SingTel – BT

SingTel seen eyeing stake worth US$500m in Ghana telco

It’s conducting due diligence, with Merrill as adviser

SINGAPORE Telecommunications is now hunting for high-growth assets far beyond its traditional grounds in Asia, having spent over US$12 billion in acquisitions closer to home in recent years.

Banking sources told Reuters that SingTel, South-east Asia’s largest telecoms company, plans to bid for a major stake in state-owned Ghana Telecom, the West African country’s dominant operator.

The deal, for half of the unlisted company’s shares, may cost SingTel up to US$500 million and pit it against European names like France Telecom, whose mobile arm Orange operates in several African countries, including Botswana and Senegal.

SingTel declined to comment but people close to the deal confirmed that the company, advised by Merrill Lynch, was conducting due diligence and hopes to be short-listed for the bidding process likely to start in about a week’s time.

A telecoms firm in Africa – where only 15 per cent of the population owned a mobile phone at the end of 2005 – would fit well with SingTel’s strategy to invest in low-penetration markets for hyper growth, analysts said.

If the deal goes through, it would be the first major acquisition by a Singapore company in Africa. But not everyone is convinced that an African adventure is a good idea.

‘The further you go (from your traditional markets), the higher the risk you face,’ said Michael Lim, Singapore-based fund manager at Prudential Asset Management.

‘But having said that, if the price is right and the returns are rewarding, then investors may take a positive view,’ he said.

SingTel, facing a small, saturated home market of 4.5 million people, has bought several mobile operators in high-growth Asian nations and in the bigger Australian market.

It owns Australia’s No 2 mobile operator Optus and has major stakes in six Asian telecoms companies, including India’s Bharti Group , Indonesia’s PT Telkomsel, and Thailand’s Advanced Info Service.

Most of these investments have shown phenomenal growth in wireless subscribers in recent years. SingTel’s Indian associate Bharti added over two million customers – about half the population of Singapore – in September alone, lifting its user base to 48.9 million.

Despite that, Priya Gupta, director in credit rating agency Fitch’s Asia-Pacific telecoms, media and technology team believes that an aggressive acquisition strategy could compromise the company’s financial stability, given the scarcity of high-quality assets.

However, investors such as Peter Wilmshurst, senior vice-president of Templeton Global Equity Group, said that he understands why the company was eager for emerging market assets.

‘Telecom is a declining (growth) industry overall,’ he said.

‘But there are some areas within the industry that have strong growth potential and two of them are broadband (Internet) and emerging market mobile,’ he said.

Mr Wilmshurst said that SingTel’s operations in Singapore and Australia offer steady cash flow but little promise of future growth as telecoms penetration has reached around 100 per cent.

‘It’s SingTel exposure to emerging markets that gives it access to the strong growth potential, especially in the mobile segment in these markets,’ he said.

Investors seem encouraged by the prospects. From a decade low of S$1.19 in January 2003, SingTel stock has shot up to a high of S$4 this month, pushing its market value above US$40 billion. The stock has gained 61 per cent in the past 12 months alone. — Reuters

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