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SINGAPORE (THE BUSINESS TIMES) – Cash proceeds from the 10.3 trillion rupee (S $ 950 million) sale of 6,050 telecom towers by Singtel’s Indonesian joint venture will likely support the telecom company’s dividends Singapore, according to DBS Group Research.
Separately, RHB also said in a note on Monday (Oct 19) that it views the monetization of such non-core assets positively.
Jakarta-based wireless network provider Telecommunication Cellular (Telkomsel), in which Singtel has a 35 percent stake, will sell the towers to Dayamitra Telekomunikasi (Mitratel), Singtel said in a stock presentation last Friday.
Additionally, Telkomsel signed a 10-year lease with Mitratel to rent the tower space after the towers have been transferred to the buyer. No details have been released on the lease rate for these towers and the subsequent lease price.
State-owned giant Telekomunikasi Indonesia (Persero), also known as Indonesia-listed Telkom, owns the other 65% stake in Telkomsel, as well as the full stake in Mitratel. The latter manages telecommunications towers and serves all cellular operators in Indonesia.
DBS analyst Sachin Mittal wrote on Monday that Telkomsel, being a net cash company, can generate dividends for its shareholders, including Singtel.
Upon completion of the tower sale, Singtel will receive about $ 333 million in pre-tax contributions from the Indonesian partner, Mittal said. This will help the Singaporean company meet its dividend obligations for fiscal 2021, he added.
“We project $ 2 billion that Singtel will pay in dividends in fiscal year 21 (ending next March), although half of this amount could potentially be paid in scrip to Singtel’s largest shareholder, Temasek,” the analyst said.
Singtel’s management is expected to confirm the dividend for financial year 2021 with upcoming financial results for the second quarter of that financial year.
The sale of the tower is expected to take place in stages and be completed by the first quarter of 2021.
It will allow Telkomsel to optimize its capital structure as the company focuses on its core business of providing digital connectivity services to customers in Indonesia, Singtel said.
Meanwhile, RHB said that Telkomsel’s monetization of these non-core assets will unlock shareholder value with the shift from capital expenditures (capex) to operating expenses, as well as streamline capex in the long term.
Proceeds from the sale will amount to about $ 0.02 per Singtel share for your stake, RHB added.
The details of the sale and leaseback conditions are likely to be “accommodative” from RHB’s point of view, considering the large number of telecom towers and that Mitratel is Telkom’s wholly owned tower arm.
DBS noted on Monday that the purchase price per tower of 1.7 billion rupees is less than the 2.1 billion rupees paid per tower in the Indosat deal, although the subsequent lease price and lease relationship for this transaction from Telkomsel ” they could be quite different. “
At the end of last year, Mitratel had bought 2,100 towers from Indonesian telecommunications company Indosat for about Rs 4.4 trillion in a similar leaseback arrangement.
Telkom said in an exchange presentation last week that Mitratel will have more than 22,000 towers after it completes the acquisition of the Telkomsel tower.
DBS said an initial public offering will be possible for Mitratel once it becomes the largest tower player in the country, surpassing Sarana Menara Nusantara, following the Telkomsel transaction.
Mittal also said Monday that Singtel’s core business is undervalued and asset divestment is required to unlock trapped value.
“The market value of Singtel’s associate is $ 2.17 per share, the same as Singtel’s share price, and implies that the market is not placing any value on its profitable core business in Singapore and Australia.” , wrote.
DBS’s fair value for Singtel’s core business is $ 0.48 per share based on pair multiples, while its associate’s fair value is $ 2.46 per share without any discount from the parent company.
DBS maintained its Singtel call option and its price target of $ 2.69. RHB has a “buy” rating and a target of $ 3.10.
Singtel’s shares were trading at $ 2.16 as of 1:00 p.m. Monday, a penny or 0.5 percent lower.
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