Will Keppel ditch weakening M1 as it aims to go private?

The reported stake disposal signals more trouble for the wireless operator.

Bloomberg reports that Keppel is said to be engaged in negotiations with Singapore Press Holdings over a buyout offer for embattled telco player M1.

The companies have reportedly reached out to M1’s biggest shareholder, Malaysian carrier Axiata Group, about the potential transaction. The three parties earlier explored a possible sale of their combined 61.5% stake in M1 but talks were called off in July 2017 after failing to meet the criteria set.

Although no deal has been finalised and the companies have yet to issue specific deal terms, Keppel is likely to divest its stake in M1, said Fitch Solutions, as the wireless operator bears the growing pressure of the looming arrival of new competitors. In fact, M1 could book revenue losses of around 1.3% over 2017-2022, according to a research note by DBS Equity Research, given its dependence on the Singapore market and lack of geographical diversification. 

“Whilst the emergence of disruptive MVNO Circles.Life on its network had mitigated M1’s revenue declines, the keenness of its shareholders to divest their stakes is the clearest sign that the telco’s business, in its current form, is not sustainable,” the research firm said in a note.

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Keppel, which owns about 19.3% of M1 through its listed subsidiary, Keppel Telecommunications & Transportation Ltd., is forecasted to emerge better off from the planned divestment. “A disposal will allow Keppel to offload a non-core business, whilst allowing M1 to benefit from a clearer business strategy with less shareholder interference,” Fitch Solutions added.

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Keppel’s stake in M1 is expected to lure a wide pool of bidders as the wireless operator’s market cap stands at around 21.3% lower than the point at which the potential sale was called off in 2017.

The stake sale could also help Keppel raise funds as it seeks to privatise its data centre and logistics arm in line with its corporate strategy that allows for greater ease of management and resource allocation. The parent company last tried to privatise Keppel T&T in 2002, although the deal eventually fell through.

Keppel’s stake in M1 was valued at $291.5m (US$213.7mn) when the announcement was made, with the telco contributing $25.4m (US$18.6mn) in the 2017 calendar year to the Keppel T&T unit, data from Fitch Solutions show.