In both India and Thailand, SingTelÆs investments in local operators appear to be bearing fruit.
First off, in Thailand, the $392 million acquisition by Advanced Info Service of Shin Digital will see the new entity emerge as the truly dominant player in the local market.
The acquisition of ThailandÆs third biggest operator by its biggest is, if anything, a restructuring. Both companies indeed had the same parent, Shin Corp. However, analysts reckon the new entity will emerge with around a 60% market share and will be able to make significant cost savings via synergies in capex and other areas. SingTel owns about 20% of AIS.
The logic behind the merger is to remove the bottlenecks from AISÆs growth path. AIS is currently adding around 150,000 subscribers per month and there had been talk of it running out of spectrum.
ôThis deal ensures that wonÆt happen,ö says Gokul Laroia, a Morgan Stanley executive director in its telecoms investment banking unit.
The deal thus has massive strategic importance, especially since Hong KongÆs Hutchison is looking to expand its market share in Thailand.
The deal is valued at $1,685 per subscriber, which might look expensive when compared to the Asian market standard of $1,250. However, in this case, Shin Digital was in the process of building out its subscriber numbers, and thus this ratio is less useful than the fact that AIS can use its network and spectrum to bolt onto its own superior marketing machine.
If SingTel is facing good news in Thailand, its position looks even better in India û where it owns 27% of Bharti Televentures. SingTel and Warburg Pincus recently pumped a $460 million into Bharti in order to allow the company to build a national cellular footprint in India.
This became a reality yesterday, when Bharti trumped the recent BPL and Batata merger, by first doing one of its own and secondly winning a series of key victories in the latest round of license auctions. It paid $90 million for SpiceCell, which operates in Kolkata and has 100,000 subscribers. This means that Bharti will not have to bid for a license in that area. Hutchison paid $38 million just for a license in Kolkata in the last round of license auctions, meaning in theory Bharti has paid $52 million for the subscribers and the already constructed network, which most analysts think is a good deal.
Meanwhile, Bharti surprised many by beating out the all-powerful Reliance Group in many of the key license auctions. It won the prized Mumbai license, as well as those for Tamil Nadu, Haryana, Kerala and UP (West).
It is estimated that the total cost of BhartiÆs license victories, network build-out and Spice Cell will come to around $600 million, with around $300 million coming from suppliers. The $300 million balance will be funded from SingTel and Warburg PincusÆs cash injection, and also via an IPO which is set to be led by JM Morgan Stanley in the third or fourth quarter. The company has very little leverage.
The IPO ought to go well, especially as Bharti now has the biggest footprint in India û exceeding that of BPL-Batata and Hutchison.
With cellular growth in India forecast to replicate the super-growth seen in China, Morgan StanleyÆs Laroia says SingTel should make significant returns on capital.
SingTelÆs ability to expand its businesses across Asia remains unimpaired by its acquisition of Optus in Australia and its other investments. Laroia reckons the company has more than sufficient capital to make further targeted investments in the region.
This would be more than enough for it to take stakes û as it is rumoured to be considering û in companies such as Malaysian telco market leader, Maxis.
If it did buy a stake in Maxis, it would be the second time SingTel stepped in where BritainÆs BT decided to retreat (BT also had a stake in Bharti).
Maxis, which has 1.7 million subscribers, is currently unlisted. Laroia reckons the company has more than sufficient capital to make further targeted investments in the region.
