Singtel dismisses report of Optus listing; analyst says flotation of Aussie unit now not optimal

MAINBOARD-LISTED telco Singtel is looking to list its Australian subsidiary, Optus, through an initial public offering (IPO), according to news outlet The Australian on Monday (Jun 27).

Citing unnamed sources, it said Optus may be worth between A$8 billion (S$7.69 billion) and A$12 billion. Goldman Sachs and Morgan Stanley are reportedly involved in a plan for the telco’s IPO.

In a bourse filing, however, Singtel responded to the news to say it has no plans to list Optus through an IPO at the moment and that the report is “highly speculative”. It added that it will inform the market if there are any material developments of this nature.

Analysts The Business Times spoke to said such a move would be unexpected, but would benefit the company if it takes place.

UOB Kay Hian (UOBKH) analyst Chong Lee Len said the news came as a surprise because it comes soon after Singtel’s sale of a 70 per cent stake in Australia Tower Network, a wholly-owned subsidiary that operates Optus’s passive telecoms tower infrastructure, to AustralianSuper for A$1.9 billion in October last year.

“As Singtel has alluded to smart capital recycling (in the past), we believe that unlocking of the asset via a listing exercise will help drive higher 5G penetration and market share for Optus,” she said.

But Morningstar analyst Dan Baker said that the timing of the deal may not be optimal, since Optus’s earnings have yet to recover to pre-pandemic levels. He noted that the decline was a result of increased competition in the Australian mobile market, transfer of the fixed-line market to a national broadband network reseller model, and the impact of Covid-19 restrictions.

Still, he added that Singtel may be of the view that Optus is being undervalued within its parent company’s share price.

For its financial year ended Mar 31, 2022, Optus posted a 32 per cent increase in earnings before interest and taxes (Ebit) to A$249 million. Operating revenue declined 5.8 per cent to A$7.84 billion.

Optus made up 26.8 per cent of Singtel’s total proportionate revenue. Its earnings before interest, taxes, depreciation and amortisation (Ebitda) rose 3.5 per cent to A$2.07 billion and made up 19 per cent of Singtel’s total proportionate Ebitda.

The potential listing comes after Singtel’s earlier announcement on Jun 15 that Optus’s enterprise division would be shifted back under Optus from Singtel’s group enterprise division.

At the time, DBS analyst Sachin Mittal said that the move signalled a stronger focus on growing the enterprise business of Optus.

“I think the idea is to grow the enterprise business of Optus now that they have a sizeable ICT (team), now they can actually aspire to grow the enterprise business of Optus, which has been very small so far,” he said.

Singtel shares ended 0.8 per cent or S$0.02 higher at S$2.60 on Monday.