S&P Global revises Singtel and Singtel Optus outlooks to negative

Singtel retail outlet at Tiong Bahru PlazaSingtel retail outlet at Tiong Bahru Plaza

S&P Global Ratings Wednesday revised the ratings outlook for Singapore Telecommunications and Singtel Optus to negative from stable, citing deteriorating debt metrics.

“We revised the outlook on Singtel to reflect increasing competition in the company’s major operating markets and the concurrent elevated cash needs for capital expenditure and dividend payout,” S&P said in a statement. “The outlook revision also reflects the risk of Singtel’s operating metrics deteriorating, or the company undertaking debt-funded investment or spending more than we anticipate.”

In response, Singtel said in a statement filed to SGX Wednesday: “Singtel and Optus’ credit ratings are strong and we remain financially disciplined and committed to maintaining our investment-grade ratings.”

S&P kept Singtel’s long-term rating at A-plus, due to the telco’s ties to the government of Singapore via Singapore state-owned investment company Temasek holding 52.3 percent of the company. It kept Singtel Optus’ long-term rating at A.

S&P said it expected Singtel’s funds from operations (FFO)-to-debt ratio to fall below 40 percent for the fiscal year ending 31 March 2020, due to declining dividends from the telco’s associates, mainly on the performance of Indonesian associate Telkomsel, which was hit by price competition last year.

The ratings agency said Indonesia’s tariffs have since recovered, and Telkomsel’s earnings have improved, but it still estimated dividends from associates would come in around S$1.2 billion for fiscal 2020, down from S$1.55 billion in fiscal 2019, before recovering to around S$1.4 billion to S$1.5 billion later.

Dividends from associates typically account for 20 percent to 25 percent of Singtel’s adjusted earnings before interest, tax, depreciation and amortization (EBITDA), the statement said.

“The negative outlook reflects a one-in-three chance that increasing competitive pressure and capital expenditures in Singtel’s operating markets could prevent the company’s leverage (FFO-to-debt ratio) from improving above 40 percent over the next 18-24 months,” S&P said.

If the FFO-to-debt ratio doesn’t improve above 40 percent, S&P said it could lower Singtel’s credit rating.

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