Moody’s cuts Singtel ratings outlook to negative on leverage increase

SingTel outlet in SingaporeSingTel outlet in Singapore

Moody’s Investors Service cut its outlook for Singtel’s A1 rating to negative from stable, pointing to the Singapore telco’s increased leverage and weaker earnings outlook.

Leverage, measured by net debt-to-EBITDA, or earnings before interest, tax, depreciation and amortization, has increased to 2.03 times for 2018, reflecting a weaker operating profile in Singtel’s core Singapore and Australian markets, Moody’s said in a statement on Tuesday.

“Moody’s does not expect a meaningful improvement in Singtel’s underlying EBITDA over the next 12-18 months, as intense price competition in Singapore and Australia is leading to lower average revenue per user (ARPU) and profitability in both markets,” Nidhi Dhruv, a senior analyst and the lead Singtel analyst at Moody’s, said in the statement on Tuesday.

In addition, Dhruv expressed concern that Singtel would partially or fully subscribe for its part of its 39.5 percent owned associate Bharti Airtel’s 250 billion Indian rupee (S$4.81 billion or US$3.5 billion) rights issue.

“If Singtel predominantly debt-funds this additional equity injection into Bharti, it would further weaken its metrics and keep net leverage above our tolerance for the rating,” Dhruv said.

Moody’s estimated net leverage could rise to around 2.2 to 2.4 times, which wasn’t within the ratings agency’s expectations for Singtel’s current A1 rating.

In response, Singtel said it “remains financially disciplined and committed to maintaining our investment-grade credit ratings.”

For now, Moody’s has affirmed the A1 rating, citing Singtel’s leading market positions and regionally diversified cash flow, as well as the ratings agency’s expectation that Singapore state-owned investment fund Temasek, which owns 52 percent of the telco, would provide support in a distress situation.

But it added the rating could be downgraded if Singtel’s operating and financial profile remains weak. The outlook could be revised to stable if overall profitability improves and borrowings decline, Moody’s said.

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