Netlink Trust

[activistasia]

I've been very interested since the Axia Netmedia days. One of my best ideas but it didn't run its course.

It used to be that the base infrastructure layer was the dark fibre (Layer 1). And there was a change in 2013 that the man-holes and ducts became the new base layer (Layer 0).

https://www.imda.gov.sg/~/media/imda/fil....pdf?la=en

With the IPO, we can then estimate the value of these man-holes and ducts.

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The market capitalisation of the Trust will be between S$3,091.2 million (based on the Minimum Offering Price) and S$3,593.5 million (based on the Maximum Offering Price) immediately following the close of the Offering (assuming the Over-Allotment Option is not exercised) (see “Capitalisation and Indebtedness”).

In August 2013, the shareholders of the OpenNet consortium agreed to divest all their shares in OpenNet to NetLink Trust for S$126 million.

Why would the shareholders of the OpenNet consortium dispose of their shares for only $126m? I don't think the value of the assets would have increased by such a great magnitude in just 4 years. This suggests the IPO is way overpriced.


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That is because it did not include the dark fibre infrastructure like man holes and ducts. Money from IPO will be used to pay down debt from Singtel but Singtel initially lent NLT the money to buy the dark fibre assets from them. Hence, essentially, the IPO proceed is mainly used to buy these assets.

[tanjm]

The important question to ask is will wireless render wired obsolete? Me think it is a matter of time but it will not come suddenly but with phases of changes. 10 years from today the situation could be v different or there might even be a very revolutionary new tech.

With today technology, wired gives faster and more reliable speeds but wireless is always catching up and the requirement may not be increasing fast enough to make wired more attractive. This is like ppl no longer upgrade their computers as often as there is no need to.

 You will need a technology breakthrough with new formats and system. Right now current technology cannot come close to match wired performance. and with the ever increasing demand for higher bandwidths Will it happen? anybody's guess but nothing on horizon....meaning we are at least 5-10 yrs away or more, or may never happen. The atmosphere is a very poor medium of transfer of airwaves and getting crowded.

There will never be a breakthrough tech that would render wired have less bandwidth than wireless. Wireless is inherently a shared medium, while with wired, you can multiply the bandwidth ad infinitum by laying more cable. Any tech you can apply to wireless (such as broad spectrum, enhanced coding/symbology) can be applied to wired.

The only possible exception is some kind of quantum tech with direct coupling from transmitter to receiver - but that is very very long term - almost science fiction.

I had a brief look at the prospectus. Seems to me that the major risk is regulatory (not business and not interest rates). If the regulators allow netlink trust to price according to cost of capital (which is related to inflation as well) deployed (a common regulatory pricing model for monopolies nowadays) and perhaps cost of debt, then the risk devolves purely on the regulator behavior.

[tanjm]

The $3B question... Why the lukewarm response from institutional investors towards this IPO? What is it about Netlink Trust that they don't like? 

Is it lukewarm at 2x? Given the size of the offering, you'd need a sizable amount of cash going for this. Is there any comparable recent IPO in any Asian market?

[weijian]

Generally, i am not interested in any IPOs - Most IPOs are skewed towards the seller, because they have all the informational and timing edge. But i thought NLT would be worth an effort to take a closer look (not for "punt and sell") simply because Singtel has a mandate/deadline to sell down. Of course, it managed to extend the sell-down date by 4 years (2014 to 2018) in 2013 and there are multiple ways to game the system (eg. load expenses to Singtel prior to listing, before re-drawing all the expenses/obligations to NLT after listing), and it wouldn't be easily evident to OPMIs.

I haven't finished looking at the prospectus, but i have a "deja-vu" feeling of "SMRT" when reading it. As the saying goes, "take care of your customers, whom are your regulator's bosses. And your regulator will take care of you". NLT doesn't have a very good track record so far - (1) Search in google and one can easily see the 1star rating reviews for its residential installation experience. I believe they are using 3rd party but whom you work with, reflects on whom you are. Could it be because of it's given monopoly status? (2) since 2013, it has been fined every year for not meeting the required QoS guidelines, as documented in the prospectus. From IMDA website, the latest assessment is only up to June2016. So, the next review is coming again.

