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Market cold to supposed SingTel interest in Shin

Analysts say deal would raise telco's exposure to a market in constant political turmoil

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Mum: When contacted yesterday, the telco declined to comment on 'market rumours'. - PHOTO: BLOOMBERG

[SINGAPORE] As teargas and gunfire hung over Bangkok yesterday, market watchers saw red and yellow over reports that Temasek Holdings is toying with selling its US$3.1 billion stake in Thailand's Shin Corp to Singapore Telecommunications (SingTel). This deal, if successful, will increase the telco's exposure to a market that is in perpetual political turmoil, analysts said.

Temasek - Shin Corp's largest shareholder with a 41.6 per cent stake held through a wholly owned unit - discussed selling its stake in the Thai conglomerate to SingTel last year, a Reuters report said yesterday.

It is unclear if the discussions were about all or part of the stake. But plans to sell the asset founded by former Thai prime minister Thaksin Shinawatra had to be put on ice as anti-Thaksin sentiment re-erupted in Bangkok last December.

The sale - assuming SingTel buys the entire 41.6 per cent Shin Corp stake - will increase SingTel's stake in Thai associate AIS from 23.3 per cent to about 40 per cent. Shin Corp owns 40.45 per cent of AIS, which is Thailand's largest mobile operator.

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This is an academic assumption, as few in the market can envision SingTel swallowing the entire stake in one gulp.

When contacted yesterday, the telco declined to comment on "market rumours". Temasek would only say that it is "a long-term investor in Asia, including in Asean".

SingTel's share price slipped 2 cents or 0.6 per cent to $3.57 yesterday, while Shin Corp and AIS closed 1.97 per cent and 1.35 per cent lower, respectively.

For many yesterday, the news recalled the tumultuous days of 2006 when Temasek's purchase of Shin Corp inadvertently fanned the flames of an anti-Thaksin revolt that eventually resulted in the then-prime minister's ouster and exile.

"Terrible, isn't it?" an analyst said yesterday when asked to comment on the potential SingTel-Temasek deal for Shin Corp.

"The political exposure (for SingTel) will be way higher." While AIS is seen as an apolitical entity, Shin Corp's politically charged history continues to dog it, the analyst reckoned. "From SingTel's point of view, that would be a definite concern," he added.

The Shin Corp connection can be a heavy cross to bear. In 2007, the senior management of Thai Air- Asia went to the extent of buying out joint-venture partner Shin Corp in a bid to distance the airline from politics.

The SingTel-Temasek negotiations are not the first kind to take place over a critical national asset of another country. Last year, DBS had to give up its bid to buy a 67.37 per cent stake in Indonesia's PT Bank Danamon from Temasek after Indonesia's regulators stymied the deal's progress.

Now, even as SingTel and Temasek wait for the current anti-Thaksin furore to die down in Bangkok, analysts are lukewarm to the idea of SingTel owning a chunk of Shin Corp or increasing its stake in AIS.

"The Thai market is a tough one," another analyst pointed out. The country's mobile penetration rate is close to 140 per cent, and consumer sentiment has been weak.

AIS itself, despite projecting a 6-8 per cent growth in service revenue for 2014, faces an uphill climb this year. Some believe that the telco underspent on marketing and capital expenditure relative to its competitors over the last two years and will now have to play catch-up.

Even so, AIS's migration of subscribers to the more lucrative new 3G network has gotten off to a good start, with 40 per cent of its subscriber base on it. This year, that proportion is expected to reach 75 per cent.

If SingTel is nervous about either Thailand's or AIS's prospects, it did not show it at its latest quarterly earnings briefing last week.

"Our priority now is all about moving from 2G to 3G . . . We're very confident of the future of Thailand. We think it's a great market," Paul O'Sullivan, chief executive officer of SingTel's Group Consumer unit, had said then.

SingTel's country chief officer Singapore, Allen Lew, had noted in the same briefing that while telcos were not adversely affected by the 2006 political upheaval, the current turmoil has been more protracted. "The political unrest is something that we will watch very closely," he said.

Even if the political overhang clears up, an examination of Shin Corp's assets will ensue if the deal is pursued in earnest.

Last year, contributions from AIS accounted for 59.6 per cent of its total consolidated revenue and virtually all its consolidated net profit.

Rattling about elsewhere in the Shin Corp empire are stakes in satellite operator Thaicom and Internet service provider CSLox. "From a satellite perspective, there are potential synergies with AIS," a consultant with the industry noted.

While questions of valuation should override current political turmoil, few dare to underestimate Thailand's unique ability to blend business, power and an unusually long memory.

By way of illustration, three years ago, Shin Corp changed its name to Intouch, to reflect a "more friendly and optimistic image". But today, everybody still calls it "Shin Corp".

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