Singapore Corporate News - 7 Apr 2008

Cancelled Optus deal a blow to SingTel

EARLY last week, newspapers here carried small reports on a cancelled project of Optus, the Australian unit of Singapore Telecommunications.

They said that as a result of the Australian government termination, the A$16 million (S$xx million) which Optus had already spent on the A$1.9 billion broadband network, would be written off, with negligible impact on SingTel for the year ended March 31.

In Australia, the news made much bigger headlines mainly because the cancelled project was seen as a casualty of the changes in the country's political landscape. What the Rudd government did was to axe a A$958 million funding agreement signed by its predecessor last September with Opel Networks, 50 per cent owned by Optus. The project was aimed at building a faster broadband network for almost 900,000 underserved households in rural and remote areas.

Optus, Australia's second largest telco, had worked on the project some two years now. It submitted a bid in August 2006 and was declared winner of the tender in June last year in a bitterly fought contest against Telstra, the country's biggest telco.

Telstra, in fact, continued the battle even after the tender was awarded, making legal challenges. It only recently ended its court attempt to access official documents through which it said it hoped to show how the former government had awarded Opel the contract. Telstra had also argued that the project would have overlapped with its existing network.

Communications Minister Stephen Conroy, when he was in the Opposition, had been vehemently against the project. He said that the decision to cancel was based on the Department of Communications's assessment that Opel would not achieve coverage requirements.

Optus has naturally protested that the coverage requirements in the contract would be met and has offered to have an independent party audit Opel's coverage. It also said that three successive attempts to meet the Department Secretary were ignored.

The Sydney Morning Herald said that some 100 staff had been working on the project for two years and Optus was to have funded the bulk of about A$900 million needed to set up Opel.

A furious Paul O'Sullivan, chief executive of Optus, said that the two companies had invested significant resources in the project and it was simply unacceptable to have the contract terminated in this fashion.

He said that the decision would dent confidence about future tender processes. He also reportedly said that Optus would be seeking detailed assurances from the government before participating in the upcoming A$8 billion national broadband network before it could commit to bidding for the right to build it.

The rural broadband network could potentially have given Optus a shot at attracting 900,000 more customers. In addition, it could have earned revenue from the new network by wholesaling to other operators at prices 30 per cent lower than existing levels.

While there are no projections of how much Optus could have earned from the project, it is likely to have been significant. For many quarters now, Optus has been struggling to increase revenue and profit in a very competitive market. For the third quarter ended Dec 31, 2007, it posted an increase in operating revenue of 3.6 per cent to A$2 billion.

While the write-offs from the cancellation of the project is negligible for the group, which posted operating revenue of A$10 billion for the past three quarters, that does not include the time and energy expended over the last two years. That must have been considerable, and now there's nothing to show for it.

Optus did say that it is considering all options but it is really not feasible to fight the government, at least not without spending more precious time and money.

The latest development Down Under is a big blow to SingTel which paid S$13 billion for Optus in 2001. Optus makes up about two-thirds of SingTel's revenue and one-third of its profit.

Winning the tender last year had been regarded as something of a coup as Optus has constantly had to fight Telstra every step of the way - not just in landing the bid - but in trying to retain market share. A JP Morgan note said that the termination is a setback for the group as the deal would have otherwise strengthened Optus against Telstra.

Still, the market seems to have shrugged off the termination. SingTel's stock price ended Friday at $3.95, a level it has been trading at for the last two weeks. Perhaps, it is now hoping that SingTel would instead be more inclined to deliver a bigger dividend to shareholders.

Olam looking to expand by acquiring firms

SINGAPORE-BASED agriculture products supplier, Olam International, plans to start new businesses and acquire companies which would contribute about 40 per cent of revenue growth in the next six years.

The company, which supplies ingredients to some of the world's top food firms like Nestle, has bought eight companies in the last 15 months but refused to comment on talk that it plans to bid for Australia's Dairy Farmers.

