The deal will strengthen the foothold Singtel, South-East Asia’s largest telecom company, has in India, the world’s second largest mobile-phone market, where consumers are switching to smartphones from feature phones at a rapid pace.
Prior to the agreement with Temasek, Singtel already owned 39.78% of Bharti Telecom besides a direct stake of 15.01% in Airtel through its subsidiaries Pastel Ltd and Viridian Ltd.
With the latest deal, Singtel’s effective total holding in Airtel will increase to 36.27% from 32.94%, cementing its position as the largest shareholder in the Indian company.
The Mittal family owns just under a 30% effective stake in Airtel, largely by virtue of its 51% stake in Bharti Telecom.
Additionally, Singtel will acquire a 21% stake in Thailand’s Intouch Holdings Public Co. Ltd for about $1.14 billion. Intouch is the biggest shareholder in Thailand’s largest mobile operator Advanced Info Services Public Co. Ltd (AIS).
“Thailand and India are fundamentally attractive markets which are reaping the benefits of rapidly increasing smartphone penetration and mobile data adoption by a growing middle class," Singtel said in the statement. “Both AIS and Airtel are well-positioned to benefit from these trends."
“The recent mobile spectrum auctions in Thailand and ongoing industry consolidation in India have strengthened their competitive positions. They have also built for the future, securing significant spectrum for the long term and investing extensively in 3G and 4G networks and services," it added.
The acquisitions will be settled fully in cash, funded by internal accruals, short-term debt and proceeds from a share placement of 386 million new Singtel shares to Temasek totaling totalling S$1.605 billion (around $1.2 billion), Singtel said.
Airtel didn’t comment on the transaction, only putting up the Singtel announcement on its website. Airtel’s stock ended up 2.07% to ₹ 352.40 on the BSE at the close of trading on a day the benchmark Sensex gained 0.42% to close at 28,123.44 points. The company’s market value jumped by ₹ 2,858.14 crore to ₹ 1.408 trillion. Singtel shares fell 0.24% to S$4.20 on the Singapore stock exchange.
Even so, Singtel’s move raises concerns about the company’s increased heft in Airtel, two telecom experts who declined to be named.
One of them, an analyst at a consulting firm, wondered whether the Singapore company stood to gain from a higher representation on Airtel’s board, for instance. “The question one must ask is: What will happen now," the person added.
Airtel’s annual report for the year ended 31 March, identifies Singtel and Pastel, along with Bharti Telecom, as entities having a “significant influence over the company".
“A 47.17% stake in the holding company... increases caution. But there has not been any signal from promoters to exit the business but they have largely been involved in scaling up the business. (But) It really increases caution. That’s all I can say," said a Mumbai-based analyst at a leading securities house.
The move comes ahead of the entry of Reliance Jio Infocomm Ltd, the telecom unit of Mukesh Ambani’s Reliance Industries Ltd, which is expected to intensify competition in India’s telecom market.
The acquisitions of the stakes in Intouch and Bharti Telecom, as well as the share placement, are subject to minority shareholder and regulatory approvals. The acquisitions and share placement are interdependent and have to close at the same time.
According to Chua Sock Koong, chief executive officer of Singtel Group, the company has been a strategic partner of both AIS and Airtel for more than 15 years.
“Today, they have a combined mobile customer base of more than 380 million across Asia and Africa. This is a unique opportunity for us to deepen our relationships with two great market leaders," Chua said.