Singapore, August 15, 2012 -- Moody's Investors Service has today downgraded Singapore Telecommunications
Limited's ("SingTel") senior unsecured ratings to Aa3
from Aa2. At the same time Moody's has downgraded to Aa3
from Aa2 all notes issued by SingTel Group Treasury Pte. Ltd,
under the unconditional and irrevocable guarantee of SingTel.
The rating outlook remains stable.
RATINGS RATIONALE
"The downgrade reflects a weakening in key financial parameters
-- Debt/EBITDA, RCF/Debt and FCF/Debt -- over the last
year, fueled by rising absolute debt levels and a willingness by
the company to re-leverage its balance sheet," says
Nidhi Dhruv, a Moody's Analyst, and also Lead Analyst for
SingTel.
The downgrade action is driven by SingTel's fundamental rating factors,
and does not reflect any change in Moody's assumption of support
from Temasek Holdings (Pte) Limited (Temasek, rated Aaa).
"SingTel's leverage is now embedded at levels viewed as high
for the rating level as the company's focus moves away from absolute
debt repayment to higher shareholder returns. We expect net debt/EBITDA
to remain at or above 1.5x over the near to medium term,
which is no longer consistent with the previous rating of Aa2,"
adds Dhruv.
At the same time, the higher dividend payout and special dividend
paid in FY2012 has resulted in substantially lower RCF/Debt metric of
13% for FY2012 as compared to 38% for the previous year.
Higher payouts - specifically the special dividend - coupled
with high capex have resulted in SingTel moving to a negative free cash
flow position.
"In Moody's view, SingTel's commitment for higher
shareholder returns, coupled with the ongoing need to invest in
its businesses will lead to ongoing pressures on free cash flow,"
says Dhruv.
Higher dividend payouts also come at a time when the company's revenue
mix is changing to reflect its expanding low margin data business.
SingTel has embarked on a strategy of making bolt-on information,
communication and technology (ICT) acquisitions to diversify revenue away
from the saturating voice market, and such businesses are by their
very nature margin dilutive.
"Furthermore, funding for the 4G spectrum auctions in Singapore
and Australia in 2013/2014 is likely to call for further borrowings.
Accordingly, SingTel's commitment to higher dividends may
mean that it will need to fund the spectrum auctions substantially through
debt," adds Dhruv.
Although Moody's notes that the company's near-term
focus is to monetize non-core investments, Moody's
also expects that proceeds from such asset sales will be used for making
bolt-on acquisitions or returns to shareholders as dividends.
"Repositioning the rating at Aa3 allows SingTel the required flexibility
to maintain its net leverage at 1.5x, maintain shareholder
returns at the high end of its range, pursue its strategy to invest
in other businesses, and make small acquisitions in related areas,"
adds Dhruv.
Notwithstanding SingTel's relatively high debt levels, operationally
SingTel remains strong, particularly fuelled by rising mobile revenue
growth in Singapore where it operates a fully integrated platform;
it also benefits from a regionally diverse portfolio of cellular telecommunications
operators. The company maintains an excellent liquidity profile
supported by its very strong access to bank and debt capital markets,
as evidenced by ongoing debt raisings over the past year, which
have lengthened its debt maturity profile with over 50% of its
debt maturing beyond 5 years. SingTel also maintains solid interest
cover metrics which are in line with its Aa3 rating.
SingTel's senior unsecured rating continues to combine: a) the company's
underlying strength, derived from its well-established and
geographically diversified business platform; and b) the credit support
that Moody's believes Temasek, which owns 55%, is likely
to provide in a distress situation.
The outlook remains stable, reflecting the core strength of SingTel's
underlying business, sound operating profile, and healthy
liquidity.
SingTel's fundamental credit strength may experience upward pressure
if overall profitability improves, coupled with paring down the
debt in absolute terms, such that adjusted EBITDA margins are in
excess of 35-40%, and net debt/EBITDA (based on cash
dividends being added back to core EBITDA) falls below 1.3x on
a consistent basis.
Downward pressure on the underlying rating would occur if SingTel's
leverage metrics weaken further, such that adjusted net debt/EBITDA
is in excess of 1.75x.
Downward pressure could also build if the company undertakes further material
capital returns in the near term, potentially in conjunction with
a cash/debt-funded acquisition, and/or there is evidence
of prospective weakness in operating results within the company's increasingly
important Australian operation or in cash dividends received from overseas
associates. A weaker EBITDA margin of below 30% on an ongoing
basis would also pressure the rating.
In addition to the factors listed above, SingTel's rating may also
be impacted by material changes in the ratings of its support provider,
Temasek. Likewise, the rating may be affected should Moody's
assess it likely that there will be support changes, or industry
developments that materially undermine SingTel's relationship with the
government -- these would include a reduction in Temasek's
shareholding below 50%.
The principal methodology used in rating SingTel was the Global Telecommunications
Industry Methodology published in December 2010. Please see the
Credit Policy page on www.moodys.com for a copy of this
methodology.
SingTel is the leading integrated communications services provider in
Singapore, and, through its wholly owned subsidiary SingTel
Optus Pty Limited, is the second largest integrated telecommunications
operator in Australia. SingTel also has a number of investments
in cellular operators throughout the region which give it a regional footprint
in 26 markets and access to 462 million mobile subscribers as of 30 June
2012.
SingTel is 55% owned by Temasek - which in turn is 100%
owned by the Singaporean government.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
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this announcement provides relevant regulatory disclosures in relation
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this announcement provides relevant regulatory disclosures in relation
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rating action for securities that derive their credit ratings from the
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this announcement provides relevant regulatory disclosures in relation
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Nidhi Dhruv
Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
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Singapore 48623
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Philipp L. Lotter
MD - Corporate Finance
Corporate Finance Group
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Moody's downgrades SingTel to Aa3; outlook stable
