S&P revises outlook for Singtel to negative

Singapore

S&P Global Ratings revised its outlook for Singapore Telecommunications (Singtel) from stable to negative, to reflect the telco's deteriorating leverage, but affirmed its "A" long-term and "A-1" short-term issuer credit ratings on the company.

S&P also affirmed its "A" long-term issue rating on Singtel's senior unsecured notes.

In response, Singtel said in a statement on Monday night: "Singtel and Optus' credit ratings are strong and we remain financially disciplined and committed to maintaining our investment-grade credit ratings."

S&P noted that Singtel has been impacted by the pandemic and tepid economic conditions harder than expected, with recovery potentially on the slow side and "resulting in protracted weakness in financial ratios over the next 18 to 24 months".

S&P projects that Singtel's ratio of debt to ebitda (earnings before interest, taxes, depreciation and amortisation) will weaken to 2.6-2.7x in FY2021, from 2.3x in FY2020.

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It noted that some normalcy in operating conditions will be needed for the telco to chart a significant improvement in its performance, and that government support measures will peter out in the second half of FY21.

It added: "We affirmed the rating on Singtel because we believe the company has taken tangible steps to manage its leverage, such as by reducing dividends. In our view, this signals management's intention to actively manage leverage."

S&P also said that it did not expect "significant payback" from Singtel's 5G investments within the next two years, and that the telco's new digital banking licence is likely to have limited credit impact over the next one to two years.

The telco's shares closed at S$2.41 on Monday, up seven cents or about 3 per cent.