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SINGAPORE Telecommunications (Singtel) said on Thursday it plans to buy a 21 per cent stake in Intouch Holdings and a 7.39 per cent stake in Bharti Telecom (BTL) from Temasek Holdings for S$2.47 billion in cash to deepen its foothold in the high-growth wireless markets of Thailand and India.
The Singapore telco will acquire 673.3 million Intouch shares at 60.83 Thai baht each, amounting to S$1.59 billion in total. The price is based on the 20 trading days' volume-weighted average price (VWAP) of Intouch.
It will buy 186.6 million BTL shares at 235.62 Indian rupees each, or for S$884 million in total. This is based on a 10 per cent discount off the 20 trading days' VWAP of Bharti Airtel.
The acquisitions will be fully settled in cash; using internal cash, short-term debt and proceeds from a placement of 386 million new Singtel shares to Temasek at S$4.16 each, or S$1.61 billion in total.
Singtel, which is 51.12 per cent owned by Temasek, said the issue price represents one per cent discount off its 20 trading days' VWAP. It also represents about 65 per cent of the sum of the Intouch and BTL total price.
After the placement, Temasek's stake in Singtel will be boosted to 52.27 per cent.
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."
Intouch holds 40.45 per cent stake in Thailand's largest mobile operator, Advanced Info Services Public Company (AIS), and about 41.14 per cent of Thaicom. Singtel has an interest of 23.32 per cent in AIS.
After the stake acquisition, Singtel will become the largest shareholder of Intouch at 21 per cent, followed by Temasek whose stake will be cut to about 20 per cent.
As for BTL, the Indian telco holds about 45.09 per cent stake in Bharti Airtel. Singtel currently has a 39.78 per cent interest in BTL and an interest of 15.01 per cent in Bharti Airtel. After the purchase of the BTL shares, Singtel's interest in BTL will increase to 47.17 per cent from 39.78 per cent.
"The acquisitions will increase the exposure of Singtel and its subsidiaries . . . to the high growth telecom sectors in Thailand and India driven by rising mobile data penetration and increased usage," Singtel said in a release.
AIS and Airtel have been associates of the Singapore telco since it acquired stakes in these businesses in 1999 and 2000, respectively.
"Through these acquisitions, Singtel will increase its economic interests in AIS and Airtel," Singtel added.
It said the purchases would increase its exposure to quality assets. Intouch and BTL own assets that are leaders in their respective markets, with strong track records of earnings growth. AIS and Bharti Airtel have secured spectrum holdings for the long term and invested extensively in their networks.
"These investments position both companies well to compete and capture the growth in mobile internet services," Singtel explained.
The acquisitions are not expected to affect Singtel's dividend policy. Instead, they are expected to enhance shareholder value and maximise the value of its existing businesses.
"This includes securing greater economic benefit from existing associates with strong market fundamentals and operating performance," Singtel said.
Intouch changed its name from Shin Corp in 2011 as it sought to distance itself from the founder and former Thai prime minister Thaksin Shinawatra, who was ousted in a 2006 military coup.
In a note following the announcement, Nomura said: "We think this is not a bad deal - it does not stress Singel's balance sheet and at the same time is earnings and dividends accretive."
The research houses also noted the deal is consistent with Singtel management's view of increasing its stake at the associate level at the right opportunities, and "given this, a further stake increase cannot be ruled out either".
Nomura said while Thailand and India's market demographics are favourably positioned for mobile revenue growth, these markets have been quite volatile. It has kept its buy rating on Singtel and a target price of S$4.25 a share.
BNP Paribas said the deal is "mildly positive" on Singtel's valuation. It has a target price of S$4.55 a share.
BNP's analyst Wei Shi Wu said the transaction price is "reasonable".
"But while we share Singtel's positive views on AIS and Airtel, we note the near-term value accretion to Singtel is marginal. Investors may question if the capital would have been better invested in higher-growth (albeit more risky) digital businesses. These transactions also highlight the broader issue of capital allocation between Singtel and its major shareholder," Ms Wu said.
The transaction is subject to the fulfilment of certain conditions precedent, including shareholder and relevant regulatory approvals, and is expected to be completed by December 2016.