SINGAPORE (Oct 24): Singtel has entered into an agreement with its regional associate Bharti Airtel (Airtel) to invest US$250 million ($344.7 million) in Airtel Africa, a subsidiary of Airtel with operations in 14 African countries.

The proceeds will be used to reduce Airtel Africa’s existing debt and grow its business ahead of an intended Initial Public Offering.

Singtel holds a 39.5% stake in Airtel. The investment forms part of US$1.25 billion that Airtel has secured from global investors, including Temasek, Warburg Pincus and Softbank Group International, through a primary equity issuance in Airtel Africa valued at US$4.4 billion.

Airtel Africa is the second largest telecom operator in the continent with a customer base of 91 million. Singtel says it is ranked among the top two operators in most of its 14 markets and has been delivering healthy revenue growth in voice and data services. It has also performed strongly in its mobile wallet service, Airtel Money, which has 11.8 million subscribers.

Arthur Lang, CEO of Singtel’s International Group, says, “Our investment into Airtel Africa reflects our confidence in the long-term growth potential of Africa with its young and growing population. For many of Airtel Africa's customers, the mobile phone is the key enabler for digital and financial inclusion. As Airtel continues to execute on its transformation strategy to become a leader in data and mobile money in Africa, we believe it is in a strong position to benefit from increasing smartphone penetration and mobile money adoption.”

In a note after the announcement, UOB KayHian estimates Singtel's direct stake in Airtel Africa at about 6%.

“The pre-IPO investment signifies that Airtel Africa's planned IPO on an international stock exchange, such as London Stock Exchange, is on track. A successful IPO would help both Bharti Airtel and Airtel Africa to deleverage,” says the analyst.

UOB is maintaining its “buy” with target price of $3.94.

Year to date, shares in Singtel are down 13.1% to $3.13.