Singtel’s investment in Bharti Telecom, the holding company of Airtel, reflects its strategy to cash in on the growth potential of Indian telecoms market, says Fitch Ratings.
The investment also underscores Fitch view that the industry may have reached bottom and that pressure on incumbent Indian telcos should gradually ease this year.
“We expect gradual price discipline in India’s telecoms sector to drive a mid-single-digit revenue recovery in 2018, following 2017’s falls,” Janice Chong, director at Fitch Ratings Singapore.
Fitch revised its sector outlook on India’s telecoms market to stable in 2018, from negative in 2017. This follows the industry consolidation that strengthened the competitive position of three major telcos – Bharti Airtel, Reliance Jio and Vodafone-Idea Cellular — and the exit of smaller operators.
Singtel will subscribe SGD556 million in new shares in Bharti Telecom’s share allotment, raising its stake in Bharti by 0.9 percent points to 39.5 percent.
This investment follows Singtel’s August 2016 acquisition of Bharti Telecom shares from Temasek Holdings. Fitch said the incremental cash contribution from Bharti Airtel is unlikely to be significant, as Bharti will remain an associate company of Singtel. The Indian telco provides little dividend contribution to Singtel because of its large Capex needs and intense competition.
Singtel derives around 74 percent of its FFO from Singapore and Australian-based Singtel Optus. The balance 26 percent of FFO comes from cash dividends from associates, offering diversification for the group and access to growing, less-developed markets as competition at home intensifies.
Fitch Ratings said domestic competition is set to rise further in Singapore, with the entry of TPG Telecom in 2018.
