Singtel hit 'especially hard' in Q1 2021 by pandemic-related curbs, economic decline: S&P

PANDEMIC-RELATED movement restrictions and economic deterioration hit Singtel's performance "especially hard" in the first quarter of fiscal 2021, Standard & Poor's (S&P) Global Ratings said on Thursday. (amendment note)

Improvements are anticipated only in the second half of 2021, the credit ratings agency said in report that did not constitute a rating action. The telco is currently rated A with a stable outlook by S&P.

Singtel's weak operating performance will offset any rating headroom gains from a likely reduction in dividends, S&P said. It noted that careful management of dividend payout should help Singtel soften the impact of Covid-19 on its balance sheet.

The credit ratings agency estimates cash dividends will reduce to S$1.8 billion to S$2 billion in fiscal 2021, from S$2.86 billion in fiscal 2020.

"The amount could be lower if Singtel's major shareholder, Temasek Holdings, opts to take a larger proportion of its dividend entitlement in shares," S&P said. It added that cash dividends are predicted to remain in the low S$2 billion range in fiscal 2022.

Singtel's reported earnings before interest, taxes, depreciation and amortisation (Ebitda) are forecast to decline by 11 to 13 per cent to between S$3.9 billion and S$4.1 billion in fiscal 2021, S&P noted. Meanwhile, adjusted Ebitda - which includes dividends from associates - is estimated to drop 6 to 8 per cent to between S$5.1 billion and S$5.2 billion.

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Singtel's debt-to-Ebitda ratio for the year ending March 31, 2021 is expected to remain "largely unchanged" from S&P's previous forecast of 2.4 to 2.5 times in March 2020. This forecast assumed a higher level of dividend payout.

At the level of Singtel's Australian subsidiary Optus, S&P predicts credit metrics to "remain under pressure" through fiscal 2021, given that the operating environment remains challenging.

Optus's standalone credit profile of BBB relies on the company maintaining disciplined capital management, including the adjusted debt-to-Ebitda ratio remaining below 2.75 times.

"We expect management to take decisive actions to weather the earnings squeeze in fiscal 2021, including prudent spending and shareholder returns," S&P said.

Singtel shares were trading down S$0.03 or 1.3 per cent to S$2.30 as at 10.36am on Thursday.

Amendment note: A previous version of this story incorrectly stated that S&P expected Singtel's Q1 to be hit hard. S&P was in fact commenting on Singtel's recently released first quarter business update. We are sorry for the error.