• SingTel (SGX:Z74) will fully subscribe to its share of Bharti’s rights issue for S$539m. The initial outlay is S$135m with the rest paid over two calls in three years.
• This would have limited impact on SingTel’s gearing but could reduce the size of potential special dividends (if any) from asset monetisation, in our view.
• Reiterate ADD rating on SingTel. Our SOP-based target price is S$2.90.

Intends to Fully Subscribe to Its Bharti Rights Entitlement

• SingTel announced that it intends to fully subscribe to its entitlement (14% direct stake) for associate Bharti's 1-for-14 rights issue at Rs535/share for a total consideration of up to Rs29.4bn (S$539m), over up to 3 years. Bharti earlier announced that it planned to raise Rs210bn (S$3.85bn) from the exercise, mainly to fund its 5G rollout, enhance network capacity and invest more into growing Enterprise.

Singtel’s Rights Payments Will Have Limited Impact on Its Gearing…

• This is in line with our expectations. SingTel’s cash outlay on application (25% of total payment) will BTL may fund its subscription via debt, in our view. This will not be consolidated into SingTel’s balance sheet, though BTL will incur interest cost and thus partly offset SingTel’s share of Bharti’s future earnings.

… But May Lessen Chances of Special Dividends

• We believe SingTel’s full size of SingTel’s potential special dividends (if any) from asset monetisation, in our view.

Reiterate ADD With An SOP-based Target Price of S$2.90

• Our SingTel core EPS forecasts are intact, as interest income foregone on the cash outlay/additional interest cost on BTL’s debt may be offset by stronger Bharti earnings, post-cash infusion.

• Key re-rating catalysts: FY22F core EPS recovery and asset monetisation. Current SingTel's share price implies an FY22F EV/EBITDA of just 2.0x for Singtel Singapore and Optus, with decent FY22-24F yields of 3.9-5.9% p.a.
• Downside risk: price wars in its operating markets.

Source: CGS-CIMB Research - 23 Sep 2021