“We downgraded ST Engineering given the company’s growth appetite will keep its debt level elevated for at least the next two to three years,” S&P said in a statement Wednesday.
“Following the TransCore transaction, our view of ST Engineering’s stand-alone creditworthiness has been significantly weakened by a notable increase in the company’s leverage tolerance,” S&P said.
The ratings agency noted the acquisition will nearly triple ST Engineering’s debt to S$5.3 billion in 2022 from S$2.1 billion at end-2021.
While the acquisition of TransCore will give ST Engineering’s portfolio a new product offering in the smart mobility segment as well as geographical diversification in the U.S., the benefits will take time to materialize, S&P said.
“The slow recovery in the aviation industry is likely to hinder any meaningful deleveraging, and the company’s sizable debt burden will weigh on its balance sheet over the next one to two years,” the ratings agency said.