Author: kktan
STEng – BT
ST Kinetics fights to clear its name
Report by India’s auditor-general lists firm’s links with official under fire
Singapore Technologies Kinetics (ST Kinetics) yesterday announced that it will take vigorous action to clear its involvement in a defence corruption scandal in India, which has seen it being barred from participating in the country’s lucrative defence industry for a decade.
The company was dragged into the case following a report by the Comptroller and Auditor- General of India (CAGI), which outlined the behaviour of the Indian official at the heart of the case and his involvement with ST Kinetics.
Reports in the Indian media said that ST Kinetics, along with six other armament companies, were being blacklisted by the Indian defence ministry for a period of 10 years, for their involvement in a corruption investigation of the country’s former top defence procurement official.
In a statement yesterday, ST Kinetics clarified that ‘there were no official statements or notifications from the Indian authorities’ on this alleged blacklisting.
It said that it has offered the Indian authorities full cooperation since investigations began in 2009 including volunteering to submit its financial books for inspection but the offer was never taken up.
‘Following the Indian Central Bureau of Investigation’s investigation report (First Information Report) made in May 2009 on its corruption investigations, charges were pressed against several companies and individuals for alleged wrongdoings. However, to date, no formal charges have been made by any Indian authorities against ST Kinetics or any of its employees in relation to the alleged blacklisting.’
The company added that it had filed three petitions with the Delhi High Court to seek clarification on the alleged blacklisting and that, in all the court hearings, the Indian defence ministry’s consistent stand was that ST Kinetics was not blacklisted and any putting on hold of its defence business activities in the country was only an interim arrangement.
‘It is still early for us to decide on what we are going to do as these reports just emerged last night, but we are now consulting our lawyers in India on the appropriate course of action,’ the company told BT.
At the heart of this high- profile corruption case investigated by the Indian authorities since 2009 is the former director-general of its Ordnance Factory Board (OFB), Sudipta Ghosh.
A report by the Comptroller and Auditor-General of India dated Nov 15, 2010, highlights two main points of Mr Ghosh’s involvement with ST Kinetics. ST Kinetics had an agreement with his defence procurement agency to supply 50,000 Singapore Assault Rifles (SAR) 21 carbines to the Indian home affairs ministry (MHA).
However, to speed up this order, Mr Ghosh and certain officials from his OFB chose to mislead the MHA with an indigenisation process that did not exist. As part of this plan, they informed the MHA that an offset agreement had been signed between OFB and ST Kinetics that would allow the latter to transfer technology to OFB so that up to half of each carbine would be manufactured in India.
There is no indication in the report that ST Kinetics played any part in the scheme.
In addition, ST Kinetics subsequently supplied OFB a set of test SAR 21 carbines for trial on two occasions. The first trial was held on Sept 15, 2008 at the Small Arms Factory in Kanpur while the other was held on Nov 17 the same year at the National Security Guards (NSG) facility in Manesar.
The report stated that even though the weapons passed one trial but were deemed less than satisfactory in the other, Mr Ghosh still recommended that the MHA make the purchase.
‘Incidentally, the SAR 21 is a well respected carbine internationally and is in use in armies of several countries,’ added the report. ‘(Ministries should) analyse the reasons why such procurements could not be made in a more transparent manner without so much falsities and lies.’
In its statement, ST Kinetics clarified that it had never been awarded any defence contracts in India, so this development would have no direct impact on its defence business as India has not been a market for its defence export sales. But, separately, it acknowledged the importance of minimising any impact on its overall brand value.
‘From 2009 until now, our name has not been cleared and for 10 years we are not supposed to do business with OFB. So our reputation is at stake as in India we also have other commercial business interests, while it is a reputation issue for our defence business in other countries,’ the company told BT.
SingTel – Kim Eng
Revamp and acquisition fail to impress
Downgrade to Sell. SingTel’s organisational restructuring is broad in scope while the acquisition of Amobee is far-reaching in its implications for the future. While we have no arguments with these developments from the longer-term perspective, we expect its already-challenged margins to be squeezed in the short term. No doubt, the telco can afford the US$321m price tag for Amobee but its ability to improve dividends may come under question. We believe SingTel is poised to make even more acquisitions as it embarks on its Digital L!fe strategy. We downgrade the stock to Sell with the target price reduced to $2.80, based on 11x FY Mar13F PER.
Massive restructuring, major acquisition. SingTel has announced an organisational restructuring that cuts across all business segments and geographies, in a clear break from the traditional country-centric model. It also announced that it has staked its claim in the mobile advertising market via a US$321m acquisition of Amobee. Revenue for the worldwide mobile advertising market is estimated by Gartner to double from last year to US$6.8b this year.
