Singtel - Higher Bharti-MTN Involvement?

Higher Bharti-MTN involvement likely? — We think the 30th September extension to the Bharti-MTN exclusivity negotiation window raises the deal probability. Perceptions like MTN shareholders (SH) wanting a higher price, and potential regulatory/technical on a Bharti GDR are rising, and SingTel’s direct and higher involvement could help.

How could SingTel get involved? — (1) Commit as buyer of Bharti GDR to be listed on JSE at a fixed price to those not wanting it, hence crystallising all cash offer – more attractive to MTN SH?; 2) Bharti makes preferential allotment of shares to SingTel first for cash and then improves offer to MTN SH to all-cash. Regulatory approvals/exemptions needed but not insurmountable.

How much could SingTel invest? — “Stock” portion of deal is US$5.7bn (S$8.2bn) per current terms, a ceiling to SingTel’s involvement, we think. A 1.8x net debt/EBITDA implies S$3.1bn of borrowing capacity, inadequate if SingTel goes all the way. Equity raising/value for price fears could then dominate in the short-term.

Longer term positive for SingTel though — Locking in longer term growth potential should enhance SingTel’s “growth and yield” attraction. Our analysis suggests accounting for Bharti-MTN cross-holdings (vs. headline workings) is deal EPS accretive to Bharti now, but EPS neutral to a 16% higher cash offer.

Our view on Bharti-MTN outcomes and probability — (1) Bharti walks away: 10% probability; (2) Deal announced with small changes to current terms: 30%; (3) Materially higher (all-cash?) offer with significant help from SingTel: 50%; (4) Bharti goes alone with significantly higher cash offer: 10%.

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