Singtel shares pick up momentum on India news
Telecommunications heavyweight Singtel is confident in its Indian associate Airtel’s growth prospects.
- Singtel (SGX: Z74) share price reaches S$2.51 per share
- The group plans to fork out about US$405 million to subscribe to Airtel’s rights issue
- CIMB says the rights subscription lessens Singtel’s chances of special dividends
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Singtel stock price perks up again
Shares of Singapore’s biggest telco inched up 0.4% or S$0.01 day-on-day to finish at S$2.51 on Monday, with nearly 31 million shares changing hands.
In the past month, the stock price has climbed 6.4%, with most of the gains coming in after positive news of India’s telco relief package.
This week, Maybank analysts, rating Singtel ‘buy’ with a S$2.83 target, said they believe Singtel may ‘potentially split the group into infrastructure and a customer-facing MVNO (mobile virtual network operator) service’.
Separately, since the group’s core operations - in Singapore and Australia - are valued close to zero, these could be privatised, Maybank noted.
Will Airtel rights issue overburden Singtel?
Singtel last Thursday said it intends to subscribe to its Indian associate Bharti Airtel’s rights issue at 535 rupees per share for a total consideration of up to 29.4 billion rupees (about US$405 million), across a period of up to three years.
This represents Singtel’s full rights entitlement for its direct stake of 14% in Airtel. Singtel group chief financial officer Arthur Lang said this ‘underscores our confidence in Airtel’s growth prospects’.
Using the fresh funds, the Indian telco plans to invest in 5G capabilities and ride the country’s digital growth momentum.
RHB analysts said the subscription may lead to ‘a manageable uptick’ in Singtel’s net debt-to-Ebitda ratio, from 2.1x to 2.2x. RHB maintained its ‘buy’ call on Singtel shares, alongside a S$3 target price.
Likewise, CIMB, reiterating ‘add’ and eyeing S$2.90 per share, highlighted that the payments will have ‘limited impact’ on Singtel’s gearing and thus ‘should not overburden’ the company.
However, the rights subscription could reduce the size of any potential special dividends from asset monetisation, CIMB noted.
What relief measures are Indian telcos welcoming?
India’s reform package, introduced in mid-September, will result in improved regulatory conditions for the telecommunications industry and also significantly improve Airtel’s liquidity, Lang said.
Airtel noted that the telecommunications industry had been battered by stress, high debt and low return on investments.
Among the measures in the package was a redefinition of the adjusted gross revenue (AGR) to count only telcos’ revenue, which will slash the amount of AGR payments that telcos need to make to the state.
As these changes will only apply going forward, Airtel still needs to make 259.76 billion rupees (about US$3.52 billion) in AGR payments, The Business Times (BT) reported.
Nonetheless, Singtel’s Lang said the game-changing package will free up a ‘tremendous’ amount of free cash flow, BT added.
Citi’s research team wrote that the package will help lower Airtel's upfront cash burden and reduce pressure on its US$2.8 billion recapitalisation plan.
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