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May 15 (The following statement was released by the rating agency)
Fitch Ratings says that Singapore Telecom Limited's (SingTel; A+/Stable) financial results
for the year ended March 2014 (FY14) fell short of our expectations as free cash flow (FCF)
declined due to flat EBITDA, unfavourable currency movements and higher capex and dividends. The
ratings headroom remains low as its funds flow from operations (FFO)-adjusted
net leverage of 1.9x remains close to the 2.0x level above which Fitch may
consider negative rating action.
Fitch expects SingTel's FY15-FY16 leverage to remain around 1.8x-1.9x as a flat
FFO at SGD5.4bn-5.5bn would be just sufficient to cover its capex and dividend
commitments. However, leverage could deteriorate if SingTel embarks on
acquisitions, including the SGD2bn it has budgeted for investment in its Digital
Life segment by FY16.
Fitch forecasts FY15 capex to be around SGD2.3bn, in line with SingTel's
guidance, as the company aims to invest about SGD1.4bn in its Australian
operations to expand data coverage. We think that dividends are likely to be
around the upper range of the company's guidance of 60%-75% of net income.
SingTel's FY14 FFO declined by 1% to SGD5.4bn as a 7% fall in revenue was
partly offset by cost savings and higher associates' cash dividends (FY14:
SGD1.2bn vs FY13: SGD993m). Revenue from its Australian operations declined by
13% due to intense competition, lower handset sales and a reduction in mobile
termination rates, which more than offset the 3% revenue growth in Singapore due
to tiered data pricing and a growing TV business.
FFO was also affected by unfavourable currency movements - the Australian
dollar, Indian rupee and Indonesian rupiah weakened against the Singapore
dollar. Revenue and EBITDA would have declined by 1% and increased by 5%
respectively had the currencies remained constant.
FY14 FCF declined slightly as a flat FFO was completely consumed by higher
working capital requirements in Australia, capex and dividends. FY14 capex
increased to SGD2.4bn fromSGD2.2bn in FY13 as it aggressively completed the
rollout of its 4G network in Singapore and about 75% of its 4G street coverage
in Australia. It distributed dividends of SGD2.7bn, or 74% of its net income, in
FY14, similar to the SGD2.5bn, or 70% of its net income, in FY13.
SingTel's 'A+' ratings factor in a one-notch support above its standalone rating
to reflect the Republic of Singapore's (AAA/Stable) majority ownership (52% at
end-March 2014) through Temasek Holdings Pte Ltd (Temasek). SingTel is Temasek's
largest investment, accounting for about 13% of its total investment value.