SingTel Says Satellite Investment Trumps Tie-Up: Southeast Asia

Singapore Telecommunications Ltd. Chief Executive Officer Chua Sock Koong considered partnerships and the sale of the company’s Australian satellite unit before deciding this week to invest further in the business.

Southeast Asia’s biggest phone company was seeking more than A$2 billion ($1.8 billion) for the Optus Satellite unit, which provides television, radio, phone, Internet data and military signals to Australia, New Zealand and the Antarctic, people familiar with the matter said last month.

“The objective of the strategic review was to see if there were other options, whether it’s through further investments, through divestments, partnerships,” Chua said in a Bloomberg Television interview yesterday. “The outcome of the review is that it would create the most value if we continue to keep the business and to invest in the business.”

The decision to keep the satellite unit came after a review of the asset since March. Investment into the unit, bought as part of the $9.69 billion takeover of Australia’s Optus in 2001, comes as SingTel plans a new satellite launch in the next 12 months. Optus, the country’s second-biggest phone company, accounts for about two-thirds of SingTel’s revenue.

“The satellite business is always something that helps diversify your revenues, and it gives you exposure to the broadcasting industry in Australia and New Zealand,” said Kelvin Goh, an analyst at CIMB Securities in Kuala Lumpur, who rates the stock neutral. The key concern is the effect of a stronger Singapore dollar on earnings from markets such as Australia, he said.

The Australian dollar has fallen 8.3 percent against the Singapore counterpart this year.

Rising Earnings

SingTel reported first-quarter profit that beat analysts’ estimates yesterday, helped by cost cuts at the Optus unit and higher earnings from associates. Net income rose 7 percent to S$1.01 billion ($797 million) in the three months to June, compared with the S$928.7 million average of three analysts’ estimates compiled by Bloomberg.

The company owns stakes in phone companies including India’s Bharti Airtel Ltd., Thailand’s Advance Info Service Pcl, Indonesia’s PT Telekomunikasi Selular and Globe Telecom Inc. in the Philippines.

India’s rupee lost 6.9 percent this year, crimping Bharti Airtel’s contribution when repatriated, while the Philippine peso fell 2.6 percent. The Indonesian rupiah also weakened against the Singapore currency, while the Thai baht climbed.

Raising Cash

SingTel shares fell 1.3 percent to S$3.76 at the Singapore close, the lowest since July 10. The decline pared the gain this year to 14 percent, compared with a 1.7 percent advance in the Singapore benchmark Straits Times Index.

Divesting Optus Satellite would have helped finance the S$2 billion of acquisitions that SingTel is planning to expand its digital operations, a target reiterated by Chua yesterday. She didn’t give further details on the satellite unit review.

SingTel also considered an initial public offering of the unit after drawing lower-than-expected bids, people with knowledge of the process said last week.

“To SingTel’s management, they feel that it’s a strong and attractive business,” said Jonathan Koh, an analyst at UOB Kay-Hian Research in Singapore, who rates the stock hold. “The margins are very high but the direct synergies are very minimal.”

Optus Satellite attracted bidders including Intelsat SA, the Luxembourg-based commercial satellite operator, people familiar with the matter said Aug. 9. A group that included Measat Global Bhd., TPG Capital and Blackstone Group LP dropped out of bidding and signaled to SingTel that it wasn’t willing to pay more than $1.7 billion, according to a person with knowledge of the deliberations.

Broadcast Market

“The satellite business is a very successful business, very profitable business and serves the broadcast market in addition to the telecoms market,” Chua said, without giving specific financial details of the satellite unit.

In March, SingTel said it was considering options for Optus Satellite. It hasn’t reported separate earnings figures for the unit since the 2001 takeover.

With five spacecraft in orbit, Optus Satellite broadcasts signals to more than 2 million Australian households and companies with plans to launch a sixth satellite. Its customers include state-owned Australian Broadcasting Corp., the Foxtel joint venture between Telstra Corp. and News Corp., and Australia’s Department of Defence.

“We had over the last few years already renewed our satellite fleet,” Chua said. “We have another satellite that would be launched within the next 12 months. Obviously with the new satellite planned, we’ll be looking at further services that we can offer with the satellite.”

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