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Singtel’s first quarterly loss a ‘one-off’, unlikely to have ongoing impact: Analysts

SINGAPORE — Singtel has posted its first quarterly net loss largely because it had to set aside a whopping S$1.93 billion as its share of a court-imposed penalty affecting its Indian associate company, Bharti Airtel.

Singtel’s first quarterly loss a ‘one-off’, unlikely to have ongoing impact: Analysts

Analysts say that Singtel's first quarterly loss was a "one-off" that is unlikely to have lasting implications for the telecommunications company.

SINGAPORE — Singtel has posted its first quarterly net loss largely because it had to set aside a whopping S$1.93 billion as its share of a court-imposed penalty affecting its Indian associate company, Bharti Airtel.

But telco analysts say the one-off incident is not likely to have an impact on the Singapore telco’s business in the future.

“This is a one-off thing… This is not a big issue to be worried about,” said DBS Bank analyst Sachin Mittal.

On Thursday (Nov 14), Singapore’s largest telecommunications company made history by posting its first quarterly loss of S$668 million for the second quarter, reversing a net profit of S$667 million in the same quarter last year.

WHY HAS SINGTEL POSTED A HISTORIC LOSS?

The main reason for the loss:

  • Airtel, one of India’s biggest telcos, was ordered by the Indian Supreme Court on Oct 25 to pay a hefty penalty to the Indian government.

How does this ruling affect Singtel?

  • To prepare for this potential outstanding payment, Airtel made a provision of about S$5.5 billion for this quarter in its latest earnings report.

  • As Singtel owns about 35 per cent stake in Airtel, it also had to take on a share of this potential payment and therefore made a provision of about S$1.93 billion before taxes for this quarter.

  • Excluding the provision, Singtel’s net profit grew 4 per cent for this quarter.

ANY POTENTIAL IMPACT IN THE FUTURE?

Analysts do not think that this ruling would have any further impact on Singtel, except for two factors:

  • There may be changes to the ruling as the telcos in India are considering a request for the Indian government to review it.

  • The way that Airtel is going to finance this penalty.

Changes to the ruling:

  • Mr Alvin Chia from Phillip Securities said the provisions allocated to pay for this penalty may even be reduced depending on the agreement the telcos reach with the government. This would improve Airtel’s position, and thereby Singtel’s position.

  • Mr Chia said it was unlikely the amount would increase.

Financing method:

  • If Airtel decides to pay the penalty through a rights’ issue, it would mean that Singtel would have to fork out money to purchase those additional Airtel shares, or it may dilute Singtel’s stake in the Indian telco if another company buys those shares.

  • A rights’ issue is when a company tries to raise money by offering its existing shareholders the right to buy additional newly issued shares.

WHAT IS THE INDIAN SUPREME COURT RULING ABOUT?

For 20 years, telcos in India and the Indian government have been caught up in a legal battle over how much the companies have to pay to the state in licence fees.

What regulations require:

  • Telcos are supposed to pay 8 per cent of their adjusted gross revenue as a licence fee to the government

  • They also have to pay a spectrum usage charge, which is around 3 per cent to 5 per cent of their adjusted gross revenue.

So what’s the issue?

  • The government and the telcos disagree on the definition of “adjusted gross revenue”.

  • Government’s position: Adjusted gross revenue should include all the telcos’ sources of revenue

  • Telcos’ position: Adjusted gross revenue should be derived based only on businesses that make use of the spectrum

SINGTEL SHARES

The telco’s shares fell 3.64 per cent to close at S$3.18 on Friday.

Analysts’ positions on whether investors should buy, hold or sell Singtel’s stock:

  • DBS: Hold. Excluding the Airtel affair, Mr Mittal believes that Singtel group performance as a whole fell below his estimates, especially in its enterprise business.

  • UOB: Hold. Although UOB analysts felt that the results were within their expectations in a report, there is a risk of heightened competition in the mobile space and higher capital expenditure with investments into 5G infrastructure.

  • Phillips Securities: Buy. Mr Chia said that Singtel’s financial performance for this quarter was within his expectations as its cash flow is still very strong and its associates in other countries like Telkomsel in Indonesia are performing well.

Related topics

Singtel Airtel India penalty telco business

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