CGS-CIMB: Singtel take up of Airtel rights issue is right decision

SingTel outlet in SingaporeSingTel outlet in Singapore

Singtel’s decision to subscribe for money-losing Bharti Airtel’s rights issue may be seen negatively by the market, but it’s not the right time for the Singapore telco to reduce its bet on India, CGS-CIMB said in a note on Thursday.

“After toughing it out in the market over the last few years, we think Singtel is making the right decision to participate in the rights issue and limit the dilution to its Airtel stake,” the note said.

Singtel said on Thursday it would take up its full entitlement to regional associate Bharti Airtel’s 250 billion Indian rupee (US$3.5 billion) rights issue, subscribing for 170 million new shares for 37.5 billion rupees, or around US$525 million or S$727 million. After the rights issue, Singtel’s stake in Airtel will fall to 35.2 percent from 39.5 percent.

On 5 March, Moody’s Investors Service cut its outlook on Singtel’s rating to negative from stable, in part due to concerns about the Singapore-based telco taking on additional debt to fund the rights subscription.

But CGS-CIMB said the prospects for the Indian mobile market may be set to improve.

“The Indian mobile market has consolidated from more than 10 players in 2015 to only four today. The revenue market share is also quite evenly-shared among the Big Three operators (i.e. everyone has reached decent scale), which may support more stable competition going forward,” the note said.

It added that Airtel India’s average revenue per user (ARPU) and mobile service revenue have also shown signs of stabilizing over the past two quarters.

The brokerage kept an Add call with a S$3.40 target price.

Singtel shares ended Friday down 1.01 percent at S$2.94.

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