Moody’s downgrades Singtel ratings to A1; outlook stable

SINGAPORE — Despite raising about S$2.3 billion from the 75 per cent divestment of its broadband unit NetLink NBN Trust through an initial public offering (IPO) this week, Singapore Telecommunications has been downgraded by rating agency Moody’s Investors Service.

Moody’s said on Friday (July 21) it cut Singtel’s senior unsecured ratings to A1 from Aa3. The rating outlook remains stable, it added.

“The downgrade reflects continued weakening in Singtel’s key financial parameters - Debt/EBITDA (earnings before interest, tax, depreciation and amortization) and RCF (retained cash flow)/Debt - over the last two years, fuelled by rising absolute debt levels and a willingness by the company to lever up its balance sheet to a level inconsistent with the Aa3 rating,” said Moody’s Vice President and Senior Analyst Nidhi Dhruv.

Moody’s said even if Singtel fully deployed its proceeds from the NetLink IPO for debt reduction, this would be insufficient to bring the company’s leverage below the thresholds set for its previous Aa3 rating. It remains unclear how much of the NetLink divestment proceeds will be used by Singtel towards the permanent reduction of debt.

“Given its funding needs, including spectrum payments and the acquisition of (advertisement technology firm) Turn for S$439 million, impending operational challenges in Singapore and Australia, increased competition in key operating markets, and a commitment towards high shareholder returns, the company will not be able to reduce debt organically through incremental EBITDA within the next 12 to 18 months,” added Ms Dhruv, who is also Moody’s lead analyst for Singtel.

Singtel’s investments in its digital businesses are yet to breakeven. The company expects Amobee, a significant contributor to its digital business, to achieve EBITDA breakeven in the current fiscal year.

On the other hand, Singtel holds sizeable equity stakes in a number of regional mobile operators. The value of such investments was about S$32.8 billion as of its last reporting date (March 2017), significantly higher than its adjusted total debt of around S$14.8 billion, Moody’s noted.

“While the unrealized value of these investments provides a significant additional source of alternative liquidity in a stress scenario, we do not expect Singtel to monetize these investments to reduce debt levels,” said Ms Dhruv.

The rating outlook remains stable, reflecting Moody’s expectation that Singtel will maintain the competitive strength of its operations in Singapore and Australia, its gradually deleveraging profile and its healthy liquidity.

The rating outlook remains stable, reflecting Moody’s expectation that Singtel will maintain the competitive strength of its operations in Singapore and Australia, its gradually deleveraging profile and its healthy liquidity.

Following the Moody’s downgrade, SingTel said its credit ratings and those of its fully-owned Australian unit Optus continue to be strong among peers in the global telecommunications industry.

“Singtel and Optus remain financially-disciplined in our approach to investments and are committed to maintaining our investment-grade credit ratings,” a Singtel spokesperson said.

Singtel is 52 per cent owned by state investment firm Temasek Holdings. Singtel shares rose 0.8 per cent to close at S$3.91 on Friday, giving them a one-year return of negative 3.4 per cent, Bloomberg data showed.