Singapore telco battle heats up as MyRepublic taps Goldman, DBS to help raise S$250m

[SINGAPORE] Competition is heating up in Singapore's S$11 billion telecommunications market, threatening to increase funding costs for potential new entrants.

MyRepublic Ltd, a local Internet service provider backed by French billionaire Xavier Niel and Indonesia's Sinar Mas Group, enlisted Goldman Sachs and DBS Group Holdings to help raise S$250 million to support its bid for the new fourth mobile-phone license, chief executive officer Malcolm Rodrigues said.

Consistel, a regional wireless software provider, will "absolutely join" the fray and plans to invest as much as S$1.3 billion, chairman Masoud Bassiri said. It plans a mix of debt and equity funding.

Incumbents Singtel, Starhub and M1 have spiced up their offerings in the past week to defend market share before the license auction this year that will shake up what is already the world's most-saturated market. While Mr Rodrigues denies the city is engaged in a "price war," potential creditors will have to gauge that risk.

"This could be a candidate for a high-yield telco issuer in the Singapore dollar bond market," said Terence Lin, assistant director of bonds and portfolio management in Singapore at consultancy iFAST Corp.

"Current incumbents are high investment grade due to their parentage and the stability of the sector's revenues. The new entrant doesn't have such strong parentage, so fundraising will be significantly more costly."

Bidding for the mobile spectrum, starting at the S$35 million reserve price, will begin in the third quarter and an award is due April 2017.

MyRepublic plans to offer an unlimited mobile data plan at S$80 a month and a two-gigabyte plan at S$8 a month, it said on March 9.

Singtel responded by offering to double subscribers' data for an extra S$5.90 a month.

"We don't believe there's a price war," Mr Rodrigues said in an interview.

"What they're doing is adding to the monthly bill. This doesn't change our business plan."

Singtel said its promotion was linked to customer feedback, faster devices and an upgraded network.

"Customers are telling us that their data allowances aren't sufficient, especially when they upgrade to new phones," Yuen Kuan Moon, Singtel's chief executive officer of consumer, Singapore, said in a statement.

"So we are merely trying to meet their needs - pure and simple."

Any new entrant will face rising borrowing costs in the city. Singapore's benchmark three-month swap offer rate reached 1.76 per cent on Jan 13, the highest since Oct 2008, according to bank association data. While the rate has retreated to 1.19 per cent on March 14, it's still double the average in the past three years.

"We are looking at a mixture of debt and equity and we have bankers and investment advisers looking at all the options," Consistel's Mr Bassiri said in a Tuesday interview, declining to name the banks.

"We are in the process of completing both sides of it, and it looks like we are on the right track."

The yield on Singtel's 3.25 per cent 2025 US currency notes has climbed to 2.94 per cent on March 15 from a record-low 2.71 per cent on Feb 11, Bloomberg-compiled data show.

Starhub's 3.08 per cent 2022 local-currency note yield was near an eight-month low of 3.21 per cent on March 15. Both yielded more than 3.5 per cent in September. Asian dollar junk bonds yield 7.9 per cent on average in a JPMorgan Chase & Co index.

MyRepublic is seeking S$150 million from private equity firms and S$100 million of loans with a six- to seven-year maturity, Mr Rodrigues said. Goldman and DBS have helped secure two-thirds of the equity financing and the balance is expected by May, he said.

Since its start-up in 2011, MyRepublic has raised S$23 millionfrom Brunei's DST group in March 2015 and S$30 million from Sinar Mas and Niel in July 2014. Goldman and DBS declined to comment on the financing, their spokeswomen said.

Private equity funds may be attracted by the stable cash- generating nature of the telecom business," said Anthea Lai, a Hong Kong-based analyst at Bloomberg Intelligence.

"For a four-player market to be sustainable, the new entrant has to focus on a niche customer segment rather than disrupting the overall market by aggressive price cuts."

Singtel generated S$7.3 billion of its revenue at home in the year ended March 31, 2015 and controls half of the cellphone market despite having lost its monopoly in 1997. Starhub has a 27 per cent share and M1 the rest, according to Maybank Kim Eng Securities.

Singapore's mobile-phone penetration rate was 148 per cent in 2015, compared with 93 per cent a decade earlier, according to Infocomm Development Authority. Its residents are ranked as the most-active users of social media in the Asia Pacific. New promotions make it harder for entrants to disrupt the market, BNP Paribas SA said.

"This is a strong demonstration of the incumbents' willingness to raise the barriers for operators looking to enter," Wei Shi Wu, a Singapore-based analyst at the bank wrote in a March 14 note.

"This could shrink the addressable market."

BLOOMBERG