Brokers' take: Bharti rights issue may lessen Singtel's chances of special dividends

CGS-CIMB on Friday said Singtel's plans to fully subscribe to regional associate Bharti Airtel's rights issue should not overburden the telco, but may reduce the size of potential special dividends, if any, from asset monetisation.

Overall, the research team views Singtel's full subscription of its share of the rights as a sensible move, as Bharti's prospects are improving amid easing mobile competition in India. This is on top of positive government reform package or relief measures to support the telco industry.

Moreover, Singtel should be able to easily afford the rights issue, given its S$755 million cash pile as at March 31, as well as potential incoming cash proceeds from its Optus tower sale.

CGS-CIMB reiterates an "add" call on Singtel, with an unchanged target price of S$2.90. This translates to an upside of about 15.5 per cent from Singtel's trading price of S$2.51 as at 3.49pm on Friday. The counter was up 1.2 per cent or S$0.03 at the time.

The research team's core earnings-per-share forecasts are intact, as interest income foregone on the cash outlay or additional interest cost on Bharti Telecom's debt may be offset by strong Bharti Airtel earnings post-cash infusion.

Singtel indirectly holds Bharti Airtel through Bharti Telecom - a joint venture between Singtel and Bharti Group - an Indian multinational conglomerate.

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On Thursday, Singtel said it will buy into the Bharti Airtel's 21,000 crore rupees (S$3.8 billion) rights issue at 535 rupees per share, exercising its full rights entitlement for its direct 14 per cent stake.

This translates to a total consideration of up to 29.4 billion rupees or US$405 million over a period of up to three years, Singtel said in a regulatory filing. It added that the move signals Singtel's confidence in India, as well as in Airtel's growth prospects.

Airtel's upcoming rights issue is subject to regulatory approval and slated to take place from Oct 5 to Oct 21 this year. Its board had approved the fund-raising exercise on Aug 29.