(The following was released by the rating agency)
Overview
-- We have revised our assessment of the likelihood of
extraordinary support for Singapore Telecommunications Ltd.
(SingTel) from the Singapore government to "moderate" from
"low."
-- However, we have also lowered our stand-alone credit
profile on SingTel to 'a' from 'a+'.
-- We are affirming our 'A+/A-1' corporate credit rating on
Singapore Telecommunications Ltd.
-- The stable outlook on the long-term rating reflects our
expectation that SingTel will continue to generate significant
free cash flows in Singapore and Australia, together with
growing dividend payments from its associates, while maintaining
a "modest" financial risk profile.
Rating Action
On Aug. 22, 2012, Standard & Poor's Ratings Services
affirmed its 'A+' long-term and 'A-1' short-term corporate
credit ratings on Singapore Telecommunications Ltd. and its
related debt issues and programs. The outlook remains stable.
Rationale The ratings affirmation reflects a change in our
assessment of the likelihood of extraordinary government support
for SingTel to "moderate" from "low," and the lowering of our
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 our
expectations for the 'a+' SACP in the next two years.
We believe persistent 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, including funds from operations
(FFO) to debt maintained in the 45%-50% range in the next two
years. 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 our criteria for rating
government-related entities (GREs), we have revised our
assessment of the "link" between SingTel and the government of
Singapore (unsolicited rating AAA/Stable/A-1+; axAAA/axA-1+) to
"strong" from "limited." This reflects our expectation that
Temasek Holdings (Private) Limited (AAA/Stable/A-1+), a
Singapore government-owned entity that holds 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. Nevertheless, we still
believe that SingTel's role continues to have "limited
importance" to the Singapore government, as defined by our GRE
criteria. Given this assessment, we consider there to be a
moderate likelihood that the government of Singapore will
provide extraordinary support to SingTel in times of financial
stress.
However, we don't expect this extraordinary GRE support to
flow to SingTel's Australian subsidiary, SingTel Optus Pty Ltd.
(See separate report on SingTel Optus for further discussion.)
Despite the weaker SingTel SACP, we consider that the group's
stand-alone credit quality remains strong, underpinned by the
group's significant operating diversity across a number of
regional telecommunications markets, its favorable business
position in its core markets, and its "modest" financial risk
profile, as defined in our criteria. Strong competition in
SingTel's markets, regulatory risks, the significant capital
demands associated with technological change, and the increasing
contribution from more competitive markets and services to the
group's earnings temper these strengths.
Base-case forecasts In our base-case scenario, we expect
SingTel's ratio of FFO to debt to range 45%-50% in the next two
years. This is based on our assumption of relatively flat
earnings growth from the Singapore and Australian operations for
the fiscal year ending March 2013. We have factored in strong
competition in both markets, a modest increase in dividends from
associates, spectrum payments, and further material capital
investment in new growth products and services. As a result, we
expect FFO to debt to remain at or below the 48.9% recorded for
the year ended March 31, 2012, which we consider as more
consistent with the 'a' SACP. The forecasts, however, do not
factor in any proceeds from the proposed divestment of at least
75% of Netlink Trust, the business trust established to hold
certain infrastructure assets used by OpenNet under the
Singapore NextGen NBN project. SingTel has committed to sell
down this stake by April 2014, but this divestment remains
subject to shareholder approval and is dependent on market
conditions.
Furthermore, we believe that the potential credit benefits
from the sale will be tempered by the loss of high quality
network revenues. Liquidity The short-term rating on SingTel is
'A-1', reflecting the long-term issuer credit rating and our
assessment of SingTel's liquidity as "strong," as defined in our
criteria. Our liquidity assessment is based on our expectation
that the group's sources of liquidity (including FFO, undrawn
bank facilities, and cash) in the next 12 months will be
sufficient to cover its uses of liquidity (including capital
expenditure and ordinary shareholder distributions) by more than
1.5x.
As of June 30, 2012, SingTel had a cash balance of about
Singapore dollar (S$) 1.4 billion, and short-term debt of S$138
million. SingTel has also maintained its excellent access to the
capital markets in recent years despite the weakness in global
capital markets. Outlook The stable outlook reflects our
expectation 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. We 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%. We 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,
we may downgrade SingTel if we lower our expectation of
extraordinary government support to low from moderate. We 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. We may also raise the rating if our view
of the likelihood of extraordinary support from the Singapore
government materially increases.
(Reporting by Wayne Cole)
Source: http://news.yahoo.com/text-p-affirms-singtel-1-ratings-stable-outlook-044114322--finance.html
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