SingTel’s Great Giveaway Deserves a Reward

(Bloomberg Opinion) -- Singapore Telecommunications Ltd. should ask for a tax refund.

After all, here’s a telco that got the chance to maintain its stake in an overseas business on the cusp of something new at a steep discount to the market price.

And what did it do? SingTel renounced a part of those rights in favor of Singapore’s sovereign wealth fund for no consideration.
Yes, gratis, free of charge.

Given that GIC Pte’s investment returns play a big role in funding Singapore’s increasingly welfarist budget, it’s only fair that SingTel should ask for a tax offset against its gift to the fund.

Let’s back up a bit. SingTel’s prized investment is Bharti Airtel Ltd., India’s mobile market leader. The company is raising as much as 250 billion rupees ($3.6 billion) via a rights issue to strengthen its balance sheet amid a bruising fight with Reliance Jio Infocomm Ltd., which has made a splashy entry into India’s 4G market offering cheap data and lifetime free voice calls.

Since 2001, SingTel has been a big backer of Bharti founder Sunil Mittal, a former bicycle-parts trader who gained the most from the 1990s liberalization of Indian telecom. Even now, Mittal is the street’s favorite to be the rival that’s left standing once Jio’s Mukesh Ambani has cleared the field of weaker competition, including his younger brother, Anil Ambani.

The older sibling’s foray has unleashed explosive demand for data in India. Given that “growth” isn’t a word heard frequently nowadays in the boardroom of a mature-market telco, SingTel should have written the rights-issue check in full.

Concern for its credit rating was behind the decision to pass. Since SingTel is borrowing to finance the investment, it decided against taking its full allotment, for that could have driven its ratio of funds from operations to debt below 45 percent, the trigger for a possible downgrade of its A-plus score by S&P Global Ratings.

SingTel holds a direct stake in Bharti Airtel and a further interest in the company through its holding in unlisted parent Bharti Telecom Ltd. The Singaporean company will subscribe for the direct portion of the rights issue, while sacrificing the indirect part. As a result, SingTel’s stake in Bharti Airtel will fall to 35.2 percent from 39.5 percent.

It should puzzle SingTel investors that the telco is surrendering more than 4 percent of Bharti Airtel at 220 rupees a share to GIC when the current price is about 350 rupees, the five-year low is 285 rupees, and Mittal has already demonstrated that he isn’t going to keel over under Jio’s assault. The decision to renounce part of its rights to GIC followed an agreement that was made on “an arm’s length basis,” a SingTel spokesman said. Bharti Airtel shares rose more than 5 percent on Tuesday because of the recapitalization.

If the Singapore telco was constrained by its credit rating, couldn’t it have auctioned the rights it wanted to renounce to the highest bidder, or sell them in the open market when the rights began to trade? Since it chose instead to give a windfall to the state, relief on its corporate tax payment would only be fair. Then SingTel shareholders could also share in its generosity.
 

To contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

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