Sale of SingPost, Yellow Pages needs IDA's nod
Singapore Telecom's plan to divest non-core assets Singapore Post and SingTel Yellow Pages won't be a simple asset sale.
Potential buyers will have to be approved by the Infocomm Development Authority because ownership of the licences for the two units is not transferable.
Yellow Pages and SingPost each has its own service-based operator (SBO) licence.
In addition, IDA also oversees regulation of the postal industry and info directory services here.
Yellow Pages' licence allows it to provide audiotex services as well as store-and-retrieve value-added network services. SingPost's licence allows it to provide public postal services – it is now the only provider in Singapore – and express letter services. SingPost has the exclusive rights for 'snail mail' services in Singapore until 2007.
One banker said: 'Should potential trade investors come in, they would have to go through a number of critical tests by IDA, which is concerned about potential conflicts and implications.'
Potential suitors for Yellow Pages include major players in advertising and publishing, while SingPost is expected to draw interest from international express courier companies like UPS, TNT Post Group, Fedex and Deutsche Post World Net which bought into DHL International.
But the current market view is that SingTel is in no rush to sell.
'It is a buyer's market now. SingPost and Yellow Pages are not desperate sales nor firesales,' said Peter Milliken, an analyst at Lehman Brothers in Hong Kong. He values SingPost around $2 billion and Yellow Pages around $400 million.
Sources said SingTel prefers an outright 100 per cent sale to trade buyers, as it would yield immediate cash.
But some bankers and analysts believe the regulatory constraints and tough market conditions will make it difficult to reap maximum proceeds from the sale of the two profitable operations.
Besides an outright 100 per cent sale, SingTel has three other options for non-core operations:
take in a strategic investor or partner;
launch an initial public offer; or
distribute shares of SingPost and Yellow Pages in specie to SingTel shareholders.
Like an outright sale, taking a strategic partner may also be subject to IDA approval. A strategic investor is also the least desirable route since it would dilute management independence.
As for an IPO, the market conditions remain challenging. It is difficult to predict how investors would value the companies and how much would be raised. Also, many procedures would be involved, starting with due diligence, pre-marketing and book-building, and culminating in the setting of the listing price and the listing itself.
The option to distribute shares of SingPost and Yellow Pages in specie to SingTel shareholders appears to some to be the best choice.
Mr Milliken said: 'My preferred way would be to inject debt into the entities and give it to SingTel shareholders because that way, shareholders get to retain the value of SingPost and Yellow Pages, rather than to sell at a discount.'
As the two entities are profitable and generate good cash flow from operations, analysts and bankers say it would be easy for the companies to borrow from banks. For example, with a shareholders' fund of $606 million, SingPost could easily borrow up to $1-1.2 billion from banks.
'With that money, SingTel can realise the exact amount of cash it needs to be redeployed into the group's core businesses and help SingTel operate under a more appropriate capital structure,' a banker said.
A distribution in specie of SingPost and Yellow Pages shares would be equivalent to SingTel making a special dividend payment to its shareholders by giving them shares free.
This is not uncommon. SembCorp Industries has done it for Singapore Food Industries, and Singapore Press Holdings in relation to Times Publishing.
Analysts said a distribution in specie would also mean that SingTel gets to keep these profitable businesses. More importantly, it would retain access to Yellow Pages' huge data-base.
The sale of yellow pages has become increasingly common, as telcos look to reduce their debt.
Hong Kong's Pacific Century CyberWorks was looking at this option before it backed off in October. According to reports, PCCW had aimed to raise between HK$1 billion (S$226 million) and HK$2 billion from the sale of its Hong Kong yellow pages division. The buyers that were bandied included US-based private equity firm the Carlye Group, Citigroup's Asian venture capital arm CVC Asia Pacific and Global China Group Holdings.
In November 2000, Germany's mail monopoly Deutsche Post was floated. The offer of a 25 per cent stake was eight times subscribed. The company raised 6.6 billion euros (S$11.5 billion), with shares priced at 21 euros apiece and early subscribers getting a 50 per cent discount.
