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Rating Action:

Moody's assigns A1 rating to Singtel Group Treasury Pte. Ltd.'s proposed USD 10-year notes; outlook negative

03 Jun 2020

Singapore, June 03, 2020 -- Moody's Investors Service has assigned an A1 rating to the proposed 10-year, USD benchmark backed senior unsecured notes to be issued by Singtel Group Treasury Pte. Ltd. (SGT), with an unconditional and irrevocable guarantee from Singapore Telecommunications Limited (Singtel, A1 negative). The notes will mature in 2030.

The rating outlook is negative.

RATINGS RATIONALE

The notes are being issued under SGT's SGD10 billion Euro Medium-Term Note (MTN) Programme. All debt under this programme ranks pari passu with all other unsubordinated and unsecured obligations of SGT and Singtel. The proceeds will be used for refinancing and general corporate purposes.

"We expect Singtel will use all of the bond proceeds to refinance maturing debt, and as such impact on leverage will be neutral. This bond issue will also extend Singtel's debt maturity profile and further strengthen its liquidity position," says Nidhi Dhruv, a Moody's Vice President and Senior Analyst.

As at 31 March 2020, Singtel has about SGD4.0 billion in debt (including lease liabilities) maturing over the next 12 months. However, refinancing risk is manageable given the company's demonstrated strong access to the bank and bond markets.

Moody's expects Singtel's net adjusted leverage will remain elevated at 2.4x-2.5x over the next 12 months, reflecting operational challenges from the protracted coronavirus outbreak, increased competition in its core markets of Singapore and Australia, high levels of capital spending, and a commitment to shareholder returns.

"We do not expect a meaningful improvement in Singtel's underlying EBITDA over the next 12-18 months, as intense price competition in Singapore and Australia continues to drive lower average revenue per user (ARPU) and profitability in both markets," says Dhruv, also Moody's Lead Analyst for Singtel.

Singapore and Australia contributed 39% and 43%, respectively, of Moody's-adjusted EBITDA under the income method (based on the sum of its core EBITDA from Singapore, Australia, other overseas subsidiaries, and the share of its associates' post-tax profit excluding exceptional items) during the year ended March 2020.

While Singtel could explore alternative funding options -- including sale of non-core assets, listing some of its new businesses, and potentially also raising fresh equity -- to strengthen its capital structure and credit profile, the timing and execution of such initiatives is unclear.

Singtel's A1 rating continues to combine (1) its a3 baseline credit assessment (BCA), reflecting the company's underlying strength, derived from its well-established and geographically diversified business platform; and (2) the credit support that Moody's believes Temasek Holdings (Private) Limited (Aaa stable), which owns 52.5% of Singtel, is likely to provide in a distressed situation, which results in a two-notch uplift from its BCA.

The rating also considers the following environmental, social and governance (ESG) factors.

Despite having a majority shareholder, governance risk for Singtel is largely mitigated because of the oversight provided by a board that consists of 7 independent directors out of a total of 10 directors. Singtel is also listed on the Singapore Stock Exchange and abides by the exchange's prevailing laws and regulations.

The negative outlook reflects Singtel's weak credit metrics for the A1 rating level, with limited potential for near-term improvement in the company's underlying profitability. The negative outlook also reflects uncertainty around the timing and execution of potential capital restructuring plans.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

The rating could be downgraded if Singtel's operating and financial profile remains weak, such that adjusted net debt/EBITDA (based on cash dividends being added back to core EBITDA) remains in excess of 2.0x, or its EBITDA margin remains below 30% on a sustained basis.

Downward pressure could also result if the company undertakes further material capital returns in the near term, especially in conjunction with a cash/debt-funded acquisition, or if there is evidence of a weakening in the operating results of the company's core operations or in the cash dividends it receives from its overseas associates.

In addition to the factors listed above, Singtel's rating could also be downgraded in case of material changes in the ratings of its support provider, Temasek, or if Temasek reduces its shareholding in Singtel to below 50%. Industry developments that materially undermine Singtel's relationship with the government could also strain the ratings.

Given the negative outlook, upward pressure on the rating is unlikely. Nevertheless, Moody's could change the outlook to stable if Singtel's overall profitability improves, coupled with an absolute reduction in its borrowings, such that adjusted net debt/EBITDA (based on cash dividends being added back to core EBITDA) falls below 2.0x on a sustained basis, and its adjusted EBITDA margin remains within the 30%-35% range.

The methodologies used in this rating were Telecommunications Service Providers published in January 2017 and available at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1055812, and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Singtel is the leading integrated communications services provider in Singapore. It is also the second largest integrated telecommunications operator in Australia through its wholly owned subsidiary, Singtel Optus Pty Limited (A2 negative).

Singtel also has a number of investments in cellular operators throughout the region, which give it a regional footprint across 21 countries, covering around 700 million mobile subscribers as of 31 March 2020. Singtel is 52.5%-owned by Temasek Holdings (Private) Limited, which is wholly owned by the Singapore government (Aaa stable).

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Nidhi Dhruv, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Ian Lewis
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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