Update on Singtel 10 May 2008

Singtel has had some news this week that caused the stock to fall.

On 5 May 2008, India’s largest cellular service provider Bharti Airtel and South Africa’s telecom market leader MTN Group confirmed talks over a possible deal. Ending weeks of speculation, Johannesburg-based $9.68 billion MTN Group said, “The discussions are exploratory in nature and may or may not lead to any transaction.

SingTel owns 30.5 percent of Bharti Airtel.

The issue however is that the funding for this deal will have to be worked out and it does appear that there is division between market analysts as to whether this is positive or negative for Bharti Airtel and Singtel.

Perhaps the most balanced report that I have read thus far with some form of detail rather than pure speculation on how the financing will be done is that Bharti had tabled a bid for MTN at 165 rand per share and had secured $12 billion from banks to finance the deal, which would make Bharti a top player in emerging markets telecoms. The FT said Goldman Sachs and Standard Chartered had each pledged to underwrite $6 billion of the amount Bharti needed to purchase the controlling stake, citing people close to the situation. Bharti would fund the balance by issuing equity.

From the looks of it this deal is going through and it will be positive for Bharti.

The other piece of news that caused Singtel stock to fall is the Indonesian district court ruling on the anti-monopoly issue. This is more of a political issue and hopefully it will be resolved. In any case the court gave Temasek the option of either selling its stake in one of the Indonesian operators or reduce its holdings in both companies by half within 12 months.

Temasek owns 56% of SingTel, which has a 35% stake in Telkomsel. And Singapore Technologies Telemedia, which Temasek fully owns, controls 75% of Asia Mobile Holdings (AMH). AMH in turn owns 40% of Indosat.

Hence if Temasek was really forced to sell, and they chose to divest the ST Telemedia stake instead of the Singtel one then Singtel stock will be unaffected or minimally affected directly. However if Temasek were to choose to halve their holding in both companies then that spells trouble for Singtel.

On the plus side, Singtel is announcing results on Wednesday 14 May 2008. And we do expect dividend. In fact as bearish as Citigroup analysts are lately, they still made these comments :

"Why Hold and Not Sell? (1) 4.0% yield coming up – we see 15.6cents as total
DPS with FY08 results (May 14th); (2) Management credibility affords safe
haven status; (3) Limited downside – our bear-to-bull range is S$3.51- S$4.20."

In terms of the technicals,

Singtel has been trading in a tight channel from around $3.60 - $4.05 since Oct 2007 despite the big drop in the broader market. A show of strength in this "defensive" stock.

Looking at the current price of $3.71 (last close) and intraday low of $3.65 we are close to the $3.60 support level. RSI is in the oversold region and looking at the historical data, Singtel seldom spends too long in the oversold region. With results and likely dividend being announced, the share price is likely to be supported once again.

However should Singtel choose not to give out dividend and instead announce cash injection to be a joint party with Bharti to buy South Africa's MTN. Then the stock might drop below the $3.50 $3.60 support level.