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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.

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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.

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