S$1.4 billion sale of M1’s telco business to Simba ‘important’ despite S$222 million accounting loss: Keppel CEO

[SINGAPORE] Keppel’s planned sale of M1’s telco business is expected to result in a S$222 million accounting loss, but the move is “important” for transforming into an asset-light company, said Keppel chief executive Loh Chin Hua.

On Monday (Aug 11), Keppel proposed to divest M1’s telco business to mobile network operator Simba Telecom for an enterprise value of S$1.43 billion, in an all-cash deal.

Keppel will receive close to S$1 billion in cash for its 83.9 per cent effective stake in M1.

The deal will, however, result in an estimated S$222 million accounting loss for Keppel due to goodwill and intangible assets associated with the telco business. Keppel first invested in M1 in 1994, and was later involved in its privatisation in 2019.

While Keppel seeks to make an accounting profit in its deals, “in this instance, what’s more important is that we have a narrative” aligned with the “New Keppel”, said Loh, referencing the company’s effort to divest non-core assets.

“Our narrative is that we’re going to create an asset-light ‘New Keppel’, and this particular business is no longer core to us, so being able to monetise it is probably the most important,” he told analysts and reporters at an online briefing on Monday.

Simba Telecom had put forward the strongest bid among interested parties, Keppel said in a statement. The deal’s enterprise value is 7.3 times Ebitda (earnings before interest, taxes, depreciation and amortisation), which Keppel described as an “attractive” valuation.

M1’s telco business had revenue of S$806.1 million and S$195.4 million in Ebitda for the 12 months to Apr 30, Simba’s parent company Tuas disclosed in a separate press release.

Manjot Singh Mann, chief executive of Keppel’s connectivity segment, noted that Simba has the “least overlap” in resources with M1, relative to other potential buyers.

Simba is primarily focused on SIM-only plans, whereas M1 does a lot of contract sales, including with handsets, said Mann, who is also M1’s chief executive, at the briefing.

In addition, M1 has a larger retail footprint than Simba, and is more advanced in its roll-out of 5G technology. Both companies also operate their call centre and customer-care units differently.

“I think the opportunity for new revenue pools for the combined entity, as well as career prospects for our employees, is quite positive,” said Mann, adding that both companies could join forces in new technology investments.

On whether shareholders can expect rewards from the deal, Loh said that Keppel’s focus is now on obtaining regulatory approval from the Infocomm Media Development Authority.

“At the end of the year, when everything is said and done, we will look at not just this transaction, but the other divestments that we are in the process of… the board will then decide what would be an appropriate final dividend to pay, plus if there should be any special dividend,” he said.

Retaining ICT

Under the deal, Keppel will retain M1’s information and communication technology (ICT) business. This would enable Keppel to tap enterprise customers for its data centres, who generally pay higher rental, said Loh.

While hyperscalers – or large cloud-service providers – represent huge demand for data centres, they command lower rentals, given their size and long leases, he noted.

Keppel sees “a good mix” of hyperscalers and enterprise customers emerging for its data centres and has an “aggressive” growth plan for the ICT business over the next five years, said Mann.

He noted that the business is not heavy on capital expenditure, but instead is more about developing applications and solutions, as well as managed infrastructure network services.

“The growth opportunity is quite significant, and the potential to create more (of a) connectivity value chain with Keppel data centres is very exciting,” said Mann.

Loh highlighted that the ICT business covers three important growth markets: Singapore, Malaysia and Vietnam. M1 expanded into the latter with the purchase of a stake in ADG National Investment and Technology Development last year.

Non-core divestments

The M1 transaction comes as Keppel seeks to substantially monetise a S$14.4 billion portfolio of non-core assets by 2030.

Asked whether Keppel would prioritise divestments over getting the best gains on a deal – as with the accounting loss on the M1 sale – Loh said that the approach would depend on the situation and cannot be generalised.

Noting that Keppel has given itself “sufficient time” to do the divestments, he said: “It’s really a trade-off… (For) something that we sell today, if we can use the proceeds and get better growth out of it, actually it’s a win for the group and for our shareholders.”

Loh further noted that many non-core assets are performing well and currently valued higher than their cost.

“But at the end of the day, we are also mindful that we have this target to monetise this (portfolio) substantially by 2030, and of course, whatever monetisation that we can achieve, we can deploy them into new growth areas.

“It will generate new returns for the group and at the same time, we will pare down our debt and also reward our shareholders,” he said.

Simba parent to raise funds

Separately, Australia-listed Tuas said on Monday that it would seek to raise a minimum of A$416 million (S$348.4 million) to fund its purchase of M1’s telco business, via an institutional placement and a share purchase plan.

The placement will raise A$366 million, based on a floor price of A$5.24. The floor price was set at a 4.9 per cent discount to Tuas’ closing price on Friday.

The share purchase plan will raise the remaining A$50 million. New shares under the plan will be issued at the lower of two possible prices – the placement price, or at a 2 per cent discount to the five-day volume-weighted average price up to, and including, the closing date.

Tuas will fund the remainder of the purchase with existing cash and S$1.1 billion in fully underwritten bank debt financing. The company aims to finish the acquisition over the next few months.

Upon completion, Tuas expects its pro-forma debt to Ebitda leverage ratio to be about four times, but hopes to quickly deleverage “as synergies are realised”. It believes that the deal will be highly accretive to earnings per share “from year one”.

Tuas was incorporated in March 2020, and is under the TPG Telecom group of companies founded by Australian businessman David Teoh. The company said that it is on track to meet outlook expectations laid out in its H1 FY2025 guidance, and will announce its full-year results on Sep 24.

Shares of Keppel closed Friday 0.8 per cent or S$0.07 down at S$8.58. The company called for a trading halt on Monday morning.