Singapore Telecommunications (Singtel) today announced a ‘strategic reset’ which includes unlocking the latent value of its digital infrastructure portfolio of towers (such as Optus), data centers, terrestrial fiber, subsea cables, and satellites across the region. Singtel indicates that, in aggregate, its digital infrastructure would be valued in the “mid-single-digit” billion range, based on peer group multiples. Expressed numerically, Singtel’s digital infrastructure portfolio could be worth between S$4bn to S$6bn ($3.0bn USD to $4.5bn USD).
Digital Infrastructure Monetization – Singtel
Singtel states that it is open to partnerships and different ownership structures to find the best partner for each type of asset. Overall, Singtel is reviewing its entire asset portfolio with the following primary motives in mind:
- Partial Sale: bridge the valuation gap between telecommunications multiples and digital infrastructure multiples to realize the latent value (see below)
- Full Monetization: certain assets do not align or are less important to the company’s long-term vision
- Invest for Growth: actively recycle assets and re-allocate capital to meet the company’s ongoing funding requirements, particularly for 5G
Notably, many of Singtel’s digital infrastructure assets are currently booked at their historical carrying values. Therefore, the company’s financial statements do not reflect the mark-to-market of current digital infrastructure valuations – hence the latent value.
Medium- to Long-Term Goals
Singtel notes that its current return on invested capital (ROIC) at 5.0% for the year-ended March 31, 2021, is unacceptable. As part of its strategic reset and monetization of digital infrastructure, the company is targeting an increase of its ROIC to low- to mid-teens over the medium- to long-term.
Optus – Tower Infrastructure Divestment
Singtel has begun its strategic reset by pursuing a majority sale, via auction, of Optus’ tower infrastructure portfolio in Australia. Management notes that its goal is to maximize proceeds from the sale and thus far has received significant interest from strategic and financial investors.
Overall, Singtel is divesting up to a 70% interest in its 2.3k mobile tower and rooftop sites across Australia. Also of note, these towers have a tenancy ratio of 1.6x. Indeed, this equates to 3.7k tenants with equipment on the company’s towers. Additionally, the transaction includes build-to-suit (BTS) commitments for 565 new towers.
Singtel also provided further clarity on the timing of the auction for Optus’ tower infrastructure portfolio:
- April 2021: restructuring of Optus towers to Australia Tower Network (ATN) is complete and sale process launches
- June 2021: target receipt of indicative bids (non-binding)
- 2H 2021: expect signing of sales & purchase agreement
- Year-End 2021: closing of the transaction
Digital Infrastructure – Peer Valuation Multiples
A key goal for Singtel is to bridge the valuation gap between the company’s overall telecommunications valuation multiple of 8x to 9x EBITDA and the much higher digital infrastructure multiples, such as those for Optus’ towers. Specifically, based on the last 12 months valuation multiples for its Asia-Pacific peer group, Singtel highlights EV/EBITDA multiples of 24x for data centers, 18x for towers, 11x for fiber, and 9x for satellite.
Value Proposition of Digital Infrastructure
Singtel states that certain segments of its digital infrastructure are generating EBITDA comparable to peers in the Asia-Pacific region. Furthermore, Singtel has a strong pipeline of digital infrastructure investments which a partner could build-out for the company.