Singapore Telecommunications Limited Looks to Cash in Its Chips in Netlink Trust

The time has come. Singapore Telecommunications Limited (SGX: Z74) is making its move to cash in on its stake 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 (NBN). Singtel’s last annual report (for the fiscal year ended 31 March 2016) 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’s stake in NetLink Trust can be considered to be unconventional. NetLink Trust is a business trust that was established as part of IMDA’s (Info-communications Media Development Authority of Singapore) effective open access requirements for Singapore’s NextGen NBN. Singtel owns 100% of NetLink Trust but accounts for it as an associate as it does not control it.

In the nine months ended 31 December 2016, NetLink Trust produced EBITDA (earnings before interest, taxes, depreciation and amortization) of S$161 million. This is a 22.5% increase from the same period a year ago.

Singtel will be looking to divest at least 75% of its stake in NetLink Trust. There’s a good reason why the telco is making its move now.

The deadline

Singtel’s annual report also contained the following key point:

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

The deadline is a little over a year away, so this seems to be the right time for Singtel to begin preparations. Singtel has indicated that it plans to file for an initial public offering (IPO) for NetLink Trust. According to a media report, the telco has hired three banks to facilitate the filing.

There could be interest from investors in NetLink Trust. Singapore’s fiber broadband market has a penetration rate of 79% as of 30 November 2016. There could thus be room to expand. Singapore’s wired-broadband penetration rate is estimated to be 98.4% in June 2016, according to statistics from IMDA.

Analysts are pegging the NetLink Trust IPO to be around S$2.5 billion in size. Any windfall from the IPO could come in handy for Singtel. The telco has a debt load of S$11.3 billion as of 31 December 2016.

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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.