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SingTel’s NetLink Trust IPO application approved

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On 2 June 2017, SingTel received SGX’s approval to list NetLink Trust on the Mainboard, paving the way for the mega IPO of the year. This will be a short post to provide an update on the NetLink Trust IPO.

Since 9 February 2017, SingTel had announced that it had hired three banks to manage the initial public offering for its broadband subsidiary NetLink Trust. This is pursuant to Singtel’s undertaking to the Info-communications Media Development Authority (IMDA) to divest its stake in NetLink Trust, a 100%-owned associate of Singtel, to less than 25% ownership by 22 April 2018.

NetLink Trust designs, builds, owns and operates the passive infrastructure for Singapore’s Next Generation Nationwide Broadband Network (NextGen NBN). Under the IMDA’s structural separation requirements for the NextGen NBN, Singtel does not have effective control in NetLink Trust.

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Most Singaporeans would be more familiar with OpenNet, the predecessor of NetLink Trust. In 2008, OpenNet used to be owned by a consortium consisting of SingTel (30%), SP Telecommunications (15%), Singapore Press Holdings (25%) and Canada’s Axia NetMedia (30%). However, in 2014, SingTel, through NetLink Trust, bought over all the shares of OpenNet from the rest of the major shareholders.

As a result of the acquisition, OpenNet ceased to exist and was renamed to NetLink Trust. The move sparked off an unprecedented protest from the six Singapore broadband players, who slammed the consolidation. This was because the acquisition effectively gave SingTel 100% monopoly on the fixed telecommunications network in Singapore. The industry’s concerns were centred on unfair competition and lack of transparency.

To address these concerns, it was highlighted that the terms, conditions and prices of NetLink Trust’s services are, and will continue to be, regulated by the IDA. SingTel also stressed that it did not have effective control over NetLink Trust. In view of the safeguards, CityNet, the trustee manager, claimed that “the transaction would not compromise the level playing field and open access of Singapore nationwide fiber network”.

From the perspective of an investor, NetLink Trust’s monopoly in the fibre network infrastructure is a strategic investment moat. As the sole appointed “Network Company” for Singapore’s Next Gen NBN, NetLink Trust provides a number of services to licensed broadband players such as (a) the use of network for the purpose of end-user fibre connections, currently for broadband, internet-protocol TV and voice-over-internet protocol (“VoIP”) services; (b) the use of other passive infrastructure to provide fibre connections; and (c) the provision of other non-fibre ancillary services.

Read the following analysis of SingTel and NetLink Trust in the following articles:

  1. SingTel at a cross-road
  2. Short selling on SingTel shares
  3. SingTel shares to rocket on NetLink Trust IPO?
  4. SingTel share in supreme form

Thus, investing in NetLink Trust is really a no-brainer. However, getting a slice of the shares during the IPO could be tricky, This is because many investors have been waiting in anticipation for this mega IPO and the initial public offering would very likely to be oversubscribed many times.

Personally, I have struggled whether to invest in SingTel or NetLink Trust for the past three months. At a point when I was about to buy SingTel shares, new of unexpected rivalry from TPG Telecom in Australia surfaced and bombed out SingTel shares. Due to this development, I have decided to place my chips on NetLink Trust instead because I see the potential in NetLink Trust, which will play a lead role in Singapore’s Smart Nation programme.

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For the fiscal year ending 31 March 2017, NetLink Trust contributed S$130 million (including S$57 million of amortised gain arising from deferred gain on disposal of assets and business) or 3% to the SingTel’s underlying net profit.

The impending IPO of the NetLink Trust in July raised a lot of eyebrows because this period coincides with the dividend payout season of SingTel. Traditionally, SingTel shares tend to rise from July to August because of the divided payout. Hence, the announcement of NetLink Trust IPO could be a strategy by SingTel management to sustain the bull run of SingTel shares to mitigate the negative news of the TPG Telecom’s competition in Australia.

With the news of the divestment, it is likely that SingTel shares would propel to higher price levels. Do I regret missing the boat and not buying SingTel shares? Well, to be honest I have been asking myself this question but nobody can say for sure whether the shares would plunge after ex-dividend.

On the other hand, there could be a possibility that SingTel might reward its shareholders the IPO shares of NetLink Trust instead of paying cash dividend to shareholders. If this do occur, then it will be a win-win situation for all parties.

Just imagine, getting the IPO shares of a blue chip company is like striking lottery. What more could investors ask if SingTel dish out the NetLink Trust IPO to shareholders? Under such circumstances, SingTel can conserve its cash holding and use the free cash flow to fund more acquisitions or pay off its mounting debts.

It has been years since a mega IPO like NetLink Trust took place in Singapore stock market. I am looking forward to July and will be participating in this IPO. Till then, enjoy the ride.

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