Bold, necessary but slow off the mark. We have mixed feelings about SingTel’s restructuring. In our view, it is a bold move as it illustrates how serious the group is in addressing threats to its business, and also necessary as its space has been encroached upon by nontraditional rivals. However, as in any restructuring, operating costs could spike in the short term and further affect margins that are already under pressure. Implementation, too, will be a concern.
Further acquisitions may cap dividend upside. The valuation SingTel is paying for Amobee does not seem out-of-line with acquisitions of similar companies by others. Nevertheless, it is still a big chunk of change. The acquisition cost represents 27% of the group’s cash holdings as at end-3QFY Mar12. While it will probably not affect SingTel’s dividend, it may cap upside beyond the 55-70% payout range and could dash hopes for further capital management.
SingTel – BT
SingTel bets US$321m on mobile ads
In the battle against the disruptive influence of smartphones on voice call and SMS revenues, SingTel is fighting back with a US$321 million acquisition of Silicon Valley mobile advertising firm Amobee.
As part of its virgin investment in a digital services firm, SingTel will trade its customer data for Amobee’s mobile ad savvy as it tries to crack mobile marketing in emerging markets such as India and Indonesia. These markets account for a growing portion of SingTel’s 434 million customers.
The acquisition of the 100 per cent stake in Amobee will be an all-cash one and will give SingTel access to more refined marketing tools like targeted deals and coupons for its subscribers. The deal is slated to be completed before June.
At the same time, SingTel will use its position as a telco to fill in the blanks in demographic information that have frustrated marketers thus far. ‘There’s a wealth of data that’s available – age, gender, socio-economic status . . . handset model, real-time location – gathered with customers’ permission,’ said Allen Lew, SingTel’s newly designated head of digital business.
While the US$321 million investment works out to a price-to-net-asset-value ratio of 535 based on Amobee’s net asset value (NAV) of US$0.6 million, SingTel Group CEO Chua Sock Koong said that the telco had considered the discounted cash flow (DCF) valuation parameters of other deals and that its valuation of Amobee was ‘in line with market parameters’.
A report by DMG & Partners Research yesterday said that the SingTel- Amobee valuations implied a price-to-sales ratio of 11 – below similar deals’ price- to-sale ratios ranging from 13 to 30.
In previous years, Google and Apple have been involved in large-scale buyouts of mobile advertising firms – AdMob and Quattro Wireless – respectively. Google paid US$750 million for AdMob while Apple reportedly paid US$275 million for Quattro Wireless.
In that respect, the DMG report deemed the Amobee valuation ‘fair’ and placed it on the ‘low end of similar benchmarks’.
While the largest spate of mobile ad firm buyouts happened in 2007, heavyweight interest in mobile advertising appears set to continue into the year, with Facebook courting mobile ads and Starbucks working with mobile ad firm Celtra on a campaign.
SingTel’s designs on this space are similarly ambitious. The telco said yesterday that it wanted to not only be the top mobile ad firm in the region but to also rank among the top three in the world.
If it achieves this, it will have leapt across a rather large distance in the mobile advertising landscape, considering its starting point.
Mr Lew said that up till now, ‘most of (SingTel’s) efforts have been SMS- and MMS-based. We have not participated in the agency aspect of mobile advertising or creative design.’
The DMG report also said the research house viewed the deal ‘as positive for SingTel given Amobee’s expansive platform covering the entire value chain of mobile advertising’.
‘This will allow the group to capitalise on and further monetise mobile advertising across the (operating companies),’ it added.
DBS Group Research’s Sachin Mittal noted, however, that ‘mobile advertising is a promising area but selling solutions is something new for SingTel’.
In the mobile ad field, the stakes appear to get larger every year. Gartner data cited by SingTel showed that global revenue from mobile ads is set to grow from US$6.8 billion this year to US$20.6 billion in 2015 – of which Asia Pacific is expected to account for 35 per cent.
This deal was announced alongside a sweeping organisation reshuffle that points to a growing focus on SingTel’s digital interests.
From April 1, SingTel Group will have three main business units: consumer, digital services, and information technology for enterprises.
Mr Lew will serve as CEO of the group digital business, while Paul O’Sullivan – who heads up the Optus business – will be CEO of the group consumer end.
The search for someone to lead its IT segment for enterprises, however, continues, with Mr Lew standing in meanwhile.
‘This reflects the focus on selling innovative solutions rather than being an operator in an era where voice is being commoditised and the value is in selling solutions,’ DBS’s Mr Mittal commented in his note yesterday.
The group’s counter closed two cents lower at $3.13 in trading yesterday.
SingTel – BT
SingTel’s US$700m, 5.5-year notes over 4 times subscribed
Three traded perpetual securities see varied performances
SINGTEL’s sale of US$700 million, 5.5-year notes yesterday met with strong demand as the debt market continued to sizzle. The order book for the bonds, which pay a coupon of 2.375 per cent, came to about US$3.25 billion and was more than four times subscribed by investors, said SingTel in a statement.
