SINGAPORE (Mar 11): GIC, Singapore’s sovereign wealth fund, is making a concerted effort to help Singapore Telecommunications (Singtel), the largest government-linked company, maintain the city state’s hold on India’s Bharti Airtel, which is tapping investors for fresh funds of US$3.5 billion ($4.75 billion) so that it can continue to wage a brutal price war in the Indian mobile market.

“Our participation in this rights offering with our partners and a leading investor such as GIC reflects our long-standing commitment to Airtel and the confidence in the future of the Indian market,” says Arthur Lang, CEO of Singtel’s International Group.

Singtel owns a direct stake of 15% in Bharti Airtel, which has been bruised by price-cuts-for-market share initiated by new competitor Jio, which is funded by the deep pockets of Reliance Group.

On Feb 14, Singtel reported 3QFY2019 earnings of $823 million, down 14% y-o-y, with lower contributions from its associate companies, which besides Bharti include Thailand’s Advanced Info Service and Indonesia’s Telkomsel, or Telekomunikasi Selular. Bharti, for one, caused Singtel to suffer a loss of $86 million, from just $6 million worth of red ink in the preceding 2Q.

“Airtel has performed well despite business headwinds and is consolidating its position in a more sustainable market,” says Lang, adding that Singtel is keeping its long-term view of the Indian market.

Under the terms of the rights issue announced on March 7, Singtel will be stumping up US$525 million to pay for its full rights entitlement of 170 million new Bharti Airtel shares priced at INR220 each.

Airtel’s operations span more than a dozen large and fast-growing emerging markets. However, owning stakes in these companies requires constant investments. In the last 12 months, Singtel has made additional investments of about $900 million in the Bharti Group, including US$250 million in Airtel Africa.

GIC Singapore, on the other hand, is forking out a bigger sum of US$700 million. GIC is not an existing shareholder. It is taking up the rights entitlement renounced by Bharti Telecom, another existing major shareholder of Bharti Airtel.

With the support of these various major investors, a total of 67% of the rights issue has already been committed. Singtel’s effective interest in Bharti Airtel (which takes into account stakes held via Bharti Telecom) will be slightly trimmed to 35.2% from 39.5% now — assuming all rights are subscribed. Singtel remains Bharti Airtel’s single-largest shareholder.

Singtel also notes that there are indications the price war in India is not going to accelerate. In March 2017, average revenue per user was INR158; it hit a recent bottom of INR100 in September 2018. By December 2018, ARPU had edged up slightly to INR104.

For years, Singapore’s official stance has been that the country’s largest government-linked companies such as Singtel are managed by their own boards, and kept at an arm’s length from the two sovereign wealth funds GIC and Temasek Holdings — which owns 52.35% of Singtel.

With this latest reinforcement of Singtel’s stake by GIC, there are signs the two funds are getting more actively involved. However, it is not always immediately clear who the ultimate beneficiaries are.

For example, in January, another Temasek-controlled entity, CapitaLand, announced its $11 billion plan to acquire Ascendas-Singbridge, wholly-owned by Temasek. CapitaLand will be issuing new shares worth $3 billion at $3.50 each to fund the acquisition.

The deal will see CapitaLand’s existing minority shareholders diluted, though the combined entity will be a much bigger property player, with Temasek as a bigger shareholder of CapitaLand.   

This story appears in The Edge Singapore (Issue 872, week of Mar 11) which is on sale now. Subscribe here