SingTel – BT

Near-term cheer for SingTel shareholders

IN the cut-throat business world, companies often find joy in their rivals’ mishaps. In the case of Singapore Telecommunications, however, it could be well be the company’s shareholders that end up cheering the failure of the group’s recent broadband bids.

The absence of a major foreign acquisition, coupled with SingTel’s failure to capture recent broadband tenders in Singapore and Australia, means that the firm is now freed from major capital commitments. In all likelihood, this could set investors up for a higher cash payout when SingTel releases its results for the financial year ended March 31, 2009 next month.

The company had previously stated that its dividend payout ratio for the year would be 45-60 per cent of underlying earnings. With concerns of major capital expenditure allayed, shareholders should find themselves at the higher end of this reward spectrum.

In 2008, SingTel put a halt to its payment of special dividends, a move that prompted market talk that it was conserving cash to support the bid for South Africa’s MTN Group by its Indian associate Bharti.

The demise of the deal a few months later meant SingTel drew a blank on the foreign acquisitions front in 2008. Its local purchase of Singapore Computer Systems aside, the war chest that has been set aside for funding its overseas ambitions has remained largely untapped.

Apart from the MTN bid, SingTel’s involvement in broadband projects in Singapore and Australia were also seen as other likely burdens on the firm’s capital resources.

Top on this list was SingTel’s attempt to land the NetCo (Network Company) and OpCo (Operating Company) bids in Singapore, two separate contracts covering the building of the nation’s new fibre-optic network and the wholesaling of bandwidth on the new broadband pipes.

In particular, there was much uncertainty over the degree of financial drain from the NetCo project, an undertaking which was projected to cost nearly $3 billion.

SingTel won this bid last September as part of a four-member consortium called OpenNet. But instead of having to make a substantial cash outlay, SingTel is to be compensated $1 billion over the coming years for surrendering its Internet assets to OpenNet to speed up network rollout.

The operator then went solo in the OpCo bid but it lost out to rival StarHub, which snagged the deal for operating Singapore’s new high-speed broadband network earlier this month. For SingTel, the loss meant that additional spending on OpCo-related equipment has also been averted.

Beyond local shores, SingTel’s Australian unit Optus was involved in a similar bid to build and operate a high-speed National Broadband Network (NBN) Down Under.

Due to Australia’s large land mass, the project was expected to cost over A$40 billion (S$43.3 billion) and it prompted speculation that SingTel may have to increase borrowings or slash dividends should Optus land the contract. Both worries have been dispelled with the Australian government turning down all four bids this month on the grounds that they were not up to par.

Instead, the authorities will take on the job of wiring up Australia themselves, a move described by some analysts as the ‘best-case scenario’ for SingTel. This is because it is now freed from the capex commitment but Optus can still benefit under the country’s more open broadband regime. As a result, some market watchers now expect SingTel to exceed its stated dividend payout ratio.

Since the onset of the recession, SingTel has consistently been hailed as one of the storm shelters for panic-stricken investors. With no major investments on the cards and the additional breathing space created by the recent upswing in regional currencies, there is no better time to show investors that they have made the right call by playing it safe.

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