Potential Special Dividends from Singtel (SGX: Z74)
Singtel has recently announced a strategic partnership with KKR, a global investment firm, in which Singtel will divest up to 20% of its Regional Data Centre (RDC) business for SGD1.1 billion. This transaction values Singtel’s RDC business at SGD5.5 billion, representing an enterprise value of 31 times the estimated EV/EBITDA ratio for FY24. As part of the agreement, KKR also has the option to increase its stake to 25% by 2027 at a pre-agreed valuation. The deal marks a significant milestone for Singtel, unlocking SGD2 billion of value within the company.
Why does it matter
The cash proceeds from the transaction will be utilized as growth capital and may potentially result in a high special dividend for Singtel shareholders. Singtel believes that the partnership with KKR will not only enhance its global footprint but also provide the necessary flexibility for further expansion and growth in its RDC and NCS (National Cybersecurity) businesses. The cash influx will support Singtel’s ambitions to strengthen its presence in the region and pursue growth opportunities in the digital infrastructure sector. Moreover, the deal underscores the quality of Singtel’s RDC portfolio and its growth potential, as evident from KKR’s recent acquisition of CyrusOne, a larger and more stable global data center operator, at a comparable EV/EBITDA multiple.
The divestment of the RDC business is part of Singtel’s capital recycling strategy, which has already generated approximately SGD4 billion. The company intends to further optimize its holdings in regional associates to generate additional capital. With the proceeds from the RDC stake sale and other capital recycling initiatives, Singtel expects to have SGD2-3 billion of excess cash after accounting for ongoing growth initiatives and 5G capital expenditures. In light of this, it is anticipated that Singtel may consider a special dividend.
