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Broker's take: DBS maintains 'buy' on Singtel despite associate Airtel's failed court plea

DBS Group Research has maintained its "buy" call and S$3.80 target price for Singtel despite the Supreme Court of India on Thursday rejecting a petition made by Singtel's Indian associate Bharti Airtel to review a fine of 355.86 billion rupees (about S$6.74 billion or US$5 billion) as quoted in India's The Economic Times.

Airtel must now pay the fine in a week's time. It had on Jan 15 raised US$3 billion to help pay for the fine.

DBS analyst Sachin Mittal said while funding costs for the fine might hit Airtel in the short term, the Singtel associate would benefit from rival Vodafone Idea's potential exit.

Vodafone Idea's share of the penalties was 530.39 billion rupees or about US$7.5 billion, with payment also due in a week. Mr Mittal said its projected financials for fiscal 2020 are too weak to support upfront payment of the fine.

Vodafone Idea has stated that it could be forced to shut down its business unless there is a big relief in AGR dues. Vodafone Idea’s 27 per cent revenue share from its 300 million customers might go to Jio and Airtel under a no-relief scenario, said Mr Mittal.

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"The market had expected the dues to be paid over a longer time frame of a few years along with a reduction in penalties and interest," he added.

The dues to the government is part of a court order made in October 2019 which widened the definition of adjusted gross revenue (AGR), and ended a protracted 14-year legal tussle over its definition.

The broadened definition led to a total of 1.02 trillion rupees (about S$20 billion) in additional licence fees, spectrum usage charge, penalties and interest due payable by India's telecom firms.

Following the Supreme Court's ruling on AGR, the Department of Telecom in India has slapped even bigger AGR dues totalling about US$40 billion on various non-telecom companies with Internet and infrastructure licences, said Mr Mittal.

"In our view, this might open a Pandora’s box in the definition of AGR and we expect new developments on this front."

Shares of Singtel were down S$0.05 or 1.5 per cent to S$3.28 as at 3.26pm on Friday.

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