Hopes rise for SingTel payout
Business Time 25th JAn 2006
By SIOW LI SEN
THERE was barely a ripple from Singapore Telecommunications yesterday following the entry of parent Temasek as new controlling shareholder in Advanced Info Service (AIS) in Thailand's largest takeover. In fact, SingTel ended one cent down to $2.47, with one observer attributing the decline to disappointment over the Q3 result of its associate, Bharti Tele-Ventures. SingTel has weakened since it hit $2.83 last July, despite bullish outlooks from several analysts.
Bharti, India's largest mobile phone company, reported third-quarter profit was up 25 per cent year-on-year to 5.45 billion rupees (S$200 million), but missed analysts' estimates of 5.71 billion rupees. SingTel is Bharti's largest foreign shareholder, with a 31 per cent stake.
But back to the events in Thailand. For several months before Monday's announcement that a Temasek-led consortium had acquired a 49.6 per cent stake in Shin Corp from the family of Thai Prime Minister Thaksin Shinawatra - and along with it gained control of AIS, of which Shin owns 42.82 per cent - it had been speculated that SingTel was to be the buyer, to add to the 21 per cent of AIS it already held.
The earlier speculation tied into SingTel's oft-repeated stance - that it wants to increase its stake in existing associates, though not at any price. AIS was one such plum associate, eyed also by other international investors for its dominant market position in the Thai mobile phone sector (55 per cent market share), strong profit margins and high prospective dividend yield of 7 per cent for 2006.
That SingTel did not buy into Shin Corp is no surprise, given that it would have had to waste much resources stripping out the conglomerate's non-core assets.
Analysts say there is little impact on SingTel from Temasek's deal. Most see little synergy between Temasek Holdings and either Shin or AIS. Temasek has hardly any telco experience. Its area of expertise is 'international' - a strength that perhaps won't come into play much in the rough and tumble of the competitive Thai telco sector.
Temasek's other expertise is corporate governance advice, and one SingTel observer said that has meant getting compliance people from its different associates and subsidiaries together to share experiences.
But there is unlikely to be any significant increased synergies between SingTel and Shin and AIS because of Temasek's entry; after all, AIS has been a SingTel associate for six years, during which time any synergy should have materialised. SingTel, as the largest South-east Asian telecom company, has little to learn from AIS.
In November 2004, SingTel led in forming a regional mobile alliance called Bridge Mobile Alliance, which includes three of its four associates and leading operators in Hong Kong, Malaysia and Taiwan. AIS was the odd associate out, though SingTel has indicated that it is working on getting the Thai firm to join.
The idea of Bridge is to build a shared regional mobile infrastructure and common service platform, hopefully lowering procurement costs as it would have economies of scale, say, when negotiating with a mobile phone manufacturer.
So far, the benefits have been hard to quantify. The significance to SingTel of Temasek as Shin's newest investor perhaps lies elsewhere.
Investors have often complained that SingTel's balance sheet is not as effective as it could be. Put another way, it has too much cash, which it could return to shareholders.
SingTel is estimated to end the financial year in March with cash of between $3.5 billion and $4 billion. It reported a cash pile of $2 billion at end-September 2005.
Increased flexibility
One estimate is that it will have inflows of $500 million in dividends from associates and earnings before interest, tax, depreciation and amortisation of $2.3 billion in addition to the $2 billion cash. Outflows are estimated at $900 million for capital expenditure, resulting in cash of around $4 billion by end-March.
SingTel has said its strong operating cash flow gives it increased flexibility to consider new investments and acquisitions, and while these opportunities are being evaluated there may be short-term efficiencies in the capital structure.
Last year, SingTel failed in its bid to buy 26 per cent of PakistanTelecommunication. It also saw British telco Vodafone buy a 10 per cent stake in Bharti.
SingTel has indicated that it listens to shareholders' concern over its cash pile. Now that AIS has slipped out of SingTel's grasp, perhaps it can focus on returning cash to shareholders.
