NetLink launches SGX’s biggest infra trust

SingTel’s passive infrastructure business seeks up to $1.95 billion from IPO, set to offer dividend investors another choice of defensive asset.

The Singapore Exchange will soon add a mega yield-generating stock after Singapore Telecommunications launched on Tuesday a S$2.3 billion to $2.7 billion ($1.7 billion to $1.95 billion) initial public offering for NetLink NBN Trust, its fully-owned owns passive infrastructure unit.

NetLink is set to surpass Keppel Infrastructure Trust as Singapore’s biggest infrastructure trust, solidifying the Lion City’s dominance as a regional hub for yield-generating assets.

The deal also marks the biggest divestment for SingTel in its history. The city’s biggest telecommunications firm is more often a buyer than a seller, having actively acquired stakes in overseas telecom companies to diversify away from the largely saturated local market.

Nevertheless, divestment was not SingTel's plan. Rather it was Singapore’s Info-communications Media Development Authority that insisted, as a condition of the merger of SingTel's passive infrastructure business and its broadband fibre network in 2013, that the telecom giant divest at least 75% of NetLink by the end of April 2018.

That requirement indirectly led to the decision to float NetLink and create one of the most defensive yield-generating stocks in Singapore.

NetLink is guiding investors with an estimated dividend yield of 4.73% to 5.5% for the 2018 financial year, substantially lower than the 6% yield for the SGX S-Reit Index.

NetLink’s relatively low yield against the city's real estate invesment trusts, is compensated by its extremely stable cash flow and income due to its dominance of the residential broadband market.

As of the end of March, NetLink served 82% of Singapore’s residential broadband subscribers. The figure is expected to grow to 95% by 2020 based on syndicate analyst projections.

Meanwhile, the trust is offering a pick-up of at least 280 basis points to Singapore’s 10-year government bond, which yields 1.93% based on prevailing market price. As Singapore’s interest rate has continued to fall since the beginning of the year, that difference in yield is more than enough to entice investors willing to seek better returns by taking on slightly higher risk.

The defensive nature of the business has attracted demand particularly from passive funds and high-net-worth individuals, a source familiar with the situation told FinanceAsia, adding that the bookrunners had received early indications sufficient to cover the entirety of the deal after the end of the pre-marketing session earlier this week.

Meanwhile, SingTel is retaining a strong interest in the business. Apart from the fact that it is divesting only the 75% stake required by the regulator, it is also loaning the trust S$1.1 billion, at an interest rate of 10.5% per annum.

According to the terms of the deal, NetLink is selling 2.9 billion investment units at S$0.8 to S$0.93 apiece. The IPO features an overallotment option of up to S$100 million.

The Reg S deal is expected to price on July 7 and NetLink is expected to make its market debut on July 19.

Joint global coordinators of the IPO are DBSMorgan Stanley and UBS. Joint bookrunners are Bank of America Merrill LynchCitiHSBC, OCBC and UOB.

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