The sale of 6,050 telecommunication towers by Singtel's Indonesian joint venture company for 10.3 trillion rupiah (S$954 million) will likely support the Singapore telco's dividends, said DBS Group Research.
Jakarta-based Telekomunikasi Selular (Telkomsel), in which Singtel has a 35 per cent stake, is selling the towers to Dayamitra Telekomunikasi (Mitratel), Singtel said last Friday.
In addition, Telkomsel has inked a 10-year lease arrangement with Mitratel to rent tower space after the sale. No details have been released on the tenancy ratio and the leaseback price.
Indonesia-listed, state-owned giant Telekomunikasi Indonesia (Persero), also known as Telkom, owns the other 65 per cent interest in Telkomsel as well as the entire stake in Mitratel, which manages telecoms towers and serves all cellular operators in Indonesia.
Singtel will receive about $333 million in pre-tax contributions from the Indonesian associate after the sale, noted DBS analyst Sachin Mittal, which will help it meet its dividend obligations for 2021.
"We project $2 billion to be paid in dividends by Singtel in the 2021 financial year (ending next March), although half of this amount could potentially be paid in scrip to Singtel's largest shareholder Temasek," the analyst said.
The tower sale is expected to be carried out in stages and completed by the first quarter of 2021.
Details of the sale and leaseback terms are "likely to be accommodative" in RHB's view, considering the large number of towers and Mitratel being Telkom's wholly owned tower arm.
DBS noted yesterday that the purchase price per tower of 1.7 billion rupiah is lower than the 2.1 billion rupiah paid for the Indosat deal, although the leaseback price and tenancy ratio for this Telkomsel transaction "could be quite different".
Late last year, Mitratel bought 2,100 towers from Indonesian telco Indosat for 4.4 trillion rupiah in a similar leaseback deal.
Telkom said in an exchange filing last week that Mitratel will have more than 22,000 towers after it completes the Telkomsel tower acquisition.
DBS said an initial public offering will be possible for Mitratel once it becomes the country's largest tower player.
Mr Mittal also said that Singtel's core business is undervalued, and that asset divestment is required to unlock the trapped value.
"The market value of Singtel's associate is $2.17 per share, same as Singtel's share price, and implies that the market is not assigning any value to its profitable core business in Singapore and Australia," he wrote.
DBS has maintained its "buy" call for Singtel and a $2.69 target price. RHB has a "buy" rating and a $3.10 target.
Singtel shares closed down 0.92 per cent at $2.15 yesterday.
THE BUSINESS TIMES