Singtel to divest 3.3% stake in Airtel for S$2.25 billion

SINGTEL has agreed to sell a 3.3 per cent direct stake in its regional associate Bharti Airtel to Bharti Telecom, its joint venture with India’s Bharti Enterprises, for S$2.25 billion.

In a statement on Thursday (Aug 25), the telecommunications company said it expects to net a gain of S$600 million from the transaction. Singtel will be left with a 29.7 per cent effective stake in Airtel – comprising a 19.2 per cent indirect stake through Bharti Telecom, and a 10.5 per cent direct stake.

If the deal had been completed on Mar 31, 2022, the company’s pro forma consolidated net tangible assets would have risen to S$16.8 billion from S$16.14 billion, while net tangible assets per share would have risen to S$1.02 from S$0.98. Assuming the deal had been completed on Apr 1, 2021, pro forma net profit would have risen to S$2.54 billion, from S$1.95 billion, while earnings per share would have risen to S$0.15 from S$0.12.

In a call with the media, group chief financial officer Arthur Lang said the move would serve to show markets how much its portfolio of 4 regional associates is worth. The associates contribute more than half of Singtel’s profits.

“This is quite a significant milestone for us... in unlocking value and, more importantly, illuminating the value of this portfolio of our international associates that has been largely missed by markets overall,” he noted.

Based on their market capitalisations as at Mar 31, 2022, Singtel’s stakes in Bharti Airtel, AIS in Thailand, AIS’s parent company Intouch and Globe Telecom in the Philippines add up to S$37.3 billion. This value excludes unlisted entities, such as Telkomsel in Indonesia. Singtel’s market capitalisation, meanwhile, was S$44.09 billion as at market close on Aug 25.

Regarding dividends, Lang said the company aims to grow dividends sustainably, and it would be up to the board of directors to decide how much dividends to declare.

“We couldn’t pay out more (last FY) because we had our capex needs and funding needs for 5G and growth engines, but now, we have effectively freed it up because of the monetisation that we have done.

“Hopefully, things are looking good and we think this is important, and it’s the right thing for shareholders,” he added.

For FY22 ended Mar 31, the company paid out S$0.093 per share in dividends – 24 per cent more than the S$0.075 it paid a year earlier.

DBS analyst Sachin Mittal noted that the divestment proceeds are almost 100 per cent of Singtel’s full-year earnings, and he expects the company’s payout ratio to rise.

“The important thing is that the associate’s market value is also translating into cash for Singtel, (which) was not the case (in the past), so we know that this can impact dividends in a positive way,” he said.

Post-divestment, Mittal expects the payout ratio to rise to 85 to 90 per cent – up from his current projection of 75 per cent – given the proceeds received.

“Singtel has also announced that Bharti Telecom will continue to be the principal vehicle to hold controlling shares in Airtel, so one can expect more stake sale in Bharti Airtel to Bharti Telecom, freeing up more capital at Singtel, which is a good sign for dividends,” he said.

While Morningstar analyst Dan Baker expects the company to pay out dividends from the proceeds, he said investors may not change their minds about Singtel’s value.

“If you look at most conglomerate businesses and businesses that own a broad range of listed equity, they often trade at a discount, so that’s not uncommon.

“I don’t think that selling off a small percentage of one of its associates is going to change the way the market looks at the value for Singtel,” he said.

The transaction follows Singtel’s move to increase its stake in Intouch Holdings, the parent company of its regional associate AIS, as well as its partial divestment of Airtel Africa as part of its recent capital management initiatives to rebalance and optimise Singtel associates’ portfolio.

News of the divestment comes a day after the group reported 41.3 per cent higher Q1 net profit of S$628 million, which was mainly attributed to better operational performance and exceptional gains from Airtel.

In a separate announcement on Thursday, Singtel said that it would commit S$20 million a year to enhance its training efforts. It also hopes to create a new learning academy for its 12,000-strong workforce.

Since 2019, the telco has invested S$45 million to develop training programmes to train employees on emerging technologies and sponsored more than 60 employees for part-time courses.

The Singtel Professional Conversion Accelerator programme has also been attended by close to 1,500 employees. Employees who underwent the courses in 5G and other in-demand tech skills have taken up roles such as data analyst and 5G product development manager.

Shares of Singtel closed 1.9 per cent or S$0.05 higher at S$2.67 on Thursday.