But those looking for a quick buck trading some of the highly popular perpetual securities are finding that not all perps are the same.
Genting’s 5.125 per cent was selling at $100.65 but SingPost’s 4.25 per cent was trading higher at $101.5/102.5. Olam which has a coupon of 7 per cent was struggling to stay above water at $100.2/100.8.
All the three perps, which were sold within the past 10 days, were priced at $100 plus a typical commission of 0.25 per cent, so the effective cost would be $100.25.
‘One customer complained that Genting is so huge compared to SingPost, so how come Genting is not performing compared to SingPost,’ said a broker.
Genting issued $1.8 billion perps after receiving $6 billion orders. SingPost had orders of $2.5 billion or seven times more than the $350 million issuance.
‘SingPost is exceptional, like it’s small size and it’s got everything,’ the broker added. SingPost is 26.01 per cent owned by Temasek Holdings (Private) Ltd.
Olam’s issuance was $275 million after the order book came to $350 million. One relationship manager said he took orders only from customers who asked for Olam rather than actively market the issue, given its higher risk profile.
Among the three names, SingPost is considered the least risky with an A+ credit rating, said Todd Schubert, Bank of Singapore head of credit research.
Genting has a Baa3/BBB- credit rating while Olam has no credit rating.
‘Given that the entire SGD corporate bond market is less than US$100 billion, Genting represented a significant increment to the current outstanding stock of SGD dollar bond,’ said Mr Schubert. ‘The large size of Genting vis-a-vis Olam and SingPost and relative to the size of the market limits Genting’s uniqueness factor,’ he said.
Said Hartmut Issel, head of UBS Wealth Management Research Singapore: ‘We had very low issuance activity in the second half of last year, accompanied by high accumulation of cash during that time. The real attraction in these perpetual securities lies in the lucrative yield they provide.’
Added Wilson Aw, head of UOB Private Banking: ‘Being Singapore dollar denominated, besides appealing to local investors, they also offer an avenue for non-Singapore investors.
‘However, investors should bear in mind, for instance, the subordination of the structure and the higher interest rate risk compared to straight bonds.’
SingTel – BT
SingTel’s US$700m, 5.5-year notes over 4 times subscribed
Three traded perpetual securities see varied performances
SINGTEL’s sale of US$700 million, 5.5-year notes yesterday met with strong demand as the debt market continued to sizzle. The order book for the bonds, which pay a coupon of 2.375 per cent, came to about US$3.25 billion and was more than four times subscribed by investors, said SingTel in a statement.
But those looking for a quick buck trading some of the highly popular perpetual securities are finding that not all perps are the same.
Genting’s 5.125 per cent was selling at $100.65 but SingPost’s 4.25 per cent was trading higher at $101.5/102.5. Olam which has a coupon of 7 per cent was struggling to stay above water at $100.2/100.8.
All the three perps, which were sold within the past 10 days, were priced at $100 plus a typical commission of 0.25 per cent, so the effective cost would be $100.25.
‘One customer complained that Genting is so huge compared to SingPost, so how come Genting is not performing compared to SingPost,’ said a broker.
Genting issued $1.8 billion perps after receiving $6 billion orders. SingPost had orders of $2.5 billion or seven times more than the $350 million issuance.
‘SingPost is exceptional, like it’s small size and it’s got everything,’ the broker added. SingPost is 26.01 per cent owned by Temasek Holdings (Private) Ltd.
Olam’s issuance was $275 million after the order book came to $350 million. One relationship manager said he took orders only from customers who asked for Olam rather than actively market the issue, given its higher risk profile.
Among the three names, SingPost is considered the least risky with an A+ credit rating, said Todd Schubert, Bank of Singapore head of credit research.
Genting has a Baa3/BBB- credit rating while Olam has no credit rating.
‘Given that the entire SGD corporate bond market is less than US$100 billion, Genting represented a significant increment to the current outstanding stock of SGD dollar bond,’ said Mr Schubert. ‘The large size of Genting vis-a-vis Olam and SingPost and relative to the size of the market limits Genting’s uniqueness factor,’ he said.
Said Hartmut Issel, head of UBS Wealth Management Research Singapore: ‘We had very low issuance activity in the second half of last year, accompanied by high accumulation of cash during that time. The real attraction in these perpetual securities lies in the lucrative yield they provide.’
Added Wilson Aw, head of UOB Private Banking: ‘Being Singapore dollar denominated, besides appealing to local investors, they also offer an avenue for non-Singapore investors.
‘However, investors should bear in mind, for instance, the subordination of the structure and the higher interest rate risk compared to straight bonds.’