Singtel share price (SGX: Z74) in perfect storm

Lifetime Membership In my last article on Singtel share price, I wrote that this counter has bottomed out. Yet, following that article, Singtel share price plunged 8.5%, falling from $2.58 to a low of $2.36 on 30 November. Apparently, Omicron variant has emerged out of nowhere to cause the train-wreck of Singtel share price.

Singtel’s sprawling telco businesses are prone to the impact of the pandemic as a significant portion of the Group’s revenue is derived from roaming revenue from tourists. Hence, a protracted pandemic crisis could possibly shake confidence in Singtel share price. Nevertheless, as we entered December, Singtel share price stabilized to $2.40 level as the market digested emerging data on Omicron variant, which is deemed to be highly contagious but less likely to cause severe illnesses among patients.

For the past two years, I reckon many Singtel investors did not have a good sleep as COVID-19 has caused plenty of uncertainties for Singtel share price. But that’s not all. On 17 December, another bombshell awaited investors. The Group announced that its subsidiary, Singapore Telecom Australia Investments Pty Ltd (“STAI”), has received an unfavorable judgment from the Federal Court of Australia over the acquisition financing of Singtel Optus Pty Limited in 2001.

The net tax exposure and related interest and penalties amount to A$304 million. Although the case relates to an incident that happened 20 years ago, it was actually reflected in the recent annual financial statements. In fact, I have always stressed that one of the key risks for Singtel share price is the contingent liabilities arising from the telco’s overseas acquisitions.

Given that Optus has evolved to become Singtel’s crown jewel over the decades, I am sure the telco will settle the tax penalty swiftly to avoid further negative publicity. Furthermore, the amount payable to the Australian authorities is nothing comparable to the 2019’s Indian Supreme Court fine on Airtel. In 2019, the Indian Supreme Court fined Singtel associate Airtel a whopping $4 billion. Due to this, Singtel had to set aside a staggering provision of $1.93 billion (pre-tax) for the penalty. Because of this, Singtel share price struggled throughout 2019.

Prior to the Australia Optus revelation, Singtel’s Advanced Info Service Public Company Limited (AIS) in Thailand had reached a settlement to pay 447.87 million Baht to National Telecom Public Company Limited (NT) over revenue sharing claims. The parent company of AIS, Intouch Holdings, is also involved in legal dispute with the Thailand authorities over ownership of satellites. The liabilities amounted to $335 million plus fines and interest. The cases are pending arbitration.

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Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in Singtel before. Whether Singtel share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.

Singtel share price seeing light at end of tunnel?

2022 could be a watershed year for Singtel share price. The bitter price war in India is finally over as the market finally settled for a “sustainable three private plus one state owned telecom operator structure”. Singtel’s announcement to subscribe Bharti Airtel rights issue for US$405 million over three years should put an end to the never-ending Airtel saga.

With the closure of the Airtel chapter, the remaining overseas contingent liabilities concern Optus, AIS, Intouch, Globe and Telkomsel. In the recent settlement by AIS with NT, both parties agreed that they will no longer raise any future claim on the settled disputes. For the Optus and Intouch cases, the liabilities involved may be substantial, but not insurmountable to the extent that Singtel could not settle. As for Globe and Telkomsel, the claims involved are not really significant enough to move the needle for Singtel share price.

In my view, I believe the management would want the CEO to start 2022 on a clean slate by addressing the contingent liabilities from its overseas acquisitions. Apart from this, another legacy issue that needs to be fixed is the ailing digital assets of Singtel.

Amobee and Trustwave are two digital assets acquired under the previous management regime (former Chairman Simon Israel and former CEO Chua Sock Koong). Under the tenure of the previous management regime, Singtel could not turnaround many of the loss-making assets under Group Digital Life (GDL). That failure saw the GDL division racking up millions of losses every year since 2013. Over the years, the accumulated losses amounted to a staggering $940 million and still counting.

For 2HFY2021, the EBIT losses for Trustwave amounted to $67 million while Amobee incurred $25.1 million loss. If Singtel can divest or spin off these loss-making assets in 2022, then the telco’s financial performance should improve.

Glimmer of hope for Singtel

The past two years have been devastating for Singtel due to the pandemic. Nonetheless, the recent 1HFY2021 financial result was certainly [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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