SingTel to suffer $186m loss on Warid Telecom stake sale

Based on Moody's computations.

SingTel had earlier announced that its wholly owned subsidiary, SingTel Pakistan Investments Ltd., had entered into an agreement to sell its entire 30% stake in Pakistan's Warid Telecom (Private) Ltd. (Warid) to Abu Dhabi's Warid Telecom Pakistan LLC,which already owns the remaining 70% in the company.

SingTel will receive a cash consideration of US$150 million and a right to receive a 7.5% share of net proceeds from any future sale, public offering or merger of Warid. The transaction is subject to certainconditions being met, including the approval of certain lenders of Warid.

"Despite the fact that SingTel will book a loss of US$186 million (S$230 million) on the disposal, the deal is credit positive as it absolves SingTel of a guarantee of US$90 million (S$110 million) thereby reducing its gross adjusted debt by the same amount. At the same time, SingTel will also be released of its equity undertaking of approximately US$51million," says Nidhi Dhruv, a Moody's Analyst and also the Lead Analyst for SingTel.

"Furthermore, Moody's does not foresee any significant impact to SingTel's EBITDA as Warid represents only a fraction of the Group's operations and has yet to make any cash contribution through dividend payments to SingTel's EBITDA," adds Dhruv.

Since SingTel's acquisition of Warid in 2007, SingTel has also supported Warid with equity injections. However, Warid has not generated any returns for SingTel, owing primarily to its market position as the fifth largest operator in an intensely competitive operating environment in Pakistan. As such SingTel had been looking to sell its stake in Warid, and had ceased to equity account for its stake in the Pakistani operator since July 2012, according to Moody's.

"We understand that SingTel continually reviews its investments. As such, Moody's does not rule out further stake sales including its 45% holding in Pacific Bangladesh Telecom Limited, which is the fifth largest telecom operator in Bangladesh," says Moody's.

The sale of Warid also allows SingTel to focus on its core investments in India, Indonesia, Thailand and Philippines, where its associated companies retain leading market positions -- in addition to its operations in Singapore and Australia.

"In our view, the sale of stake in Warid does not suggest any change in SingTel's appetite for exposure to emerging markets, which is further demonstrated by the company's interest in bidding for the upcoming auction for operator licenses in Myanmar," comments Dhruv.

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