group is divesting bits of its businesses and Japan&rsquo s NTT is said to be mulling a sale of its controlling stake in an IT services firm.

 

News of the divestment comes a day after Singtel reported 41.3 per cent rise in first-quarter net profit to $628 million, which was mainly attributed to better operational performance and exceptional gains from Airtel.

This week has been an interesting one for Singapore Telecommunications (Singtel).

 

On Aug 24, it released its 1QFY2022 ended June business update, which saw net profit grow by 43.4% y-o-y to $628 million and underlying operating revenue increase by 4.1% y-o-y to $3.6 billion.

 

A day later, Singtel announced it will be selling 198 million shares or a 3.3% stake in Bharti Airtel to Bharti Telecom for a consideration of $2.25 billion. This sale, which will see an estimated $0.6 billion net gain on divestment for the telco, is part of the group&rsquo s capital recycling strategy.

 

News of the sale, announced before the market opened on Aug 25, sent Singtel shares up 1.9% at the opening to trade at $2.67.

 

The divestment will not materially change Singtel&rsquo s stake in Airtel, given how it will still hold an effective stake of 29.7% in Airtel, worth $22 billion at current prices, equivalent to around half of Singtel&rsquo s market cap. This stake comes in two parts: a 10.5% direct stake in Airtel, and a 19.2% indirect stake in Bharti Telecom.

 

More importantly, the sale of Airtel shares at this price sends out a strong signal that Singtel shares, based on a sum-of-the-parts valuation method, are undervalued and that the stock deserves a second look.

 

The stake sale comes on the back of several recent capital management initiatives to rebalance and optimise the portfolio of Singtel&rsquo s associates. These included increasing its stake in Intouch Holdings, the parent company of Singtel&rsquo s regional associate Advanced Info Service (AIS), and a partial divestment of Airtel Africa.

 

Airtel&rsquo s stock price has grown 23.9% in the past 12 months to trade at INR745.10 ($12.98) on Aug 25. Airtel is trading at 8x 12-month EV/ Ebitda versus Singtel&rsquo s core business trading at only about 3x EV/Ebitda based on the market value of its regional associates, according to estimates from DBS Group Research analyst Sachin Mittal in his Aug 25 note. The proceeds from the divestment are also equivalent to Singtel&rsquo s full-year earnings.

 

&ldquo As long-term strategic investors and partners, the value of our stakes in our regional associates has risen substantially over the years but has not been properly reflected in our share price,&rdquo says group CFO Arthur Lang.

 

&ldquo This sale in Airtel will be our first ever and seeks to address this gap by illuminating the sizeable value of our holdings in Airtel.&rdquo

 

Lang says the sale is part of the telco&rsquo s capital-management approach to seize monetisation opportunities, increase its return on invested capital and enhance total shareholder returns. He adds that the proceeds are sufficient to meet the telco&rsquo s 5G capex requirements and other growth plans lined up for the coming few years. The cash freed up also puts Singtel in a &ldquo strong position&rdquo to grow its dividends sustainably in line with its dividend policy.

 

Singtel says Bharti Telecom will continue to be the principal vehicle for holding its controlling stake in Airtel. This means there is the likelihood of more stake sales to come, freeing up more capital which will be good for dividends.

 

&ldquo It is not unreasonable to expect Singtel&rsquo s payout ratio to rise to 85%&ndash 90% ratio (4.6%&ndash 4.9% yield at the current price) from 80% last year,&rdquo adds Mittal, who has kept his &ldquo buy&rdquo call on the stock, along with an unchanged target price of $3.24.

Proceeds from the sale will help Singtel fully meet its needs for 5G and growth initiatives in the years to come, Lang added, putting the group in a " strong position to grow (its) dividends in a sustainable way in line with (its) dividend policy" .

SINGAPORE Telecommunications&rsquo (Singtel) net profit for the first quarter ended Jun 30 was up 41.3 per cent to S$628 million from S$445 million last year, said the telco giant in a regulatory filing on Wednesday (Aug 24).

 

This was mainly due to a better operational performance and &ldquo exceptional gains&rdquo from India&rsquo s Bharti Airtel.

 

A dilution of the group&rsquo s effective shareholding in Australia Tower Network also gave its Q1 net profit a lift, added Singtel : Z74 -0.38%.

 

The group&rsquo s Q1 earnings before interest, taxes, depreciation and amortisation (Ebitda) fell 2 per cent to S$977 million from S$997 million, while operating revenue for the quarter slipped 5.6 per cent from S$3.8 billion to S$3.6 billion in Q1 2022.

 

This was largely due to the absence of Optus&rsquo national broadband network migration revenue and contributions from Amobee. Amobee was classified as a &ldquo subsidiary held for sale&rdquo in March.

 

The telco also took a hit from a 4 per cent depreciation of the Australian dollar.

 

On an underlying basis, operating revenue and Ebitda would have grown 1.8 per cent and 2.9 per cent respectively, mainly driven by Optus and its Singapore consumer business arms on the back of a roaming rebound from the broader relaxation of Covid-19 restrictions. 

 

&ldquo This set of positive results reflects the progress made on our strategic reset designed to strengthen our core, unlock the value of our assets and grow new digital businesses,&rdquo said Singtel&rsquo s group chief executive officer Yuen Kuan Moon.

 

He, however, expects the operating environment for the group to remain challenging amid rising inflation and interest rates, as continuing geopolitical tensions further impact global supply chains.

 

He added: &ldquo We will need to stay nimble and contend with these realities should they put further pressure on our costs and bottom lines.&rdquo