SingTel – BT

MTN deal may dilute SingTel’s Bharti stake

But larger merged entity will offer exposure to South Africa

Singapore Telecommunications may get to dip its toes in underdeveloped mobile markets in South Africa if the complex share-and-cash swap between Bharti Airtel and the MTN Group goes through. Industry analysts say this may come at the expense of a major stake reduction in its Indian associate.

According to a Citi report, SingTel could see its 30.5 per cent shareholding in Bharti being slashed to 19.4 per cent if the planned Bharti-MTN deal succeeds.

‘SingTel likely becomes a smaller shareholder in a larger entity,’ the Citi note said.

Kim Eng Research analyst Gregory Yap, on the other hand, estimates that SingTel’s stake in Bharti could be cut to 25.6 per cent with the completion of the MTN deal.

‘We do not view this as negative in the long term as Africa and Middle East, where MTN is strong, are the last telecom frontiers and offer strong growth opportunities,’ he explained.

Bharti on Monday announced that it had revived exclusive negotiations with the South African telco in a deal that would result in partial ownership of each other’s companies.

This comes after the failure of the first round of talks, which eventually collapsed last May as the two operators could not agree on how the deal should be structured. MTN subsequently held discussions with Bharti’s archrival Reliance Communications but a consensus could not be reached.

The latest transaction, valued by some industry watchers at nearly US$23 billion, could set the precedent as India’s largest cross-border deal and will result in Bharti owning 49 per cent of MTN. Bharti will pay 86 South African rand and 0.5 newly issued Bharti global depository receipts for each MTN share.

In return, MTN and its shareholders will acquire a 36 per cent stake in India’s largest operator.

‘Bharti has consulted us (on the MTN deal) and discussions are ongoing. SingTel will continue to be actively involved in due diligence and key aspects of the transaction,’ said SingTel spokesman Peter Heng.

‘Consistent with our approach as a strategic investor and equity accounting for our investments, we will continue to equity account for Bharti, in its enlarged form post the transaction if this is successful,’ he added.

When Bharti first held talks with MTN last year, SingTel was reported to have been roped in to help finance the mammoth bid. This time around, however, a Bharti spokesman was quoted as saying in a Reuters report that funding requirements for the MTN deal are not expected to be ‘onerous’.

‘If a merger deal had been struck last year, valuations would have been higher, with estimates as high as US$50 billion. Valuations are now more reasonable,’ said Kim Eng’s Mr Yap.

SingTel shares closed seven cents lower yesterday at $2.74.

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