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Fitch downgrades ratings for Singtel, Optus

FITCH Ratings has downgraded Singtel's long-term foreign- and local-currency issuer default ratings (IDR) and foreign-currency senior unsecured rating to A from A+.

The agency also lowered the long-term foreign-currency IDR and senior unsecured rating of the telco's wholly-owned Australian subsidiary Singtel Optus to A- from A.

Fitch has a stable outlook on the IDRs for both Singtel and Optus.

The ratings downgrade reflects weaker-than-expected growth prospects as well as capital expenditure pressure resulting in higher leverage than previously anticipated, Fitch said.

The agency now expects Singtel's net leverage – defined as FFO (funds from operations) adjusted net leverage – to rise to around 2.5 times in the financial years ending March 2021 and March 2022.

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"A prolonged period of low returns on 5G investments, coupled with the group's shareholder-friendly policies, could delay the pace of deleveraging," Fitch said.

Its projections exclude any sales of non-core assets, given the uncertainties associated with the timing and transaction value.

Growth prospects for Singtel and Optus will remain challenging over the next 12 to 24 months in light of "intense" competition in Singapore and Australia, as well as cautious business sentiment affecting corporate spending, Fitch noted.

Domestic competition will intensify, with TPG Telecom's impending entry as the fourth mobile-network operator in Singapore, as well as TPG's merger with Vodafone Hutchison Australia. Together, the Singapore and Australia markets contributed 71 per cent of Singtel's adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) - including associate dividends - for the nine months to Dec 31, 2019.

Fitch expects group Ebitda to decline by around 10 per cent year-on-year in FY2020 ending Mar 31, and to later recover at a modest rate in the "low- to mid-single digits".

In response to the ratings downgrade, a Singtel spokesman said on Monday: "Singtel and Optus' credit ratings are strong and we remain financially disciplined and committed to maintaining our investment-grade credit ratings," reiterating a point it had made after previous downgrades by other agencies such as Moody's and Standard & Poor's last year.

Separately on Monday morning, Singtel announced it will work with Nokia to develop and trial 5G network slicing capabilities. The tie-up will provide customisable services in areas such as cloud gaming, manufacturing and maritime operations.

Singtel shares were flat at S$3.00 during the midday break on Monday.

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