(The following was released by the rating agency)
SINGAPORE, July 27 (Fitch) Fitch Ratings has affirmed Singapore Telecommunication Limited’s (SingTel) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs), as well as its senior unsecured rating at ‘A+'. The Outlook is Stable.
The IDRs are notched up a level from SingTel’s standalone ‘A’ ratings to reflect support from the Government of Singapore (‘AAA’/Stable) given its 54% ownership through Temasek Holdings Pte Ltd (Temasek). Fitch believes that Temasek is likely to support SingTel in case of financial distress. SingTel holds strategic importance for the Singapore government as the country’s leading fixed-line and wireless operator and for Temasek as its largest investment by value.
SingTel’s standalone ratings reflect Fitch’s expectations that SingTel, its wholly owned subsidiary - SingTel Optus Pty Ltd (Optus, ‘A’/Stable) - and associates are likely to maintain their respective market positions in 2012 and 2013. SingTel’s funds flow from operations (FFO)-adjusted net leverage has remained below 2.0x, despite rising competition, regulatory pressures on its key associates and negative free cash flow (FCF) in the financial year ended March 2012 (FY12) due to a one-time special dividend of SGD1.6bn. SingTel is likely to return to positive post-dividend FCF in FY13 on solid cash flow generation from its Singapore and Australian operations as well as stable dividends from its associates.
Fitch expects dividends from SingTel associates to be around SGD950m-SGD1bn for FY13 (FY12: SGD920m) due to slower competitive pressures in markets including India, Indonesia and The Philippines. The agency believes SingTel’s 23% Thai associate - Advanced Info Service Public Company Limited (AIS, ‘BBB+'/Stable) - will continue to distribute 100% of its net income in FY13 despite a possible 3G auction during the year. However, SingTel’s 32% associate - Bharti Airtel Limited (Bharti, ‘BBB-'/Negative) - is currently facing significant regulatory uncertainties and any negative regulatory development could further delay receipt of meaningful cash dividends. During FY10-12, Bharti distributed less than 11% of its net income in dividends.
Fitch believes that SingTel’s initiative to introduce tiered data pricing for its Singapore operations will be positive for its operating EBITDAR margins, as long as this triggers similar initiatives from competitors. Singapore telcos have traditionally been unable to monetise rising data usage due to large monthly allocation of data pack (typically 12GB). A tiered data pricing could also support its profitability as SingTel gradually migrates to 4G technology.
What could trigger a rating action? Positive: Although there is a limited upside potential to the rating in the short-to medium-term, future developments that may, individually or collectively, lead to positive rating action include:
- projected FFO-adjusted net leverage falling below 1.0x, with positive post-distribution FCF on a sustained basis
- tangible evidence of support from Temasek including an equity injection or a legal guarantee on SingTel’s debt
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- projected FFO-adjusted net leverage rising above 2.0x on a sustained basis
- FFO fixed charge coverage falling below 8.0x on a sustained basis
- weakening of ties between Temasek and SingTel, indicating a change in implied support