SingTel sells Yellow Pages

Singapore Telecommunications (SingTel) has agreed the sale of its Yellow Pages business to a consortium of private equity buyers for S$220 million ($127 million). The buyers are a consortium consisting of CVC Asia Pacific and JPMorgan Partners Asia, who both hold 50%. The sale comes at a time when telecom companies around the world are selling their directories businesses to raise cash. These businesses have high margins, low competition and steady, predictable cash flows, making them ideally suited to financial buyers.

This asset disposal process started in September 2002 when SingTel retained Morgan Stanley to advise it on the sale. Initially, 10 preliminary bids were received of which four were selected as being financially viable. Apart from the winning consortium, the only other publicly known bidder was Telstra, which reportedly backed out a few weeks ago. The price paid of S$220 million is made up of S$140 million in debt and S$80 in equity, of which the buyers are putting in about half each. JPMorgan is not providing the debt, nor is Citigroup, which is a part investor in CVC Asia Pacific. It is unknown where the bridging loan has come from at this stage, although principals in the deal confirm that it will be syndicated in coming weeks, providing answers to that question.

The deal is noteworthy for many reasons. Firstly it shows that sales of non-core assets by Temasek linked companies can happen in Singapore. This is a potential goldmine for private equity buyers and their advisers. Some studies suggest that there may be as many as 1500 non-core businesses being run in Singapore. Deals like this suggest that sellers are at last willing to do deals. "I hope this is the first step," says Stephen King, managing director at JP Morgan Partners Asia. "It is a landmark deal as it is one of the first such deals that has been done. It should demonstrate to other government linked companies that sales to financial buyers are a very viable way for them to dispose of assets."

Moreover the deal shows that SingTel is serious about selling its non-core assets, a key strategy it has adopted for the last few years. The company has a negative creditwatch from S&P, due mainly to the statement from Temasek - which owns 67% of SingTel - that it is seeking to divest its stake. This would reduce the government's ownership of SingTel and hence impair its credit. SingTel's debt burden of S$9.56 billion at March 31, 2003, is another contributory factor to the negative creditwatch. This proceeds from this deal will hardly put a dent in the debt figure and so the salient point is that the company was willing to do a deal and earn its AA- rating on its own. In order to create that perception SingTel had a strict price target it wanted to achieve with this deal and would have walked away if it were not met. "Singapore Yellow Pages is a financially strong company and a good asset and SingTel was not prepared to sell its business at any cost," says Lim Toon, COO of SingTel. "The bid from CVC and JPMPA was the best received."

Although the actual dollar amount will not make much impression on SingTel, the very fact that they did do it should impress their creditors. It is known that the last time the company did a major bond issue in November 2001, it promised its bondholders that it would do all in its power to retain its AA- rating. As one of the highest rated telecom companies in the world, some might suggest that SingTel could afford to go down a few notches. The company's bondholders would presumably disagree.

The underlying business of Singapore Yellow Pages has been enduring a few downgrades of its own in recent years. In the year to March 31 2003, the company had revenues of around S$77 million. This is down from S$83 million in the same period last year and sharply down from revenues of around S$125 million three years ago. According to King at JPMorgan Partners Asia, he believes the company can meaningfully improve its sales from where they are today. The new owners have experience of running such businesses around the world and they say they already have a strategy or two to boost the top line. The management of Singapore Yellow Pages has been briefed on these plans and are on the same page (pun intended).

But despite the poor recent form, King is keen to point out that the business is quite resilient. During the bidding process, the firm was being stressed tested before the bidders' eyes. The ongoing recession, the war in Iraq and then SARS all challenged business confidence in Singapore. That revenues have held up quite strongly points to the buoyancy of the company.

"We think this is a company with good cash flows and an unassailable market position and we like companies like that," says King. "I believe the price we paid is fair."

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