Singtel demonstrated its commitment to further enhance shareholders’ value by returning a total of S$4.1 billion to shareholders for the year ending 31 March 2004, comprising a final dividend and a cash distribution via capital reduction.
In September 2004, Singtel underwent a capital reduction and cash distribution exercise. The capital reduction was approved by shareholders at an extraordinary general meeting in July 2004 and later by the Singapore High Court. Shareholders received the cash distribution in September 2004.
Through the capital reduction, one share was cancelled for every 14 Singtel shares held by shareholders. There were no cancellation for shareholders who held less than 14 Singtel shares.
For each Singtel share cancelled, shareholders received S$2.36 based on the average closing prices of Singtel shares traded on the Singapore Exchange from 27 April 2004 to 3 May 2004 (both dates inclusive), 3 May 2004 being the latest practicable date prior to the date of Singtel's announcement of the capital reduction. The equivalent amount in Australian Dollars was paid to holders of Chess Units of Foreign Financial Products relating to shares of Singtel (applicable exchange rate of S$1.20012:A$1).
Frequently Asked Questions
- Why did Singtel carry out a capital reduction?
Singtel’s rationale for this capital reduction exercise was to optimise its capital structure and to enhance value for its shareholders. The company had said earlier that with regard to cash proceeds from exceptional items, such as divestments of non-core assets, it would consider various capital management strategies After the capital reduction, the Group’s financial position remained strong with leverage at a comfortable level. Healthy cash flow generation is expected to support debt repayments and fund new business opportunities.
- How did Singtel decide on a ratio of one share to be cancelled for every 14 shares held?
Singtel assessed its funding requirements and decided to return S$3.0 billion to shareholders. Based on a share price of S$2.36, this resulted in the cancellation of 1.3 billion shares or 7.1% of Singtel’s earlier issued share capital of about 17.9 billion shares. The ratio of one share for every 14 held was equivalent to about 7.1%.
- How was the purchase price of S$2.36 determined?
The price of S$2.36 as cash distribution for each share cancelled was based on the average closing prices of Singtel shares traded on the SGX-ST from 27 April 2004 to 3 May 2004 (both dates inclusive) (3 May 2004 being the latest practicable date prior to the date of the announcement of the capital reduction).
- How have I, as a Singtel shareholder, benefited from this?
Singtel shareholders benefited from this capital reduction as:
Singtel’s earnings per share was expected to improve as the number of issued shares decreased after the reduction. Each shareholder's proportionate ownership and voting rights in the company remained substantially unchanged.
The capital reduction enabled Singtel to optimise its capital structure, i.e., achieve a better mix of debt and cash. Having an optimal capital structure enables the company to generate the most efficient level of returns from its capital resources, thus benefiting shareholders.
- Where did the funds come from?
The capital reduction was financed using proceeds from the sale of non-core assets undertaken in FY04, cash on deposit and cash and bank balances of the Group. During FY04, Singtel fully or partially divested its interests in Belgacom, SingPost and its directory advertising businesses, raising a total of S$3.3 billion.
The Directors were of the opinion that post the capital reduction exercise of S$3.0 billion, the Group will still have sufficient resources to fund its near-term operating and investment needs.
- Will I have to pay tax on proceeds from the capital reduction?
Generally, for shareholders resident in Singapore , the proceeds should be regarded as a return of capital (and not as the payment of a dividend). Shareholders are generally not subject to Singapore tax on return of capital unless they are traders in securities or have classified their investments as trading stocks, marketable securities or short-term investments.
For shareholders resident in Australia who hold Singtel shares on capital account, that is, not on revenue account, with a profit-making intention or as trading stock, the capital reduction should, for Australian income tax purposes, be regarded as a capital gains tax event (and not as the payment of a dividend), as confirmed in the class ruling CR2004/74 issued by the Australian Tax Office on 14 July 2004. Shareholders must determine whether they have made a capital gain or loss as a result of the capital reduction.
The above statements should not be regarded as advice on the tax position of any shareholder. Shareholders who are in doubt as to their tax positions or who may be subject to tax in a jurisdiction outside Singapore or Australia should consult their own professional advisers.
- How did the capital reduction affect the Company’s franking credits accumulated under Section 44 of the Income Tax Act?
The capital reduction had no impact on Singtel's franking credits as the cash distribution was made out from Singtel’s contributed capital and not from its section 44 balance.
- How many Singtel shares did I end up with after the capital reduction?
Shareholders were notified of their shareholdings in the company after the completion of the capital reduction exercise. Group A and ST2 shareholders were notified by CPF of the number of shares held after the capital reduction. New holding statements were also issued to holders of CUFS.