The Australian milk and cheese producer is owned by some 2,000 local farmers and put itself up for sale in February.

It has received an offer from Australia's dairy and juice producer National Foods, owned by Japanese brewer Kirin Holdings, that values the firm at US$920 million.

'Our acquisition guideline is to make acquisitions not larger than 10 per cent of our market capitalisation. But that doesn't mean we would not go for a bigger target,' Olam chief executive Sunny George Verghese told Reuters in an interview last Friday.

Mr Verghese said the company's recent plan for a $307 million preferential share sale would allow it to raise up to $1.6 billion in new debt which could then be used for acquisitions and funding of the existing business.

He said the US$2.8 billion company, that aims to deliver compound annual growth of up to 20 per cent in revenue and up to 30 per cent in net profit, would be comfortable with a net gearing of five times, which would mean about $4.5 billion in total debt.

Olam would make acquisitions in countries where the regulatory environment makes organic growth difficult and go to large countries, like China, where it expects opportunities from deregulation.

Jade Tech now a designated stock after bid aborted

SGX yesterday declared Catalist-listed Jade Technologies a designated security, prohibiting any selling of the shares unless the seller can show he holds sufficient quantities.

SGX said the condition was not applicable to shares that have been bought on contra, adding the designation was to ensure 'orderly trading' in the market.

Investors are fearing a heavy selldown after Jade's group president Anthony Soh pulled the plug on his takeover bid for the company on Saturday, admitting that with two-thirds of his shares in Jade pledged to a failed Australian broker, he was no longer able to guarantee sufficient funds were available to facilitate the offer.

Dr Soh yesterday confirmed in an interview with BT that the offer is under internal investigation by the Securities Industry Council. The role of OCBC Bank, which quit as financial adviser to the offeror on April 1, when the storm broke, may also be reviewed.

SGX said shareholders who had accepted the offer from Dr Soh will have their shares transferred back to their accounts today when trading resumes. Trading has been halted since Wednesday.

Early last month, Dr Soh made a 22.5 cents a share conditional offer for Jade, stating he owned about 46.5 per cent of the company. Last week, it emerged he had pledged two-thirds of his stake, or about 30.5 per cent of Jade's share capital, to Australian broker Opes Prime as security for margin loans.

But under the agreement, ownership of the shares may already have passed to Opes and when it failed, on to its secured creditors. Dr Soh and other clients of Opes claim they believed their shares had only been pledged and that they retained beneficial interest but Opes is now known to have lent those shares to banks as security for financing.

With a much smaller shareholding than thought, Dr Soh said he could not guarantee he had the extra $67 million to satisfy full acceptances of the offer.

Dr Soh told BT that Opes had operated what seemed a very attractive lending regime, providing 60 per cent credit on the value of even small cap stocks. He first pledged about 140 million Jade shares last October and had drawn down the full amount of about $25 million in loans.

When the price of Jade shares tanked in late January, Dr Soh pledged about 150 million more shares to make up the shortfall but did not borrow any more money. 'It was a very fluid arrangement but it came at a very heavy price.'

He said he suspected Opes had been lending shares to third parties after finding out in February that about 40 million of the 295.5 million shares pledged had been moved to another account. Dr Soh visited Melbourne three times in late February and early March to confront Opes's chief executive officer Laurie Emini. 'Each time he said in front of his staff that I was the beneficiary.'

Dr Soh claimed he knew of 'five to 10 other clients of Opes' in Singapore who like him had pledged shares in locally listed companies to Opes to secure financing. He is now taking part in a class action to get compensation. 'There is probably no doubt that I've lost the shares.' Dr Soh put his paper losses at about $40 million.

He said that the fundamentals of Jade have not been affected, adding he was in discussions with a Chinese buyer and a big US investment bank to come in as partners in a coal mining project in Indonesia.

A recent independent report included in the now withdrawn offer for Jade had put the value of the coal concession at about $1 billion.