Singtel borrows US$2.9bn in bank loans post-Singapore spectrum auction

Singaporean telecoms and satellite operator Singtel has agreed to two revolving credit facilities worth more than US$2.9bn primarily for debt refinancing purposes. Singtel also said it intends to peg funds from the loans to...

Singaporean telecoms and satellite operator Singtel (SGX:Z74) has agreed to two revolving credit facilities worth more than US$2.9bn primarily for debt refinancing purposes.

Singtel also said it intends to peg funds from the loans to help finance its local and Australian subsidiaries.

Singtel’s treasury in Singapore agreed to a three-year S$2.5bn (US$1.8bn) committed revolving credit facility, guaranteed by Singtel.

The facility was signed with 12 banks, comprising Australia and New Zealand Banking Group, Bank of America, BNP Paribas, The Bank of Tokyo-Mitsubishi UFJ, Citibank, DBS Bank, HSBC, Mizuho Bank, Oversea-Chinese Banking Corporation, Standard Chartered Bank, Sumitomo Mitsui Banking Corporation, and United Overseas Bank .

In tandem with the transaction, its Australian telecoms and satellite operator Singtel Optus (Optus) signed a three-year A$1.5bn (US$1.14bn) committed revolving facility agreement, guaranteed by the local subsidiary.

The 15 underwriters on the deal were comprised of Australia and New Zealand Banking Group, Bank of America, Bank of China, The Bank of Tokyo-Mitsubishi UFJ, BNP Paribas, Citibank, Commonwealth Bank of Australia , DBS Bank, HSBC, Mizuho Bank, Oversea-Chinese Banking Corporation, Standard Chartered Bank, Sumitomo Mitsui Banking, Société Générale, and Westpac Banking Corporation .

Singel Group CFO Lim Cheng Cheng (pictured) said: “The Singtel Group is very pleased with the level of support demonstrated by our bankers in Singapore and Australia, which reflects their confidence in the Singtel Group’s credit quality and business fundamentals.”

In November 2016, Singtel reportedly hired DBS Group, Morgan Stanley and UBS for an up to US$2.5bn listing of its high-speed broadband unit Netlink Trust.

The listing came as Singtel welcomed former Morgan Stanley banker Arthur Lang as CEO International.

The telco had also recently completed its acquisitions of a 21% stake in Thai telecoms group Intouch Holdings and a 7.39% stake in India’s Bharti Telecom from Temasek Holdings for a combined S$2.47bn (US$1.84bn).

Spectrum to increase leverage

Moody’s Investors Service recently said the high cost of the latest spectrum auctions in Singapore was credit negative for Singtel, as it will further increase debt at a time when leverage is testing the agency’s tolerance range for the rating level.

Moody’s has assigned Singtel a ‘Aa3’ investment-grade rating,

Singtel acquired 40MHz in the 700MHz frequency band, 20MHz in the 900MHz band, and 15MHz in the 2500MHz band for S$564m (U$409m), and plans to fund the acquisition through a combination of cash and additional bank debt.

Moody's analyst Nidhi Dhruv said the aggressive bidding among operators led to spectrum prices being considerably higher than the reserve costs set by the regulator.

“The 10MHz lot in 900Mhz frequency which was open to all operators was eventually bought by Singtel for S$132m (US$ 94.8m) – or around 6.6 times its reserve price of S$20m (US$14.4m)," Dhruv said.

Assuming the entire spectrum payment is made in the fiscal year ending March 2018, Moody's expects pro-forma leverage to increase to around 2.2- 2.3x – compared to 2.0x as of December 2016 – keeping leverage above its downward rating trigger.

The spectrum payment needs to be made upfront; however, Singtel may apply to the Info-Communications Media Development Authority to defer payment of the 700MHz spectrum fees to a maximum of six months prior to rights kick in, which are projected for 1 January 2018.

The spectrum rights in the 900Mhz and 2500Mhz bands will start on 1 July, 2017.

Moody’s added that the potential for competition to intensify in the Singapore mobile market following the entrance of TGP Telecom (ASX:TPM) as the country’s fourth operator , and the highly competitive operating environment in Australia, it expects the primary source of deleveraging to come from absolute debt reduction, as opposed to EBITDA growth.

"Moody's expectation is for Singtel to bring its leverage below 1.8x by December 2017 in line with its Aa3 rating. This implies a reduction in net debt of around S$3.0-3.3bn (US$2.15-2.37bn) absent incremental EBITDA growth in fiscal 2018 according to Moody's estimates," Dhruv noted.

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