Singtel's A+ rating hinges on NetLink divestment: Fitch

SINGAPORE Telecommunication's divestment of fibre broadband infrastructure operator, NetLink NBN Trust, in the latter's upcoming initial public offer (IPO) is key to maintaining its 'A+' rating, but rating headroom remains low, Fitch Ratings said on Wednesday.

NetLink - which owns and operates the passive infrastructure for Singapore's next-generation national broadband network (NGNBN) - expects to raise net proceeds of up to S$2.6 billion from its listing on the mainboard of the Singapore Exchange. The IPO comes ahead of a mandated April 2018 deadline set by the Info-communications Media Development Authority (IMDA) to divest its shareholdings in NetLink to less than 25 per cent.

"Our projections assume Singtel will use S$1.5 billion of the proceeds from the divestment of NetLink towards deleveraging in FY18,'' the credit rating agency said.

It added that the listing was "timely, as the group undergoes heavy capex expansion to drive its mobile and ICT businesses, as well as large spectrum payments in Singapore and Australia".

Singtel expects to spend S$2.4 billion in cash capital expenditure, and another S$1.0 billion in spectrum payments in FY18. Following the IPO, Singtel will continue to hold a less than 25 per cent of NetLink.

The divestment will have a limited impact on Singtel's earnings before interest, tax, depreciation and amortisation (EBITDA). The business trust is already equity accounted at the parent company despite Singtel's 100 per cent-ownership due to the absence of effective control in the trust - in line with IMDA's structural separation requirements for NGNBN, Fitch said.