SingTel - Partial Bharti Stake Sale To Unlock Value
- SingTel (SGX:Z74) has entered into an agreement to sell 198mil (3.3%) Bharti Airtel (BHARTI IN) shares to Bharti Telecom (BTL) for S$2.25bn cash. Expected to be completed before 23 Nov 2022, this will trim SingTel’s effective stake in Bharti by 1.7% to 29.7% from 31.4% previously (not the full 3.3% as SingTel also owns a 49.4% stake in Bharti Telecom).
- The selling price of Rs651 per share is at a 12% discount to Bharti’s closing share price yesterday. SingTel will book in a one-off net gain on divestment of ~S$600mil.
- SingTel said the deal was mainly aimed at illuminating the value of its stake in Bharti (its effective 29.7% stake is now worth S$22bn) and narrowing its significant HoldCo (holding company) discount. It remains committed as a strategic investor in Bharti.
- This deal is not a major surprise as Economic Times had reported on 26 May and 7 Jul that SingTel was in discussions to sell a partial stake in Bharti to the Mittal family.
- We are positive on this transaction, as SingTel continues to execute on its asset recycling strategy, with the divestment proceeds helping to further strengthen its ability to fund investments into new growth areas while sustaining healthy dividends. On the latter, our analysis of the projected cash outflows and inflows in FY23-25F suggests SingTel can comfortably meet its 60-80% dividend payout policy.
- SingTel said proceeds from its asset recycling thus far will more than cover the S$4bn-5bn investment for incremental 5G capex (beyond BAU capex) and growth initiatives (e.g. NCS, regional data centre, digital banking) in the next 3 years, leaving open the possibility for special dividends if there are further future asset sales.
- SingTel will recognise a lower share of Bharti’s profits going forward, but we estimate the impact to be only < 1% for FY24F. We retain our forecasts for SingTel.
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
FOONG Choong Chen CGS-CIMB Research | Sherman LAM Hsien Jin CGS-CIMB Research | https://www.cgs-cimb.com 2022-08-25 2022-08-25
Read also CGS-CIMB's most recent report:
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