Telkomsel considering bond sale this year

PT Telekomunikasi Selular, Indonesia’s biggest mobile-phone operator, is considering selling bonds this year to fund spending, an official at parent company PT Telekomunikasi Indonesia said yesterday.

Telkom, as the parent company is known, plans capital spending of US$2 billion this year, 70 per cent of which will be used to expand its cellular business, Telkom president director Rinaldi Firmansyah told reporters here.

‘If market conditions improve, the bonds will be an alternative to fund the capital expenditure,’ Mr Firmansyah said. He didn’t provide the size and timing of the bond sale.

Telkom this month agreed to borrow about 5 trillion rupiah (S$647 million) from a group of banks including PT Bank Rakyat Indonesia and PT Bank Negara Indonesia, Mr Firmansyah said on March 2. The company aims to attract more subscribers to raise revenue by as much as 10 per cent this year, he said.

Telkomsel, 35 per cent owned by Singapore Telecommunications Ltd, had 65.3 million subscribers on Dec 31, 2008, up 36 per cent from 2007, the company said on Feb 12. Telkom shares climbed 3.5 per cent to 7,350 rupiah yesterday, outpacing a 3.4 per cent increase in the benchmark Jakarta Composite Index. — Bloomberg

SingTel injects US$25m more into associate

Total investment in PBTL now stands at US$143m; stake unchanged at 45%

SINGAPORE Telecommunications (SingTel) has pumped in another US$25 million into Pacific Bangladesh Telecom Limited (PBTL) to take its total investment in this overseas associate to US$143 million.

The latest boost came from the subscription by SingTel for its pro-rata entitlement of about 1.07 million PBTL shares.

PBTL is expected to use the additional capital to fund its domestic network expansion.

Despite the latest injection, SingTel’s stake in PBTL will remain unchanged at 45 per cent as the Bangladeshi operator’s other major shareholders have also subscribed to their respective share allotments.

PBTL is a member of the Pacific Group – one of the largest privately-owned business conglomerates in Bangladesh and a major shareholder of Arab Bangladesh Bank. Its other major stakeholders include Pacific Motors Limited, Pacific Traders Limited, Pacific Industries Limited and Far East Telecom.

SingTel said in a statement yesterday the PBTL transaction, carried out through its wholly owned subsidiary SingTel Asia Pacific Investment, will not have a material impact on its financial year ending March 31.

Singapore’s largest operator bought its initial PBTL stake in 2005 for US$118 million as part of its strategy to branch into emerging regional markets.

SingTel now derives nearly 60 per cent of its earnings from overseas through its Australian unit Optus and its six regional associates – PBTL, Warid Telecom in Pakistan, India’s Bharti Telecom, Indonesia’s Telkomsel, Globe Telecom in the Philippines, as well as AIS in Thailand.

While it is keen to add more names to this list, the onset of the global economic crunch may have slowed the group’s acquisition spree. The operator’s last overseas foray was in June 2007 when it bought a 30 per cent stake in Pakistani operator Warid for US$758 million.

SingTel’s group CEO Chua Sock Koong previously said SingTel was not in ‘a big rush to make acquisitions’ amid the uncertain global outlook. However, she said SingTel was constantly looking for opportunities to raise its stakes in current associates.

Besides PBTL, SingTel also raised its investment in Warid recently by US$75 million by subscribing to 174.89 million more shares in the company.

Competition, capex and currency

Street expectations from Bharti are too high and likely to disappoint in the wake of heightened competition in India. We cut our SingTel’s FY10 earnings forecast by 5% and our revised numbers are 9% below consensus, suggesting that earnings may decline for another year. Maintain FULLY VALUED with lower target price of S$2.25. 4Q09 results are likely to be lower than street expectations. Another risk is dividend cut due to high capex for National broadband Network in Australia.

Where we differ? (i) Street is feeding 28-30% YoY net earnings growth (INR) from Bharti into SingTel FY10 numbers, despite Bharti’s consensus numbers suggesting only 18% growth, which is again higher than our 13% forecast. Weak share price of Bharti also suggests that consensus could be behind the curve (ii) Street may have ignored the worsening outlook for Indian rupee (iii) Street expects single-digit growth for Telkomsel, compared to our forecast of slight decline.

Lowered FY10 pre-tax profit for associates by 3.3%. Our new forecast for SGD/INR is 35 (prev 32) due to high fiscal deficit of India and credit rating downgrade by rating agencies. Besides, we project AIS to register 3% YoY decline from 5% growth earlier.

Reduced FY10 EBITDA estimates for Optus by 11%. We have adjusted AUD/SGD exchange rate to 1.00 from 1.12, as AUD may not rebound back due to weaker than expected
Aussie economy.

Lowered FY10 EBITDA estimates for Singapore by 3.5%. We forecast it to be flat YoY as potential decline in roaming revenues and prepaid subscriber base may offset benefits from lower competition and higher data revenue due to iPhone launch.

Maintain FULLY VALUED, with lower SOTP-based target price of S$2.25. In 4Q09, we expect net underlying profit of S$826m (3Q09 was S$838m) versus consensus’ S$887m, as (i) Bharti faces headwinds due to tariff wars from Rcom & Vodafone (ii) INR & IDR have deteriorated further. Another risk is that SingTel could limit its payout to 45% of earnings, in case of winning NBN award in Australia, implying 4% yield.