Singtel outlook cut to 'negative' by S&P in downgrade trifecta

MAINBOARD-LISTED Singtel's outlook was cut to "negative" by credit agency Standard & Poor's on Wednesday, a week before the telco is slated to release its first-quarter results.

Singtel will likely have weaker financial metrics in the coming year, S&P Global Ratings said, even as it affirmed its "A+" long-term and "A-1" short-term issuer ratings on the company.

Moody's Investors Service and Fitch Ratings had lowered their outlook to negative in March, while S&P warned that same month that the company was skirting closer to a ratings downgrade trigger.

The outlook downgrade came on expectations that leverage - measured by the ratio of funds from operations to debt - will fall below 40 per cent in the year to March 31, 2020, on the back of declines at Singtel's regional associates, especially Telkomsel in Indonesia.

The chances of this scenario are one in three, according to the S&P analysts, who added: "We revised the outlook on Singtel to reflect increasing competition in the company's major operating markets and the concurrent elevated cash needs for capital expenditure and dividend payout."

Singtel has previously pledged to maintain its annual dividend at 17.5 Singapore cents a share.

The analysts did not factor in the impact of a potential divestment of Singtel's loss-making but fast-growing digital assets - an option that company leadership has mooted - as the timing and valuation of such transactions in the medium term are still uncertain, S&P added.

The S&P report suggested that Singtel's outlook could be further cut if leverage "stays close to or below 40 per cent on a sustained basis".

Otherwise, the outlook could be bumped back up to "stable", the analysts said, "if Singtel's financial headroom improves in line with our expectations with disciplined financial policies".

In tandem with the revised view of the parent, S&P has also lowered the outlook for Optus, Singtel's Australian subsidiary, to "negative".

But the agency noted that it does expect Singtel to "gradually improve its operating performance over the next two years", supported by its market leadership and wide geographical footprint.

Singtel said in a reply on the bourse website that "Singtel and Optus' credit ratings are strong and we remain financially disciplined and committed to maintaining our investment-grade credit ratings", reiterating a point that it had made after the Moody's downgrade.

While different agencies may use different terms, "investment-grade" refers to Moody's long-term ratings of at least "Baa3", or Fitch and S&P ratings of at least "BBB-".