SINGAPORE-What do you do when you have loads of cash? You go shopping.
That is precisely what Singapore Telecom has done. Flushed with cash reserves of some S$6.3 billion (US$3.7 billion), the phone operator has been on an aggressive expansion trail outside Singapore during the last couple of years.
Its latest acquisition: A S$690 million (US$400 million) investment in India’s largest private-sector telecommunications organization, the Bharti Group.
That deal, which comes just three months after it entered an agreement with Richard Branson’s Virgin Group to set up a S$1 billion (US$580.6 million) virtual cellular network in the region, is set to propel SingTel into the ranks of regional telecom giants.
Under the India deal, SingTel will make an initial S$690 million payment for a 20-percent and 15-percent stake in two subsidiaries, Bharti Telecom and Bharti Televentures, respectively. Bharti Telecom holds a majority stake in Bharti Televentures, which in turn holds the group’s interests in wireless and fixed-line telecommunications operations.
Given India’s massive population size of 1 billion and low wireless penetration rate, the deal has been hailed as a major coup for the company.
SingTel needed the ego boost, especially since it failed miserably to gain control of Hong Kong’s mobile carrier Cable & Wireless HKT (C&W HKT) earlier this year.
In fact, some analysts said if SingTel plays its cards right, it could even see its share price increase three-fold from its current S$2.80-S$2.90 price range.
“SingTel’s valuation can increase by up to S$9 per share if it achieves its target gearing of 30 percent via investments which generate 20-percent annual return,” said Singapore-based GK Goh’s regional telecommunications analyst Tjandra Kartika recently. “SingTel has already made great strides in the last 18 months, successfully clinching licenses and strategic alliances with KDD, Virgin Group, Lycos and Cisco.”
Indeed, SingTel’s overseas investments have paid off handsomely.
For the first quarter ended 30 June, overseas investments contributed 12.2 percent of pretax profit of S$768 million (US$446 million). These came mainly from Belgium’s Belgacom (S$47 million), Thailand’s Advanced Info Service (S$20.5 million) and Globe Telecom (S$2.3 million) in the Philippines.
Spokesman Ivan Tan explained SingTel’s take on foreign stakes. “Overseas investments are important to SingTel for us to achieve two strategic objectives,” Tan said. “Firstly, they help us realize our vision of becoming a leading pan-Asian communications carrier with unparalleled connectivity; and secondly, they diversify our earnings base geographically.
“Already, our investments overseas contribute more than 10 percent of our pretax profit.”
But having money is no guarantee of success when venturing overseas.
For SingTel, the biggest obstacle it faces in the region is its parentage.
The company is known in Singapore as a “government-linked company” (GLC), because it is 78-percent owned by the government.
And never was this issue more obvious than in the early months of this year, when SingTel’s plans to acquire C&W HKT in Hong Kong were foiled. At that time, it was widely reported in the Hong Kong press that SingTel should not win the bid because of its political links.
It didn’t. It lost out to Richard Li’s Pacific Century CyberWorks, which completed the US$28 billion takeover of C&W HKT.
The loss in Hong Kong has left its mark, even if SingTel has moved on.
In June, Singapore Deputy Prime Minister Lee Hsien Loong said foreign-ownership limits for telecommunications firms would be lifted to signal that the government was prepared to loosen its hold of GLCs.
“The purpose of it was to signal that the game is in play, that if anyone wants to come, we will talk about it,” he said.
