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Singtel eyes sale of A$2b Australia tower portfolio: report
SINGTEL is said to be looking to sell its telecommunications towers in Australia worth more than A$2 billion (S$1.73 billion) in total.
The Australian Financial Review (AFR) reported this week that Singapore's largest telco has mandated Bank of America for the potential deal, and the auction is set to take place in the first half of this year barring disruptions from the Covid-19 situation.
Singtel's wholly-owned Australian subsidiary Optus, which owns the assets, is expected to ink a sale and leaseback arrangement so it can continue to operate the mobile phone towers, AFR added.
In a research note, Citi analysts said that a move to sell the towers will free up cash for Singtel for dividends or capital expenditure (capex) in key markets such as Australia to drive growth.
"If the assets are indeed sold, we see room for dividend upside," Citi's Arthur Pineda and Hussaini Saifee wrote.
They believe the extra cash could allow the telco to comfortably sustain its dividend per share payout – 17.5 Singapore cents for fiscal 2019 ended March 31, 2019 – into fiscal 2021 and/or accelerate capex for 5G services.
With upfront cash from such a deal, Singtel will also be able to deleverage the balance sheet further. Net-debt-to-Ebitda (earnings before interest, tax, depreciation and amortisation) ratio is estimated to fall to 1.6 times post-transaction from 1.9 times, the Citi analysts said.
Based on the estimated net proceeds of A$2 billion from a sale and leaseback of the towers, the impact on net profit after tax is likely to be negligible and thus will keep earnings per share unchanged, Citi said. However, Ebitda is expected to drop by about 1 per cent per year because of foregone revenues and the lease payments to be made.
Meanwhile, CGS-CIMB said in a separate note that it views the new development positively.
"After spending heavy capex in Australia in fiscal 2015-2018 to improve its 4G network and roll out regional coverage to better match Telstra, the tower sale proceeds could help to pare debt and fund Optus's 5G network rollout without further burdening the balance sheet," CGS-CIMB analysts Foong Choong Chen and Sherman Lam said.
Although Optus will incur extra leasing costs after such a deal, these may be offset by lower tower capex, the removal of tower depreciation and interest cost savings, they added.
This is especially so if Optus is able to lock in a favourable leaseback rate for the next 10 years given the current low interest-rate environment.
If the proceeds are used entirely to pare debt, Singtel's pro forma net-debt-to-Ebitda for Q3 FY20 will likely ease to 1.7 times from 2.0 times, CGS-CIMB estimated.
However, a potential risk of the deal is the opening up of the towers to external tenants such as Vodafone Hutchison Australia-TPG. This may help the third player catch up to Optus's network coverage or quality, the CGS-CIMB analysts noted.
Interested buyers for the tower portfolio include Australian and offshore infrastructure funds, according to AFR.
DealStreetAsia reported that asset manager Macquarie Infrastructure and Real Assets (MIRA), part of Sydney-based Macquarie Group, could be a potential bidder. MIRA is a shareholder of Axicom Group, which owns, operates and manages about 2,000 towers in Australia for wireless communication.
In a statement on Friday afternoon, Singtel said it regularly reviews its options to optimise its assets and operating model. It also emphasised there is no certainty or assurance that any transaction will occur.
Singtel's shares were trading at S$2.57 as at 1.25pm on Friday, down 1.9 per cent or S$0.05.