CONFIRMING media reports, Singapore Telecommunications (Singtel) said on Thursday that it has entered into a conditional share purchase agreement with Temasek Holdings to acquire 21 per cent of Intouch Holdings in Thailand and 7.39 per cent of Bharti Telecom Ltd (BTL) in India for a total consideration of S$2.47 billion.
Singtel will buy 673.3 million shares in Intouch at 60.83 Thai baht each, a price arrived at based on the 20 trading days' volume-weighted average price (VWAP), amounting to S$1.59 billion. The share price has an implied discount of 1.9 per cent compared to the last closing price (before the announcement) of 62.00 Thai bhat. For the BTL deal, Singtel is buying 186.6 million shares at a price of 235.62 Indian rupees each, which translates to S$884 million in total. The share price is based on a 10 per cent discount off the 20 trading days' VWAP of BTL. The impled discount here is 6.4 per cent of the last close price of 345.45 Indian rupees.
The acquisitions will be settled fully in cash, funded by internal cash, short-term debt and proceeds from a share placement of 386 million new Singtel shares to Temasek totalling S$1.61 billion at a price of S$4.16 per new share, which was arrived at based on a one per cent discount off 20 trading days VWAP.
The Intouch transaction, the BTL deal and the placement of Singtel shares to Temasek are inter-conditional on each other. This means that one transaction will not complete if the other transactions do not also complete at the same time. Subject to regulatory and minority shareholding approval, Singtel expects the deal to go through by December this year.
The share placement to Temasek will increase its stake in Singtel to 52.3 per cent, from the current 51.12 per cent and the new shares represent 2.36 per cent of the enlarged share capital of Singtel following the completion of the deal.
Intouch, formerly Shin Corp, was founded by former Thai prime minister Thaksin Shinawatra. Singtel's interest in the company stems from its 40.45 per cent stake in Thailand's largest mobile operator, Advanced Info Services Public Company (AIS), which has a market cap of S$19.9 billion, and about 41.14 per cent in Thaicom, another mobile company. Singtel already has a 23.32 per cent stake in AIS. After the deal with Temasek, Singtel will own 21 per cent of Intouch, while Temasek will retain about 20 per cent interest. The Intouch stake, which will give Singtel a seat on the board, would take the telco's direct and deemed stake in AIS to 31.8 per cent.
In India, BTL holds about 45.09 per cent stake in Bharti Airtel, one of the country's largest telcos with a market cap of S$27.8 billion. Singtel currently has a 39.78 per cent interest in BTL. After the transaction with Temasek, Singtel's interest in BTL will increase to 47.17 per cent. Temasek will cease to be a shareholder in BTL. Singtel currently owns around 32.9 per cent in Bharti Airtel (comprising a direct stake of 15.01 per cent and an indirect stake of about 17.9 per cent through its 39.78 per cent interest in BTL); after this deal, which gives it another effective stake of 3.3 per cent, this is expected to go up to 36.2 per cent.
AIS and Bharti Airtel have been associates of the Singapore telco since it acquired stakes in these businesses in 1999 and 2000, respectively.
Commenting on why the deal makes sense for Singtel, Lim Cheng Cheng, Singtel's chief financial officer, noted that, among other points, the current debt-capital mix gives Singtel the "most optimal debt-capital mix for the balance sheet". She added that Singtel's net gearing ratio is only about 23 per cent and net debt to Ebitda (earnings before interest, tax, depreciation and amortisation) level is only about 1x.
Singtel said the acquisitions are in line with the company's long-term strategy to increase its exposure to high-performing associates in its portfolio of leading telecom businesses in the region. Thailand and India are fundamentally attractive markets which are reaping the benefits of rapidly increasing smartphone penetration and mobile data adoption by a growing middle class, Singtel said.
Chua Sock Koong, Singtel group CEO, said: "Singtel has been a strategic partner to both AIS and Airtel for more than 15 years. We have built deep and trusted relationships, worked well together through the years, sharing knowledge and expertise and we have grown together, from strength to strength. Today, they have a combined mobile customer base of more than 380 million across Asia and Africa. This is a unique opportunity for us to deepen our relationships with two great market leaders."
Giving the Temasek perspective, Ravi Lambah, Temasek's Head of Telecommunications, Media and Technology, said: "As an active investor, we rebalance our portfolio from time to time. We accepted the offer after careful evaluation, and believe the potential synergies gained from the acquisitions will be positive for all Singtel shareholders over the long term. Reflecting this view, we are pleased to have the opportunity to further invest in Singtel - the largest company in our portfolio - as part of this set of transactions."
In a note, research agency Nomura said the associates contribute 36 per cent of Singtel's Ebitda and this deal could diversify earnings somewhat.
It added a note of caution, saying the "returns profile does become uncertain in these markets". It noted that these markets have been quite volatile and hence, it may not be easy to figure out how the market structure and economics will pan out in the next 10 years. "We think that it is not a given that the markets will be return accretive. However, Singtel has maintained its dividend policy and said that the deal is earnings accretive on proforma basis," Nomura said. Singtel's dividend payout ratio is between 60-75 per cent of underlying net profit.
BNP Paribas estimated that the proposed transaction would be neutral to Singtel's fiscal 2017 EPS (earnings per share) "taking into consideration larger earnings contributions from AIS/Bharti Airtel for three months, offset by slight debt increase and an enlarged share base".
Singtel will appoint an independent financial adviser (IFA) to advise the independent directors of the Board. The advice of the IFA and the recommendation of the independent directors will be sent to shareholders prior to the convening of a shareholders' meeting. Temasek as an interested party will abstain from voting at the meeting.