REPORTS THAT SINGAPORE Telecommunications (SingTel) may soon list its Australian unit, Optus, could swing attention back on to the telecoms giant’s overseas businesses.

 

Though SingTel is playing its cards close to its chest, reports suggest that it is seriously considering the sale of a minority stake in Optus through an IPO that could raise between US$4 billion ($5.6 billion) and US$5 billion. SingTel acquired Optus in 2001 for $13 billion.

 

It is now probably as good a time as any for an IPO of Optus, which recently raised US$500 million through a note issue. The Australian government is working on a A$43 billion ($54.6 billion) national broadband network; and incumbent player Telstra Corp is widely expected to break up its businesses, levelling the playing field for telecoms operators Down Under. That could stimulate growth and help improve Optus’ value.

 

Listing Optus should lead to a revaluation of SingTel not just because analysts would benchmark their price targets to Optus’ share price, but also because the spare cash from the sale could lead to a new catalyst — an investment into another emerging market. A report in the Wall Street Journal quoted an unnamed source as saying the money raised could be used to invest in Vietnam, China or Africa.

 

But here, SingTel is up against a great deal of competition. The country that is widely seen as the last emerging market frontier in the region is Vietnam, which has a huge and growing population that is becoming rapidly richer and more urbanised. While its mobile penetration rate is estimated to be 70%, its household broadband penetration is still low at just 5%.

 

All three incumbent mobile operators in Vietnam — Mobifone, Vinaphone and Viettel — are currently government- owned. They were supposed to list on the Ho Chi Minh City bourse last year and although that schedule has been pushed back somewhat, the government is still reportedly working towards offering stakes to pre-IPO investors. A large number of foreign telecoms operators and private equity firms are said to be interested in buying stakes in the three telcos.

 

Forays into Vietnam would revive interest in SingTel’s overseas business just after Bharti Airtel, its Indian associate, announced that merger talks with South African telecoms company MTN Group would no longer proceed.

 

SingTel’s overseas businesses have long been key growth drivers for the group. Over 70% of the group’s earnings before interest, taxes, depreciation and amortisation originate from beyond Singapore, with 45% coming from regional mobile associates, particularly in India and Indonesia where mobile penetration rates are low in comparison with Singapore and growth potential is still robust.

 

Over the last year or two, the attraction of those overseas businesses has begun to fade. Currency fluctuations and the strengthening of the Singapore dollar relative to regional currencies have caused the contributions from the non-Singapore businesses to weaken. Meanwhile, the primary drivers of growth — Bharti in India and Telkomsel in Indonesia — have experienced uncertainty in their home turfs as those markets mature and competition heats up.

 

Telkomsel was forced into an aggressive price war with its competitors in Indonesia for much of 2008 and has only just begun to show signs of recovery. Bharti, on the other hand, has been experiencing heightened competition in a more saturated marketplace. In a note to clients earlier this month, Credit Suisse pointed out that Indian GSM operators reported a “shocking” 8% drop in net adds in September 2009 over August 2009.

 

“The competitive scenario seems to be worsening much faster than anticipated in the Indian telecom sector,” Credit Suisse says. Bharti’s net adds fell 11% m-o-m to 2.5 million, “the first reduction of such a magnitude in over 5½ years for Bharti”.

 

Just as India and Indonesia start to appear as less alluring markets, Sing- Tel has gained momentum at home. Most recently, it scored the exclusive rights to broadcast the popular Barclays Premier League soccer matches for three years commencing August 2010. It also snatched other bits of key sports content from rival StarHub. Still, analysts have greeted its spending spree — not just for the sports content but also for other key initiatives like the iPhone — with mixed reactions. That’s because although revenues will receive a boost, the same isn’t necessarily true of profits.

 

A spin-off listing — whether in Australia or here — could shift attention back to the foreign business, particularly if SingTel finds a good place overseas for the cash. And even if it can’t, investors would have other reasons to applaud — like a special cash distribution.