Airtel sale: why Singtel is booming

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Singapore: Last week, a day after reporting its first quarter 2022 financial results, Singtel announced on August 25 that it would sell a 3.3% stake in India’s to Bharti Telecom Ltd for a total consideration of c. $.61 billion.

Southeast Asia’s largest telecom operator by market capitalization said proceeds from the sale could be used to reduce the group’s debt and fund capital expenditures and 5G growth initiatives .

Considering that Airtel’s financial performance was one of the two main reasons for the rise in profits of more than 41% for the financial quarter that ended in June, this seems surprising.

Singtel’s pre-tax profit contribution increased by 145.6%, from SGD64 million (US$46 million) to SGD156 million (US$112 million). It is the only one of its regional partners whose income has increased compared to the same period last year.

A detailed reading of the notes contained in Singtel’s first quarter business update filed with the Singapore Stock Exchange, however, reveals that Airtel’s performance was driven by exceptional gains from one-off items. This included a fair value gain on the revaluation of its foreign currency convertible bonds and the recognition of a deferred tax credit in Africa.

The other reason given for the rise in profits was partial recognition of its SGD1.87 billion ($1.35 billion) sale in November 2021 of its 70% stake in Australia Tower Network (ATN) during of this quarter. This resulted in a one-time gain of 84 million SGD (60.5 million USD). Singtel amortizes 30 percent of the gains from the sale of ATN over 20 years.

Operationally, Singtel did not perform well. Operating revenue fell 5.6% to SGD3.584 billion (USD 2.58 billion) compared to the same quarter in 2021. EBITDA (earnings before interest, taxes, depreciation and amortization) fell 2% to 977 million SGD against 997 million SGD.

That the Singapore telecom operator is shrinking its assets should come as no surprise. When current CEO Yuen Kuan Moon unveiled his new strategic vision in May 2021, five months after taking office, he said the new leadership is “designed to capture untapped digital growth in the 5G era, refine the Group’s orientation and improve shareholder value”.

To that end, the company “will leverage its leadership in 5G to reinvigorate its core consumer and enterprise businesses; develop new engines of growth in ICT and digital services; and unlocking the value of its quality infrastructure assets”.

The sale of ATN was the first major step in unlocking value from its infrastructure assets. When announcing the sale in November 2021, the company said “the funds will go towards Singtel’s 5G rollout, the expansion of its NCS digital services business and other growth initiatives” .

NCS is the information and communications technology services arm of Singtel, and it provides consulting, digital technology and cybersecurity services and solutions throughout Asia-Pacific.

Earlier last week, Bloomberg citing sources reported that Singtel was moving forward with the sale of its Chicago-based cybersecurity business, Trustwave Holdings. Between $200 and $300 million could be raised from the sale.

He had bought a 98% stake in Trustwave in 2015 for $810 million. Trustwave was loss-making and Sintel took a non-cash impairment charge of $250 million on this investment in May 2021. It did, however, sell SecureTrust, its payment card industry compliance business, for $80 million in October. 2021.

In another loss-making asset disposal exercise, it sold Amobee to New York-based ad tech company Tremor International for a total consideration of $239 million in July this year. It acquired Amobee in 2012 for an above-market valuation of $321 million. At the time, he said it was about increasing his share of consumers’ digital wallets and shaping the digital ecosystem. Amobee, which was founded in 2005, was a rapidly growing provider of mobile advertising solutions for operators, publishers and advertisers around the world.

Singtel’s upcoming asset disposal plans don’t stop at Trustwave. Bloomberg also said it was also considering options, including a possible sale of a stake in the fiber assets of its Australian subsidiary SingTel Optus.

DBS analyst Sachin Mittal told Singaporean financial newspaper Business Times in July that he expects the sale of Trustwave and Amobee to help Singtel avoid estimated annual operating losses of between 200 and SGD 210 million.

The stock market appears to be pricing the telecom operator’s asset reduction positively. Since news of its plans leaked in July, the company’s share price has risen. It was at a six-month low of 2.41 SGD on June 17 and has since climbed around 10% to close at 2.65 SGD last Friday August 26.

Mittal raised its price target for Singtel from SGD3.20 to SGD3.24 and maintained a “buy” call for the stock.

“Among regional telcos, Singtel offers growth well above that of other dividend-paying telecoms,” Mittal said. “While major business segments have been impacted during the Covid shutdowns, they are gradually recovering.”

Singtel appears to be selling its assets to streamline its portfolio to raise funds and focus on 5G operations as well as develop new growth engines including IT services and data centers.

In the business update released on August 24, Singtel CEO Yuen Kuan Moon said, “This set of positive results reflects the progress made in our strategic reset designed to strengthen our core, unlock the value of our assets and develop new digital activities.

“Looking ahead, we expect the operating environment to remain challenging amid rising inflation and rising interest rates, and ongoing geopolitical tensions to further impact global supply chains. We We will need to remain nimble and deal with these realities if they put additional pressure on our costs and bottom lines.”

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