No changes to our calls - BUY StarHub, M1. HOLD SingTel. Infocomm Development Authority (IDA)’s conditional approval of the proposed sale of OpenNet to NetLink Trust, in our view, does not have much of an impact on our calls on Singapore telcos. StarHub and M1 have evolved in their own ways of coping with OpenNet. However, any progress made on this front will still be icing on the cake (to benefit StarHub and M1) and the bottomline is that SingTel remains the one under official pressure. Shareholders of SingTel hoping for a special dividend from the spin-off of NetLink Trust would be disappointed now that the required sell-down period has been extended by four years from 2014 to 2018.

What’s new - OpenNet sale allowed and sell-down period extended. IDA has approved the sale of OpenNet by its four major shareholders (SingTel holds a 30% equity stake) to NetLink Trust which is wholly-owned by SingTel. SingTel has also been granted an extension of time to reduce its equity stake in NetLink Trust (to 25% via a public offering) to Apr 2018 from Apr 2014.

But with conditions attached. To address industry concerns over preferential treatment to SingTel by OpenNet, IDA has imposed some key conditions: (1) the need for an independent board of directors, (2) a “monitoring” board staffed by government officials, (3) NetLink Trust to seek IDA approval to appoint contractors, and (4) SingTel to transfer its entire subcontracting team to NetLink Trust.

Our view - Better but still not enough. We take the view of StarHub, M1 and other ISPs who are likely to view this development as a non-event. Our largest concern lies in the four-year time extension for SingTel to sell down its stake in NetLink Trust as it will prolong a dissatisfactory state of the industry. Ideally, the monitoring board created should also be staffed by representatives from StarHub and M1.

Background to IDA’s conditional approval. IDA’s decision to put conditions on OpenNet’s shareholders’ proposal to up stakes to NetLink Trust stemmed from industry concerns that OpenNet was causing delays to the fibre rollout plans for the rest of the industry and the sale would not solve the problems but could even make it worse.

Source: Maybank Kim Eng Research - 25 Nov 2013