Where PCCW-HKT failed in July, SingTel is hoping to succeed this November, with the launch of a $2 billion 10 year deal that will mark the largest corporate bond offering from Asia this year and rank equal to Hutchison Whampoa's $2 billion offering of July 1997 as the largest on record.
SingTel's ambitious plans underscore the emergence of Singapore onto the debt capital markets stage during 2001, with the city state leapfrogging the rest of the region from nowhere to the very top of the league tables. Should the telecommunications group get all of its prospective deal away it will, therefore, stand equal third with Hutch behind the Republic of Korea's $3 billion bond offering of 1998 and OCBC Bank's $2.14 billion deal of July this year.
The mandate for the deal was concluded last Monday, with Goldman Sachs and Salomon Smith Barney awarded joint books. Both firms consider themselves SingTel house banks. Salomon, for example, provided an A$3 billion ($1.54 billion) bridge financing for the acquisition of Cable & Wireless Optus, while Goldman has been acting as the group's rating advisor for the past couple of months.
In winning the deal, both banks pipped Morgan Stanley, SingTel's third main relationship bank, which was the M&A advisor for the Optus acquisition and also led the last major international capital markets deal associated with the group, the $1 billion Fullerton convertible bond of March 1998. Goldman in particular is likely to be ecstatic at the award of the mandate, which will be viewed internally as proof that the firm has not been placed in the penalty box after the recent DBS libel incident.
The bank is also advising SingTel on its acquisition of a 22.3% stake in Indonesian cellular operator Telkomsel, a roughly $600 million deal which was expected to have been finalized in mid-September, but has been slightly delayed because of the World Trade Centre attacks and technical difficulties. It is expected that proceeds from the forthcoming bond issue will be used to fund the acquisition, for which Goldman has not used its own balance sheet to bridge the group.
The majority of issue, however, will be used to take out the A$3 billion bridge. Alongside a S$1 billion ($550 million) domestic bond issue from February and $440 million in acquisition finance bonds, the bridge has played a major role in leveraging SingTel s balance sheet for the first time in its history.
Back at the end of the FY99, SingTel had only S$100 million in debt on its books and an interest coverage ratio of 100 times EBITDA. By the time of the announcement of the Optus acquisition this March, the group still had a strong net cash position of S$5.8 billion ($3.25 billion) and gearing of just over 10%.
In addition to the $2.53 billion debt the group has built up over the past 10 months, it also inherits $2.65 billion from Optus (as of the group s March year-end), of which $1 billion is short-term debt.
Bankers will now be watching to see how the rating agencies view the group s expansionist activities. SingTel remains within its self declared comfort zone of 30% gearing and observers remain split between those who believe it deserves a double-A rating and those who say it is more likely to be assigned a high single-A rating. The group itself has indicated it believes that it will secure an Aa3/A+ rating in line with its major Australian rival Telstra.
Bankers do not believe that the new deal will have been cannibalized by the placement of SingTel bonds issued on behalf of Cable & Wireless shareholders in early September. At the time, bankers found no institutional bid for the split five and seven year transaction, which was almost exclusively placed in the Singapore bank market. The deal formed part of the payment to Optus shareholders and had been structured by Morgan Stanley back in March when the acquisition was first announced.
Two equal tranches of $220 million placed into the public markets by Merrill Lynch, comprised a five-year offering yielding 80bp over Libor and a seven-year offering yielding 90bp over.
