FEER(4/5): SingTel's Australian Buy Shows Global Ambitions
Updated: Wednesday, March 28, 2001 05:15 PM ET
YEARS HENCE, the March 25 purchase by Singapore Telecommunications of Australia's second-largest telecoms company, Cable and Wireless Optus, may mark a critical watershed in the republic's economic development.
As the largest acquisition in Singapore history, the deal's size -- state-controlled Singtel valued Optus at more than $9 billion, including inherited debt -- indicated two things. First, it showed that Singapore Inc. was willing to pay a premium to promote its new-millennium philosophy: For the republic to succeed in a global economy its leading companies must co-opt international best practices and lead the way out of a saturated domestic market.
Second, it illustrated a mindset shift: The state, often accused of stifling paternalism, may be willing to loosen the leash. The deal's completion will see the state's share of Singtel drop to around 67% from nearly 80%. Also, the government said it will "soon relinquish" its so-called golden share, which lets it veto key board decisions seen as inimical to national interests.
"It's a critical, strategic transition," Dominic Armstrong, research head of ABN-Amro Securities Research in Singapore, says of the purchase. "It will force people to look at Singapore in a different light because there's no question they are determined to go global."
From a regional perspective, the Optus deal indicates the Singaporean leadership's thinking, post-Asian financial crisis: Given the problems in investing with its neighbours, it's time to look elsewhere as well. Indeed, while paying lip service to the multilateral ideals of the Association of Southeast Asian Nations, Singapore has forged a bilateral free-trade pact with New Zealand and is quietly moving to do the same with the United States and Australia.
This will do little to reduce regional rivalries. "Short term, that's fine," says Bruce Gale, a political risk consultant based in the republic. "But, long term, no one's looking at Asean and that could be negative for the region."
Finally, the deal has created the first Asian hub of a non-Japanese global telecoms player with a such a large capitalization -- $25 billion. The deal could put SingTel in the driver's seat where future Asian acquisitions are concerned.
SingTel's new position would not have been possible without two earlier failures. Last year, SingTel bid for the Hong Kong arm of Cable and Wireless but the deal went to Hong Kong's Pacific Century CyberWorks, then considered the one Asian company outside Japan able to make a global go of it. A subsequent SingTel bid to acquire Time DotCom, the telecommunications arm of Malaysia's politically connected Renong group, stalled when it was opposed by Malaysian Premier Mahathir Mohamad, who thought it might pose a national security threat given SingTel's state links.
PCCW, floundering with steep losses, will now find it difficult to thwart Singtel's pan-Asian ambitions. And Time DotCom tanked on listing in late February, underscoring its lack of a credible foreign partner.
Investors disliked the Optus buy. In a complex deal that could see the issuance of up to 3 billion new Singtel shares, the utility gave Optus shareholders three choices, with premiums ranging from 1%-17%, to take the company private.
Both shares fell -- Singtel skidding 22% to close at S$1.88 ($1.06) on March 27 -- due to fears that Singtel had overpaid and the deal would dilute its earnings, and that the Singtel share overhang would continue to depress its prices.
Analysts say both perceptions are correct. But Lee Hsien Yang, Singtel's chief executive and the youngest son of Senior Minister Lee Kuan Yew, seemed unfazed. "There's inevitably all kinds of noise in the market," he told reporters at a post-deal press conference. But the valuation, he said, "is something we're comfortable with."
Lee was looking ahead. The deal will change SingTel from a defensive stock with lots of cash -- more than S$6.2 billion -- into a mildly indebted company with more than 50% of revenues coming from overseas, and more scope for future acquisitions. That's no small transformation. It may be a definitive blueprint for Singapore Inc.
quicken.com |
