Singapore Telecommunications Limited’s NetLink Trust Is Poised to Be Singapore’s Biggest IPO in 2017

Singapore Telecommunications Limited’s (SGX: Z74) associate, NetLink Trust, has filed its preliminary prospectus to list on the Singapore stock exchange. The initial public offering (IPO) promises to be the biggest one for Singapore’s stock market in 2017.

Singtel’s stake in NetLink Trust can be considered to be unconventional. NetLink Trust is a business trust that was established under IMDA’s (Info-communications Media Development Authority of Singapore) effective open access requirements for Singapore’s NextGen NBN (Nationwide Broadband Network) initiative.

NetLink Trust is 100% owned by Singtel, but the trust is accounted as an associate as Singtel does not control it. In fact, Singtel has a mandate to divest its NetLink Trust stake by 28 April 2018.

In Singtel’s latest annual report, for its fiscal year ended 31 March 2017 (FY2017), it said:

“Singtel has given an undertaking to IMDA to divest its stake in NetLink Trust to less than 25% ownership by 22 April 2018, and has since commenced preparation for an initial public offering of NetLink Trust.”

The time for the IPO has arrived.

The Smart Nation’s backbone

According to a recent Straits Times news article, NetLink Trust’s portfolio includes around 76,000 km of fibre optic cable, 16,200 km of ducts, and 62,000 manholes. Its infrastructure is rented out to broadband operators in Singapore such as StarHub Ltd (SGX: CC3)M1 Ltd (SGX: B2F), Singtel, and MyRepublic.

Singtel’s FY2016 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.”

In short, the fiber network is valuable and it is time for Singtel to cash in.

Cashing in

In Singtel’s FY2017, Netlink Trust generated $130 million in post-tax profits, up 12.2% from FY2016’s $95 million.

The NetLink Trust IPO is expected to net proceeds of up to $2.63 billion. NetLink Trust is expected to have a market capitalisation of between $3.09 billion and $3.59 billion upon listing. The cash which would flow to Singtel as part of the business trust’s IPO would come in handy as Singtel had reported a net debt position of S$10.66 billion as of 31 March 2017.

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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.