SingTel Debt Ratings Affirmed on Singapore Government Support
Standard & Poor's has affirmed its 'A+' long-term and 'A-1' short-term corporate credit ratings on Singapore Telecommunications (SingTel) and its related debt issues and programs. The outlook remains at stable.
The rating affirmation reflects their improved assessment of the likelihood of extraordinary government support for SingTel to "moderate" from "low," and the lowering of the stand-alone credit profile (SACP) on the company to 'a' from 'a+'.
Standard & Poor's lowered the SACP because it believes SingTel's financial risk profile will remain below expectations for the 'a+' SACP in the next two years.
"We believe competition in SingTel's core markets and the capital demands from investing in new products and services to complement the group's traditional telecommunication services will cause the group's financial risk profile to remain more in line with the 'a' SACP," said Standard & Poor's credit analyst Paul Draffin. "In addition, we expect the group's contributions from associate investments to continue to grow, which would shift the group's asset and earnings mix to entities and geographies that generally have lower credit quality than the group's core Singapore and Australian operations."
In accordance with its criteria for rating government-related entities (GREs), S&P has revised its assessment of the "link" between SingTel and the government of Singapore to "strong" from "limited." This reflects expectation that Temasek Holdings, a Singapore government-owned entity that owns 54% of SingTel, will remain a majority shareholder in SingTel in the next three to five years.
"Our previous assessment of this link as "limited" reflected a 2003 U.S. trade agreement letter indicating that the Singapore government would divest its stake in SingTel. However, in our view, it is unlikely that Temasek will divest SingTel in the next few years," Mr. Draffin said.
Nevertheless, they still believe that SingTel's role continues to have "limited importance" to the Singapore government, as defined by their GRE criteria. Given this assessment, S&P considers there to be a moderate likelihood that the government of Singapore will provide extraordinary support to SingTel in times of financial stress.
The stable outlook reflects expectations that SingTel will continue to generate significant free cash flows in Singapore and Australia, together with growing dividend payments from its associates. These cash flows, together with the group's balanced approach to shareholder returns and capital investment, should underpin the group's modest financial risk profile and overall credit profile.
S&P said that it may lower rating if SingTel's shareholder returns or additional debt-funded investments weaken its credit measures, such that the group sustains a ratio of FFO to debt materially below 45%. They may also lower the rating if the overall quality of the group's cash flows materially declines without a commensurate improvement in its financial risk profile. This may occur with further growth in SingTel's associate investments that have weaker credit characteristics than the group's core businesses in Singapore and Australia. In addition, S&P may downgrade SingTel if we lower our expectation of extraordinary government support to low from moderate.
The ratings agency may raise the rating if the group's financial risk profile improves sustainably -- such as FFO to debt remaining above 50%, supported by a robust financial policy framework--while generating strong and significant cash flows from its core Singapore and Australian operations. They may also raise the rating if their view of the likelihood of extraordinary support from the Singapore government materially increases.