Singtel acquires 16.3% stake in Indonesia's Bank Fama International for 500b rupiah
SINGTEL Alpha Investments, a wholly-owned subsidiary of Singtel Z74 , has acquired a 16.3 per cent stake in an Indonesian bank for a cash consideration of 500 billion rupiah (S$48 million).
In a bourse filing on Friday (Jan 21), the telco said it has acquired 2.4 billion new shares issued by Bank Fama International. The investment is part of Singtel's plans to pursue banking opportunities in Indonesia.
Fama's investors include Nasdaq-listed digital services player Grab, which is also in a joint venture with Singtel to operate a digital bank in Singapore.
Singtel group chief executive officer Yuen Kuan Moon said that having partnered Grab in digital banking in Singapore, the company is pursuing opportunities further afield in Indonesia by investing in Fama.
"We are fully aligned with and share Fama's digital banking proposition to serve Indonesia's unbanked and underbanked population to and drive greater financial inclusion," he said.
"This latest investment in digital banking is consistent with our strategic reset of riding digital growth trends to build sustainable new businesses across Asia, particularly in markets where we have a strong presence," he added.
Singtel noted that Indonesia's population is the most unbanked and underbanked in South-east Asia, and expects its investment will develop Fama's digital banking proposition and drive greater financial inclusion.
The consideration was funded via internal sources.
The net asset value of Fama was 1.04 trillion as at Jun 30, 2021. It is majority-owned by a subsidiary of Indonesian media and technology conglomerate Elang Mahkota Teknologi (Emtek).
The Grab-Singtel tie-up was awarded a digital full-bank licence in Singapore in 2020. In July 2021, the joint venture also applied for a digital banking licence in Malaysia.
Citi analyst Arthur Pineda noted that the transaction multiples of the deal appear reasonable, being at about 1.5 times implied price to book value. In comparison, legacy banks are typically valued at about 1 to 4 times FY22 price to book value, while a digital bank like Bank Jago trades at 30 times FY22 price to book value.
Additionally, he said that Singtel and Grab have ecosystem advantages, such as Grab's extensive food delivery, mobility and fintech presence in Indonesia, could endow it with material advantages over its legacy peers.
Based on MAS rules, Pineda noted that Singtel and Grab are able to expand their digibank to 2 other markets beyond Singapore for the first 2 years, with options to expand into other markets in the third year onwards.
"Over time, we do see the likelihood of Singtel injecting its holdings in Fama into the Grab-Singtel digital bank with both shareholders rationalizing their holdings under 1 joint umbrella," he said, although he also noted that additional capitalisation will be required over time to ramp up to a more comprehensive banking license. This could then open up additional opportunities towards re-rating for Fama to align itself closer to other digital banks' valuations.
Pineda also reiterated 'buy' on Singtel with a target price of S$3.56 and said that the market has yet to attribute value to its investments in the digital banking space due to the pre-operational status of its fintech investments and lack of track record.
Shares of Singtel closed at S$2.48 on Friday, up by S$0.01 or 0.41 per cent.
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