Here's how Singtel's acquisition of Thailand's Intouch will boost its market presence

If completed, Singtel's stake in AIS will rise to 31.8%.

The proposed acquisitions of 21% of InTouch Holdings and 7.4% of Bharti Telecom allow Singtel to entrench its positioning in the high-growth emerging markets of Thailand and India, says UOB KayHan

InTouch owns 40.5% of Advanced Info Service (AIS), 41.1% of Thaicom and other smaller businesses in Thailand, such as ITAS, MB, ITV and InTouch Media. Bharti Telecom is a holding company for a 45.1% stake in Bharti Airtel.

The deal would be funded by the proceeds of S$1,605m from the placement of 386m new Singtel shares to Temasek at S$4.16 each, and the balance from internal cash and short-term debt.

UOB KayHian analyst Jonathan Koh notes that the proposed transactions are in line with Singtel's intention to increase its stakes in its regional mobile associates.

"Thailand and India are high-growth emerging markets. AIS is the largest mobile operator in Thailand with 39m mobile subscribers and a market share of 46%. Bharti Airtel is the largest mobile operator in India with 256m mobile subscribers and a market share of 25%," he said.

Koh adds that the acquisition, if completed, will increase Singtel's effective stake in AIS from 23.3% to 31.8%.

"The 25% threshold for takeover is based on direct stake. Singtel is buying into InTouch and its direct stake in AIS remains unchanged at
23.3%. Thus, the acquisition does not trigger a general offer for AIS," he said.

Singtel’s effective stake in Bharti Airtel will increase from 32% to 36.2%. Temasek’s stake in Singtel would increase from 51.1% to 52.3%.

Meanwhile Koh explains that the acquisition will have a neutral impact on EPS. Management estimates the transactions will increase Singtel’s NTA/share by 10.6% to S$0.84 and increase FY16 EPS by 0.4% to 24.4 cents. Singtel has not provided specific guidance on the impact on gearing.

"We estimate Singtel’s net debt/equity would be relatively unchanged at 0.32x," said Koh.

Lastly Koh said that the transactions are not expected to affect Singtel’s dividend policy, which remains unchanged at 60-75% of underlying net profit.

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