I concur with forum-er tanjm that the key risk is the "behavior of its regulator". The formula+ revision frequency seems to suggest that there may be a reversion to the mean every ~3years in terms of profitability if WACC changes as well. The returns are pretty much "guaranteed" if the formula is consistently followed with no changes. So, what can alter the behavior of the regulator to disadvantage NLT?

[money]

Hi, after having read part of the IPO prospectus (page 78), i realise that in some years like 2016 and 2017 despite the Trust has shown accounting profits of 25m and 70m respectively, yet there is 14m and 8m of tax CREDIT, isnt this unusual? anyone understand why...

[Jacmar]

Results is out. there is a decent level of over subscription. Depending on number of lots applied; get 1 for every 4 applied. go check with your bank. Should open higher then 81 cents i think....

[lonewolf]

I was a little surprised at the 'perceived' allocation (or lack thereof).

Given the size of the offering and the general lack of enthusiasm from the placement tranche, I was expecting most (if not all) to be allocated 'something' but this is not the case. Perhaps the public tranche was heavily over-subscribed.

[WolfT]

I applied for 100k got 25k. DBS
There are in fact a lot of enthusiasm. All my relatives and business associate were like buying and will be buying in the open market if the price is not too high.
Do not underestimate the cash rich Uncle and Aunties. FD too low liao...
Hence I apply some to tikum tikum. Anything more than 6% I will sell for my kopi money.

[karlmarx]

From page 63 and 109 of the prospectus, we can see that Singtel received proceed of about $2.7B from the numerous sale of assets (manholes, ducts, offices) to NLT, and then the sale of the 75% stake of NLT to NetLink NBN Trust.

About $2.2B of the IPO proceeds were used to pay for the assets and the 75% NLT stake, with the remaining $510m loaned from banks. This $2.2B amounts to about 93% of the total IPO proceeds of $2.35B. So IPO subscribers effectively bought out (75% of) Singtel's manholes, ducts, and related offices. Nothing wrong with this, but at what price did IPO subscribers pay?

At an IPO price of 81 cents but with earnings only at 2 cents, we have a whopping p/e of 40. If you look at page 42 where a forecast of 2018 and 2019 is provided, EPU is expected to fall to 1.14 and 1.7, respectively. Will IMDA (the regulator) allow for price increases? Perhaps, but any increase will likely be small. This is because raising prices will also mean retail customers like ourselves has to pay more for our broadband, which is the opposite of what the government wants.

So Singtel, the real winner here, has effectively hedged itself against the emergence of new (wireless) broadband technology over the next 40 years with this IPO. I'm not tech whizz, but I'm guessing we will see new technology in this field in less than 40 years. What then, will the units of NetLink NBN Trust be worth?

Currently, I believe the units of NetLink NBN Trust to be very overpriced.

[MINX]

From page 63 and 109 of the prospectus, we can see that Singtel received proceed of about $2.7B from the numerous sale of assets (manholes, ducts, offices) to NLT, and then the sale of the 75% stake of NLT to NetLink NBN Trust.

About $2.2B of the IPO proceeds were used to pay for the assets and the 75% NLT stake, with the remaining $510m loaned from banks. This $2.2B amounts to about 93% of the total IPO proceeds of $2.35B. So IPO subscribers effectively bought out (75% of) Singtel's manholes, ducts, and related offices. Nothing wrong with this, but at what price did IPO subscribers pay?

At an IPO price of 81 cents but with earnings only at 2 cents, we have a whopping p/e of 40. If you look at page 42 where a forecast of 2018 and 2019 is provided, EPU is expected to fall to 1.14 and 1.7, respectively. Will IMDA (the regulator) allow for price increases? Perhaps, but any increase will likely be small. This is because raising prices will also mean retail customers like ourselves has to pay more for our broadband, which is the opposite of what the government wants.

So Singtel, the real winner here, has effectively hedged itself against the emergence of new (wireless) broadband technology over the next 40 years with this IPO. I'm not tech whizz, but I'm guessing we will see new technology in this field in less than 40 years. What then, will the units of NetLink NBN Trust be worth?

Currently, I believe the units of NetLink NBN Trust to be very overpriced.

You hit the nail on the head, that's why i didn't join in the fun...