Key summary points
 

We see room for Singtel to cut its Bharti Airtel stake by another 5% over the next 3-5 years, with most proceeds reinvested into its core business or paid out as dividends

HoldCo discount is likely to narrow to below 15% - similar to levels before FY18 - as Singtel monetises its associate stakes

Maintain BUY with a higher TP of SGD4.27, based on a revised 15% HoldCo discount (prev 20%)

 

Singtel has sold around 1.2% of its stake in India' s Bharti Airtel for SGD2bn. As per Reuters, this could translate to an estimated gain of SGD1.4bn. Singtel has sold 71 million shares in Airtel at INR1,814 apiece, at a 2.85% discount to Airtel&rsquo s closing price on Thursday. Following the sale, Singtel&rsquo s stake would drop to 28.3% from 29.5%, with its holding now valued at around SGD48bn.

 

The idea is to reinvest in its core business in Singapore and Australia. This could include new growth areas such as data-centres, GPU-as-a-service, and ICT opportunities. Core operating growth has shown a very high correlation with Singtel&rsquo s stock price, and could help to narrow the holding company discount, which is still over 25%, to the 10%-15% range.

 

Room to divest another 5% stake in Bharti Airtel in 3-5 years. As we understand, Bharti&rsquo s key promoter Mr. Sunil Mittal owns ~22.9% in Bharti Airtel. If Singtel were to align its Bharti Airtel stake with that of Mr Mittal, Singtel has room to further reduce its stake from 28.3% to 23% in the next 3-5 years. This could unlock an estimated SGD8-10bn in potential proceeds from a future divestment in Bharti Airtel.

 

Maintain BUY with a higher TP of SGD4.27 (prev: SGD3.93). Our higher TP reflects a 3-month roll forward of our core valuation and a narrower target HoldCo discount of 15% from 20%. We value Singtel&rsquo s regional associates at SGD3.49 (prev: SGD3.17). We estimate Singtel&rsquo s new indirect stake in AIS via NewCo as 7.65% after the amalgamation of Intouch Holdings and Gulf Energy in Thailand. Our fair value for Singtel&rsquo s core business in Singapore and Australia is SGD0.78 per share (prev: SGD0.76). Bharti comprises 54% of our sum-of-the-parts (SOTP) valuation. Singtel is a cheap proxy to Bharti, which now accounts for 54% of our Singtel&rsquo s SOP valuation.

 

Mr Arthur Lang, Singtel&rsquo s Group Chief Financial Officer, said, &ldquo This transaction allows us to crystalise value at an attractive valuation while remaining a significant shareholder of Airtel. We are pleased to welcome new like-minded investors who share our conviction in Airtel&rsquo s strong growth potential as India pursues its vision of achieving a US$1 trillion digital economy. This will further strengthen Airtel&rsquo s shareholder base so that we can collectively support its long-term growth.&rdquo

 

He added, &ldquo The divestment underscores Singtel&rsquo s commitment to disciplined capital allocation and sustained value realisation for shareholders. This is a key tenet of our Singtel28 growth plan, where we&rsquo ve identified active capital management and the financial flexibility it brings, as integral to funding growth initiatives while supporting capital returns.&rdquo

A long-term strategic investor in Airtel for over 20 years, Singtel has been working with Bharti Enterprises to equalise its effective stake in Airtel in the medium term. After this transaction, Singtel will hold 28.3% stake in Airtel, valued at an estimated S$48 billion, and generate an estimated gain of S$1.4 billion. In 2022 and 2024, Singtel raised a total of approximately S$3.5 billion from the progressive sale of Airtel shares &ndash a 3.3% stake to Bharti Telecom and 0.8% direct stake to GQG Partners respectively. This has helped to support the Group&rsquo s 5G deployment, digital infrastructure expansion and sustainable shareholder distributions.

Singtel has been reducing its stake in Airtel for a while. In March 2024, it sold shares worth US$711 million.

Singtel is expected to sell shares worth US$1 billion (S$1.3 billion) in Indian telecom major Bharti Airtel on May 16 through block deals, the Business Standard newspaper reported on May 15, citing sources.

 

South-east Asia&rsquo s largest telecom operator is looking to sell 47.6 million Airtel shares at a floor price of 1,800 rupees a share, a 3.6 per cent discount to the stock&rsquo s last close, the report said.

 

JP Morgan is likely to be the broker for the deal, it added.

 

Singtel has been reducing its stake in Airtel for a while. In March 2024, it sold shares worth US$711 million to GQG Partners.

 

It held a 9.49 per cent stake in Airtel through its affiliate Pastel Ltd, according to exchange data as of March-quarter.

 

Airtel and Singtel did not immediately respond to Reuters requests for comments.