February 8, 2003

Son shines over Optus profit
Analysis by Eric Ellis, Singapore

IT has taken two painful years, $30 billion of its capitalisation and almost two-thirds of its share price, but Singapore Telecom is finally seeing some daylight from its expensive Australian unit, Optus.
Yesterday's news that Chris Anderson's team in Sydney had finally turned a profit, albeit a modest $22 million, has delivered a much-needed tonic for SingTel chief executive Lee Hsien Yang, the youngest son of Singapore's political strongman Lee Kuan Yew.
Lee junior and his Government-owned SingTel has been at the forefront of Singapore Inc's efforts to diversify itself away from the controlled economy his father helped build, which has been in and out of recession since the jolt of the Asian financial crisis of 1997-98.
At $15 billion, Optus was Singapore Inc's biggest-ever foreign deal. Appropriately enough, it was a Lee who was entrusted by his government masters at the powerful state holding company Temasek with making the experiment work - and convincing Mr and Mrs Singapore, saddled with under-performing SingTel stock since its 1995 partial-privatisation, that big buying offshore is a smart idea.
While Optus's better numbers yesterday have been welcomed, they are not yet a vindication of Lee's $20 billion spending spree, which also included a large share of the risky Indonesian mobile operator, Telkomsel.
Nevertheless, the sigh of relief that the Australian division was at last in the black was almost audible around SingTel's head office. The rumours that Lee might soon be moved will likely dissipate as Singapore's government-controlled media hail this week's numbers from Australia.
Lee will move forward from here, but keeping Optus profitable remains just as much of a challenge.
Singtel's share price remains mired at close to record lows and the telco is laden with debt from its acquisitions. SingTel's domestic market, where its cashflow mountain is built, is being worn away by de-regulation.
Many analysts contend that Optus's $15 billion price tag was about 50 per cent too much. They say a bigger figure than $22 million in earnings is needed to convince grumpy shareholders, their holdings down 60 per cent since the Optus deal was conceived, that the Australian foray was worth the pain that went into it.

But for a son with a more demanding dad than most, yesterday was a good day.