By SIOW LI SEN
THERE was barely a ripple from Singapore Telecommunications yesterday following the entry of parent Temasek as new controlling shareholder in Advanced Info Service (AIS) in Thailand's largest takeover. In fact, SingTel ended one cent down to $2.47, with one observer attributing the decline to disappointment over the Q3 result of its associate, Bharti Tele-Ventures. SingTel has weakened since it hit $2.83 last July, despite bullish outlooks from several analysts.
Bharti, India's largest mobile phone company, reported third-quarter profit was up 25 per cent year-on-year to 5.45 billion rupees (S$200 million), but missed analysts' estimates of 5.71 billion rupees. SingTel is Bharti's largest foreign shareholder, with a 31 per cent stake.
But back to the events in Thailand. For several months before Monday's announcement that a Temasek-led consortium had acquired a 49.6 per cent stake in Shin Corp from the family of Thai Prime Minister Thaksin Shinawatra - and along with it gained control of AIS, of which Shin owns 42.82 per cent - it had been speculated that SingTel was to be the buyer, to add to the 21 per cent of AIS it already held.
The earlier speculation tied into SingTel's oft-repeated stance - that it wants to increase its stake in existing associates, though not at any price. AIS was one such plum associate, eyed also by other international investors for its dominant market position in the Thai mobile phone sector (55 per cent market share), strong profit margins and high prospective dividend yield of 7 per cent for 2006.
That SingTel did not buy into Shin Corp is no surprise, given that it would have had to waste much resources stripping out the conglomerate's non-core assets.
Analysts say there is little impact on SingTel from Temasek's deal. Most see little synergy between Temasek Holdings and either Shin or AIS. Temasek has hardly any telco experience. Its area of expertise is 'international' - a strength that perhaps won't come into play much in the rough and tumble of the competitive Thai telco sector.
Temasek's other expertise is corporate governance advice, and one SingTel observer said that has meant getting compliance people from its different associates and subsidiaries together to share experiences.
But there is unlikely to be any significant increased synergies between SingTel and Shin and AIS because of Temasek's entry; after all, AIS has been a SingTel associate for six years, during which time any synergy should have materialised. SingTel, as the largest South-east Asian telecom company, has little to learn from AIS.
In November 2004, SingTel led in forming a regional mobile alliance called Bridge Mobile Alliance, which includes three of its four associates and leading operators in Hong Kong, Malaysia and Taiwan. AIS was the odd associate out, though SingTel has indicated that it is working on getting the Thai firm to join.
The idea of Bridge is to build a shared regional mobile infrastructure and common service platform, hopefully lowering procurement costs as it would have economies of scale, say, when negotiating with a mobile phone manufacturer.
So far, the benefits have been hard to quantify. The significance to SingTel of Temasek as Shin's newest investor perhaps lies elsewhere.
Investors have often complained that SingTel's balance sheet is not as effective as it could be. Put another way, it has too much cash, which it could return to shareholders.
SingTel is estimated to end the financial year in March with cash of between $3.5 billion and $4 billion. It reported a cash pile of $2 billion at end-September 2005.
Increased flexibility
One estimate is that it will have inflows of $500 million in dividends from associates and earnings before interest, tax, depreciation and amortisation of $2.3 billion in addition to the $2 billion cash. Outflows are estimated at $900 million for capital expenditure, resulting in cash of around $4 billion by end-March.
SingTel has said its strong operating cash flow gives it increased flexibility to consider new investments and acquisitions, and while these opportunities are being evaluated there may be short-term efficiencies in the capital structure.
Last year, SingTel failed in its bid to buy 26 per cent of PakistanTelecommunication. It also saw British telco Vodafone buy a 10 per cent stake in Bharti.
SingTel has indicated that it listens to shareholders' concern over its cash pile. Now that AIS has slipped out of SingTel's grasp, perhaps it can focus on returning cash to shareholders.
posted by SmartYInvestor at 8:47 AM
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