Singtel

Kim Eng on 18 Feb 2013

What’s New
Reuters reported yesterday that Temasek Holdings may sell its 41.6% stake in Thailand’s Shin Corporation (renamed Intouch PLC), with SingTel named as a potential bidder. The value of the stake, at the current market price, is SGD3.9b or USD3.1b.

What’s Our View
Our initial reaction is that it does not make sense, or at least nonethat we can visibly see, for SingTel to buy Shin. But should it happen at the reported price, this may be negative for SingTel.

First, SingTel already has a sizeable stake in AIS. SingTel already has a direct exposure to Thailand via a 23.3% stake in the country’s largest mobile telco, Advanced Information Services (AIS). We believe SingTel is primarily interested in AIS’s mobile telecom business. AIS, which has a market share of 44% in Thailand, is Shin’s crown jewel that contributes almost all of its profits.

Second, it raises the political risk too much. Taking a substantial stake in Shin will mean SingTel’s exposure to Thailand’s political risks may be too much for our liking. If SingTel were to pay SGD3.9b (USD3.1b) for Temasek’s stake, its investment in Thailand will exceed SGD5b, making the country its biggest exposure to any associate market, bigger than India and Indonesia.

Third, gearing would explode. SingTel's net debt/EBITDA is already 1.0x. Adding another SGD3.9b in debt would raise it to 1.5x (or 2.2x if associates’ contribution is removed from the calculation to be consistent with StarHub and M1).