Airtel remains a core investment in our international portfolio: Singtel

Singtel seeks to unlock value of regional associate companies

Singapore-based Singtel made its intent about strategic investments in regional associates and joint venture companies (which include Bharti Airtel) clear on Friday.

Singtel wants the value of these companies to be reflected in its shares. It also wants to increase shareholder returns. It is doing so by unlocking value and reallocating capital, a move through which it has raised Singapore $2 billion in FY22.  

The elaboration of its strategy, however, comes at a time when there are reports about its intention to sell 2 per cent stake in Bharti Airtel for around US $1 billion. However the company, in a statement, has dubbed such reports as “market speculation.”

According to reports, it has already started discussions on this with the Mittals, the promoters of Airtel.

However Singtel reiterated its old stance, saying, “We have been a strategic investor in Airtel for decades and it remains a core investment in our international portfolio.”

Explaining its strategy for associate companies, Singtel said that according to the “strategic reset” its focus area is to narrow the significant “valuation gap”.

Singtel shares do not reflect the value of its holdings in their associates.

“We have taken proactive steps to illuminate the value of our portfolio of strategic investments to deliver attractive returns for our shareholders,” it said in the statement released on Friday morning.

To illustrate the point, it gave examples of its divestment of 70 per cent stake in ATN, which owns Optus Towers and is working with Gulf in Thailand to enhance value in the regional associate.

It also talked about a partial divestment of 1.6 per cent in Airtel Africa via a market placement to raise Singapore $150 million as part of the capital recycling strategy.

Clearly, Singtel reiterated the value, which Bharti Airtel brings in this overall strategy, especially in its contribution to the overall profitability.

In its press release on its financial results for FY22, which was also declared on Friday, Singtel said its underlying net profit improved 11 per cent to Singapore $1.92 billion. This was “mainly lifted by Airtel’s resilient turnaround.”

The Singapore-based company made it clear again that its regional associates’ pre-tax contribution grew by 21 per cent to Singapore $2.07 billion.

This is due to “Airtel’s double-digit growth in operating revenue and EBIDTA (earnings before interest, taxes, depreciation, and amortisation) as it staged a sturdy recovery in India and saw a sustained growth in its African operations.” 

In its investor presentation, it said Airtel contributed Singapore $432 million to Singtel’s profit before tax (PBT), accounting for over a fifth of its PBT from regional associates in FY22. In FY21, Airtel’s contribution was only Singapore $23 million, accounting for only 1.3 per cent from regional associates.

Singtel’s effective stake in Bharti Airtel is around 31.7 per cent while Bharti owns 24.2 per cent though Bharti Telecom, directly and indirectly.

In Bharti Telecom, Singtel owns 49.4 per cent while the Sunil Mittal family holds 50.6 per cent. Airtel recently roped in Google to invest US $1 billion in the company — US $700 million as equity investment and the rest by implementing commercial agreements.

The Bharti Airtel stock, however, has fallen by around 7.47 per cent in the past six months. This is following the sharp fall in indices after the Russia-Ukraine war. It closed 1.25 per cent lower on Friday at Rs 685 on the NSE.

The Strategy

•    Reflect the value of regional associate companies and JVs on Singtel’s shares

•    Increase returns for Singtel shareholders

•    Unlock value of their holding in these companies — it garnered Singapore $2 billion in FY22

•    Partial divestment in Airtel Africa helped garner Singapore $150 million

•    Says Airtel’s turnaround in FY22 boosted net profit earnings for the financial year