Is Singapore Telecommunications Limited Sitting On A US$2 Billion Bounty With NetLink Trust?

Singapore’s largest telecommunications company Singapore Telecommunications Limited (SGX: Z74) hosted its fiscal first-quarter earnings briefing recently.

The potential divestment of an associated company, Netlink Trust, received quite a bit of attention during the briefing.

The US$2 billion bounty

There is a good reason why there was interest in NetLink Trust.

As a brief background, NetLink Trust builds and operates Singapore’s fiber network infrastructure. The fiber network is a foundational piece of Singapore’s Next Generation Nationwide Broadband Network. Singtel’s latest annual report highlighted the importance of this network:

“This nationwide fibre network which now passes all homes in Singapore forms the backbone of the Singapore government’s Smart Nation initiative.”

Singtel owns 100% of NetLink Trust but accounts for it as an associate as the former does not control the latter. During Singtel’s financial year ended 31 March 2016, NetLink Trust contributed S$95 million to the company’s S$1.93 billion share of associates’ post-tax profit.

But wait, there’s more.

Earlier this year, a newswire reported that Singtel might be planning to list its broadband unit on the Singapore stock market. The initial public offering (IPO) was rumoured to be able to raise up to US$2 billion.

There’s a deadline for Singtel to reduce its stake in NetLink Trust too. From Singtel’s annual report:

“For regulatory reasons, we will progress plans to divest our stake in NetLink Trust to less than 25% by April 2018.”

If the US$2 billion sum bandied about is true, it would come in handy for Singtel. Singtel had a debt load of S$9.2 billion as of 30 June 2016. The telco also has plans to spend an additional S$2.5 billion or so to increase its stake in two of its regional associates.

How now, brown cow 

Given the potential size of any deal related to NetLink Trust, there were questions from analysts about the issue. During Singtel’s latest earnings call, its chief executive Chua Sock Koong said:

“Okay, maybe let me just quickly take the question on NetLink Trust, you know the divestment timeline is April 2018.

Clearly, it is too early for us to talk about the use of divestment proceeds we are focused on getting things ready so that we can work on the divestment plan, to meet the divestment timeline.

We would advise the market once we have a bit more clarity on how the divestment will take place.”

It looks like Singtel is working out the details of its divestment of NetLink Trust. We will have to wait for further information before we can see how this could change Singtel’s financials.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.