A Potential US$2 Billion NetLink Trust Windfall For Singapore Telecommunications Limited: What Management Has To Say

Singapore’s largest telco, Singapore Telecommunications Limited (SGX: Z74), held its fiscal third quarter earnings briefing recently.

The potential divestment of NetLink Trust received a good deal of attention during the briefing. Singtel has a deadline of April 2018 to divest over 75% of its stake in NetLink Trust. Analysts also estimated the stake to be worth US$2 billion. With that much potential on the cards, Singtel’s management were asked for more details on the divestment.

Unearthing treasure

In Singtel’s fiscal third quarter (the three months ended 31 December 2016), NetLink Trust delivered double digit growth in both revenue and EBITDA (earnings before interest, taxes, depreciation, and amortization). Singtel’s management noted in the quarterly earnings report:

“For the quarter ended 31 December 2016, NetLink Trust’s operating revenue and EBITDA rose 12% and 11% respectively, driven by growth in residential fibre end-users.”

NetLink Trust’s growth has brought benefits to Singtel. The telco’s chief financial officer Lim Cheng Cheng added the following point in the third quarter earnings briefing:

“In the second quarter for FY17 [financial year ending 31 March 2017], we also received a $80 million dividend from NetLink Trust.”

How now, brown cow? 

As mentioned earlier, there is a deadline for the NetLink Trust divestment. In its latest earnings report, Singtel said that it will divest the stake by putting it up as an initial public offering (IPO):

“To fulfil Singtel’s undertaking to the IMDA [Info-communications Media Development Authority of Singapore] to reduce its stake in NetLink Trust to less than 25% before April 2018, Singtel has commenced preparation for an initial public offering.”

During the earnings briefing, Singtel’s chief executive officer, Chua Sock Koong, outlined the telco’s preparations for the IPO:

“On the first question on the NetLink Trust IPO timeline, our focus is on meeting the IMDA deadline, and that is to reduce our shareholding in NetLink Trust to below 25% by April 2018.

We’ve just started the IPO preparation and we will certainly keep the market posted as the IPO details, plan details and the timing get firmed up over time.”

… and benefits for the shareholders?

As Chua said, the details will be shared in due time. There could be good news for Singtel’s shareholders, though. Lim said that the proceeds will be used to invest in growth opportunities or merger and acquisitions (M&A). Beyond that, a portion will be returned to shareholders:

“On the NetLink Trust proceeds, again, like what Sock Koong has mentioned time and again, I think it’s really too early to make any comments on the use of proceeds, but I will just broadly say that at Singtel we have always been very disciplined in our capital management and we do look at whether there are growth opportunities, so anything that is above the growth opportunities or the M&A opportunities, we will look to returning a portion of the proceeds to shareholders.”

It looks like Singtel is currently working out the details of the NetLink Trust divestment. We will have to wait for further details before we can see what this brings to Singtel and ultimately, its shareholders.

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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.