Singapore may see worst fallout from Thai coup
John Burton
21 Sep 06
Singapore could suffer the most among countries in the region from the military coup against Thaksin Shinawatra, the Thai prime minister, who forged close ties with the city-state and sold his telecommunications group to Singapore’s state investment company.
It was the $1.9bn sale of a 49 per cent in Shin Corp by Mr Thaksin’s family to Temasek Holdings in January that triggered the political crisis that led to the coup after it was revealed the family paid no taxes on profits from the deal.
Mr Thaksin was seen by Singapore as its strongest supporter for closer economic integration of the Association of South-east Nations, which provoked talk of a Singapore-Bangkok axis within the group.
The ousted Thai leader also expressed admiration for Singapore’s political system, telling Singapore officials that he wanted to model his Thai Rak Thai party on the long-ruling People’s Action party.
Mr Thaksin decided to sell Shin Corp to Temasek to dispel allegations of conflicts of interest between his family’s corporate holdings and his government duties as he prepared to stand for a third term as prime minister.
The deal turned out to be the most controversial conducted by Temasek since Ho Ching, the wife of Singapore’s prime minister, became the group’s chief executive in 2002 and launched an ambitious global acquisition strategy.
Public protests in Thailand over the deal have led to a nearly 40 per cent fall in Shin Corp’s share price since then. In April, Lee Hsien Loong, Ms Ho’s husband, told parliament that “Temasek invested in Shin Corp because it saw value in the investment” but added it was not government policy “to second guess Temasek’s risk assessments”.
A former senior Singapore official, however, criticised Temasek’s handling of the deal in light of Mr Thaksin’s growing unpopularity at the time. “Temasek did financial due diligence, but not political due diligence,” he told the Financial Times. Temasek said it had considered all aspects in concluding the deal.
A Temasek-led consortium increased its stake to 96 per cent in Shin Corp under a mandatory offer, but the takeover has been investigated by Thai regulators over whether Temasek used proxy companies to avoid a 49 per cent ceiling on foreign ownership in strategic industries. Temasek said it fully complied with Thai law.
Michael Montesano, a Thai specialist at the National University of Singapore, believed it was unlikely a new government would nullify the Shin Corp deal, but Temasek might have to reduce its stake if it was found in breach of foreign shareholding limits. Temasek said it was premature to comment on the coup’s impact.
Most regional governments expressed concerns about the coup and called for a restoration of democracy in Thailand.
Indonesia’s defence minister, Juwono Sudarsono, said the Thai coup illustrated one of the pressures facing south-east Asia’s civilian democratic governments. “If there’s a lesson it is this: politicians and parliamentarians must get their act together and consolidate party building and deliver on performance,” he said. “Otherwise people turn to the military for decisiveness and stability.”
In the Philippines, Gloria Macapagal Arroyo, the president who declared a brief state of emergency to crush an alleged coup attempt early this year, was keen to quell speculation the Thai coup might encourage the military to attempt a similar takeover.
Additional reporting by Shawn Donnan in Jakarta and Roel Landingin in Manila
Optus may hurt Singtel earnings
Dow Jones
12 Sep 06
Singapore telco may have to write down as much as $8b on Australian unit: Merrill
Singapore Telecommunications is facing growing risks to its earnings, including a massive write-down of its investment in Australian unit Optus, Merrill Lynch said.
In a report on Friday, the investment bank said that SingTel could be facing a “massive write-down” of between $5 billion and $8 billion on Optus as the Australian subsidiary faces rising competition and delivers
lower returns.
Optus is worth $18.2 billion in SingTel’s books.
“In our view, this valuation may not be supported unless the earnings performance of Optus materially improves” by 2009, Merrill Lynch said.
A SingTel spokesman would not immediately comment.
Merrill Lynch is keeping its “Sell” call on SingTel with a price target of $2.48.
The stock closed yesterday at $2.47, down 2 cents, or 0.8 per cent.
The Merrill Lynch report comes three weeks after Morgan Stanley cut its price target on SingTel to $3 from $3.10 due largely to expected lower revenues from Australian and Singapore operations.
Still, Morgan Stanley kept its “Buy” call on SingTel, noting that it was one of the “best-value” telecommunications companies in the region despite the competition that SingTel faced.
In the Merrill Lynch report, analyst Patrick Russel forecast Optus’ return on invested capital (ROIC) of 7.7 per cent in the full-year ended March 2005 to fall to 5.2 per cent in 2008, which is below SingTel’s estimated
weighted average cost of capital for Optus of 11 per cent.
By comparison, SingTel’s rival StarHub’s ROIC is forecast to rise to 24 per cent in 2009 from 2.5 per cent last year, said Mr Russel.
Optus acknowledged recently that discounted mobile calling plans, or capped plans, in Australia could continue to hurt its profit margins.
First-quarter operating profit at Optus fell 6.9 per cent from a year earlier to A$478 million ($567 million) due largely to a price war in the mobile phone market. Optus contributes more than two thirds of SingTel’s
revenue.
Unless Optus improves its performance, Merrill Lynch said that SingTel could either shrink its Australian operations or sell Optus altogether.
Merrill Lynch said that SingTel could also continue with efforts to improve the performance of Optus. The company could improve returns with the roll out of its unbundled local loop, a connection which will allow
Optus to access rival Telstra’s copper network to offer more telecommunications services to Optus customers.
Optus must also cut costs while making selective acquisitions, the report said.
On top of the problems at Optus, Merrill Lynch said that SingTel was facing four other issues.
The company could face more competitors as the Government pushes for high-speed Internet connection all over Singapore in the next 18 months.
The recent approval of full mobile-phone-number portability, which allows subscribers to switch operators while retaining their mobile phone numbers, could lead to a price war.
Earnings growth from regional associates such as Telkomsel in Indonesia and Bharti Airtel in India is also expected to slow.
The search for a new chief executive for SingTel also poses a risk as it could mean a change in growth strategy, the report said.
Mr Lee Hsien Yang said in July that he would step down as chief executive once a successor is found.