S&P expects SingPost to have limited rating headroom after Australian logistics firm deal

S&P Global Ratings expects Singapore Post (SingPost) to have limited rating headroom to weather industry troubles or any business underperformance over the next one to two years after the latter buys a stake in Freight Management Holdings (FMH).

FMH is a fourth-party Australian logistics services firm which SingPost is looking to acquire a 38 per cent stake in.

Although S&P's issuer credit rating on SingPost can accommodate the FMH acquisition, the debt-funded acquisition also coincides with a period of heightened earnings weakness, S&P said in its report on Tuesday.

"SingPost's margins have weakened given that limited international air traffic during the Covid-19 pandemic has raised operating costs for cross-border delivery," it added.

S&P forecasts SingPost's debt-to-Ebitda ratio to be pushed above 2.5 times in 2021 before subsiding to about 2.3 times in 2022. SingPost's debt-to-Ebitda ratio was two times in 2020.

The credit ratings agency expects the FMH stake acquisition to be immediately earnings accretive for SingPost but said the deal will do little for the company's subdued near-term earnings outlook. The benefit of business integration and synergies will take some time to materialise, S&P noted.

Based on the 38 per cent minority stake in FMH, S&P's base case considers the potential for modest dividends from FMH of S$2 million to S$5 million annually.

The deal will complement SingPost's long-term strategy to build a second home base and enhance its existing supply chain operations in Australia, S&P said.

Shares of mainboard-listed SingPost closed flat at S$0.69 on Tuesday, before the announcement.