Singtel in talks for Optus stake sale reportedly worth US$1.4 billion
The search for a minority investor follows a tumultuous period for the subsidiary
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[SINGAPORE] Singtel said on Thursday (Jul 30) it is in discussions with “interested parties” to sell a stake in its wholly owned Australian unit Optus, though the telco cautioned investors that a transaction is far from guaranteed.
This comes after the Australian Financial Review (AFR) on Wednesday reported that New Zealand-based infrastructure investor Morrison was in talks to buy a minority stake valued at more than A$2 billion (US$1.4 billion).
Morrison has also secured a seven-week exclusivity period to finalise the potential purchase of a more than 30 per cent stake in Optus, added AFR.
The company reiterated its strategic shift first announced on May 21, when it shared that it was open to bringing in a “like-minded local partner” to ensure that Optus remains a strong alternative operator in the Australian telecommunications market.
The topic of a potential stake sale was brought up again during the company’s annual general meeting (AGM) on Wednesday.
“The main objective is to strengthen Optus’ long-term strategic resilience, and this requires a partner that shares our commitment to maintaining Optus as a strong, credible alternative operator providing a reliable and trusted critical service to Australia,” said Yuen Kuan Moon, group CEO of Singtel.
Nonetheless, operating with a minority partner is “not a new operating model” for Singtel, said Yuen.
He cited the telcos’ operating model in Indonesia, Thailand, the Philippines and India as examples of operating with a local partner.
By operating with local partners, Singtel is able to “develop the resilience and capabilities”, he added.
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A successful deal will end Singtel’s 25-year run as the sole owner of Australia’s second-largest wireless carrier.
The search for a minority investor follows a tumultuous period for Optus, which has been battered by severe reputational and financial damage.
The subsidiary has faced intense political and regulatory scrutiny following a massive 2022 cyberattack and a catastrophic nationwide network outage last year that disrupted critical emergency services.
Optus is currently undergoing a multi-year transformation programme following the “triple-zero” outage.
“There’s still work to be done, but I’m confident that a refreshed leadership team can deliver its goal of restoring Optus to a leading challenger telco in Australia,” said Yuen during the AGM.
In its May disclosure, Singtel indicated that a local partner holding a “meaningful minority stake” could bring complementary expertise to improve service provision, bolster operational resilience and help restore public trust.
Citi Research analysts Arthur Pineda and Luis Hilado in May said that the onboarding of a strategic partner for Optus could “raise further proceeds” if successful.
No adverse impact
DBS Group Research analyst Sachin Mittal does not expect any “adverse impact” on group earnings following a potential partial divestment of Optus.
He elaborated that interest cost savings from a potential A$2 billion should offset the earnings loss from the partial divestment of Optus.
“Optus’ return on invested capital has been quite low at 2 to 3 per cent, due to high capital expenditure and depreciation leading to low free cash flow and net profit,” he said.
Chris Muckensturm, analyst at Bloomberg Intelligence, added that the divestment of Optus could “prompt an upgrade” to Singtel’s S$9 billion capital recycling programme.
Singtel has already achieved S$6.8 billion from capital recycling, following its partial divestment of Gulf Development for approximately S$1 billion.
Muckensturm suggested that the funds raised from capital recycling might be used to fund Singtel’s S$740 million acquisition of ST Telemedia Global Data Centres, as well as its artificial intelligence outlays and shareholders returns.
“Committed to Australia for the long term”
Despite talks of a potential divestment, Singtel said that it remained “committed to Australia for the long term”, noting that Optus has been part of the group for more than 25 years.
Optus recently booked a full-year loss after incurring hundreds of millions of dollars in fines and remediation costs related to its network and security failures.
That said, Yuen remains positive on the Australian telco.
“There is strong potential for growth in Australia, given the positive industry dynamics, and the consecutive years of strong earnings before interest and tax growth is a testament to that,” he said.
Singtel said it would update the market of material developments.
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