In what marks a first for Asia, the lead pre-placed the entire block with an undisclosed institutional investor back in June, subject to a number of conditionalities attached to the acquisition, which formally closed on September 17 with a 97% acceptance rate. This meant that the investor, heavily rumoured to be the US-based Capital group, bore all market risk for SingTel's share price between placement on June 15 and pricing on September 24.
However, it is a strategy that has been applauded by the market. As one Singapore specialist comments, "It was an enormously well executed transaction. Knowing that C&W had already monetized its stake for cash removed the overhang of its stake ahead of the formal closure of the M&A process."
At the time of pricing on Monday, SingTel had secured a 98.2% acceptance rate as it continued to compulsorily purchase the remaining Optus shares. As a result, Cable & Wireless is unlikely to pick up many more of the 940 million shares it originally stood to receive in exchange for its 52.5% stake.
Under the terms of the M&A agreement, C&W accepted payment option three, which entailed 0.54 SingTel shares for every one Optus share, plus A$2 in cash and A$0.45 in SingTel dollar-denominated bonds. Some 43.8% of minority shareholders, on the other hand, plumped for option two, which entitled them to 0.8 SingTel shares plus A$2.25 in cash. These latter shares began trading about three weeks and with the addition of the C&W shares, bring SingTelÆs share capitalization up from 15.473 billion to 17.631 billion shares.
But C&W was unable to formalize the sale of the SingTel shares until this week, because the third payment option was delivered in the form of a promissory note. Re-balancing clauses in the documentation meant that the final number of shares to be delivered depended on the election of minority shareholders. Some believe that its desire to complete a forward sale may have been driven by its sorry experiences holding PCCW-HKT scrip and it similarly sold down the $440 million received in bonds as soon as it could as well.
Yet neither Cable & Wireless nor the investor that purchased the block have gained or lost very much since June 15, since the shares were then trading only marginally higher at S$1.79. When SingTel announced its offer to acquire Optus back on March 23, however, its shares were trading at S$2.42, a 32.2% premium to FridayÆs close.
But a fall in its share price had always been expected. "Before SingTel launched the takeover bid, its stock was highly illiquid and always traded at a ridiculously high premium to the global telecoms sector," says one observer. "At an EV/EBITDA ratio of 12 times 2001 earnings, it was trading above even the most richly valued European telcos like Deutsche Telekom. Even at its current level of 9.5 times 2001 earnings, itÆs still right at the top of the Asian telecom league."
A second adds, "You really canÆt compare SingTel pre Optus and post Optus. ItÆs a completely different ball game. But we still have a very positive view on the stock. It should get re-rated by MSCI, which will improve liquidity further and the company looks like it's continuing to broaden its revenue stream given the rumoured move into Indonesia."
Since minority shareholders received their SingTel shares, brokers have also noted heavy turnover, which has led to greater institutional investment in the company as retail sells down. "When previously the Singapore government owned 78%, the free float was very poor and the top 20 Asian telco investors were generally pretty happy to remain underweight," comments one specialist. "Now weÆre moving into a new stage of the SingTel story driven by greater liquidity and institutional involvement."
As the governmentÆs stake drops from 78% to 65%, analysts expect SingTel to be re-rated in the MSCI Singapore country index from 9.5% to 10.5%. Most are also now looking closely to see whether the investor that purchased the block will breach the stock exchangeÆs 5% disclosure limit. The block represents a 4.9% stake and there does not appear to be a consensus view whether Capital group funds previously held more than 0.1% between them.
The fund management group is well known for taking large stakes in Asian telcos and for staying just below the disclosure limit if it can. As one analyst explains, "Capital has been heavily rumoured, largely there arenÆt that many funds with the ability to take such a large position and desire to stay just below the limit. In the Philippines, for example, Capital held about 9% of PLDT just below the stock exchangeÆs 10% disclosure limit."
Year-to-date, SingTel has traded down 35.32%, closing Tuesday at S$1.74. It has performed roughly in line with the Straits Times Index, which closed the year down yesterday 33.491%.
