THE agreement between Singapore Telecommunications (Singtel) and Bharti Telecom (BTL) for the sale of 3.3 per cent of its direct stake in Bharti Airtel will benefit Singtel's cash flow and leverage, according to Moody's Investor's Service.
In an Aug 26 report, Moody's said it believes that the sale will help Singtel to fund its growth with less reliance on external borrowing.
The telecommunications group's leverage is expected to remain at a multiple of 2.2 to 2.3 times, below Moody's threshold of a 2.6 multiple for an A1 rating.
While Moody's research team acknowledges a possibility of special dividends being paid out from the sale proceeds, it notes that Singtel's management has clarified that dividends will be funded from operational cash flows.
Highlighting that Singtel has guided for capital spending of S$2.6 billion for FY2022, the credit ratings agency said it expects Singtel's expenditure to remain high over the next 1 to 2 years on the back of its current expansionary efforts for 5G.
While BTL does not have a material amount of existing debt, in Moody's opinion, the agency said it would consider consolidating the company's debt on a pro-rata basis in Singtel's leverage should the group be required to provide support to BTL.
This is given BTL's relative importance as the holding company for a 38.7 per cent stake in Bharti Airtel, noted the agency.
Moody's further notes that Singtel's coverage ratio remains in excess of a 3 times multiple following the transaction, as it continues to hold significant high-value investments in its regional associates and other listed associates.
The sale process will conclude on Nov 23, 2022 and will bring Singtel's effective stake in Bharti Airtel to 29.7 per cent from 31.4 per cent currently. Moody's sees limited stake dilution for Singtel at just 1.7 per cent, as the group continues to own 49.44 per cent of BTL after the transaction.