Moody’s retains SingTel’s Aa2 rating for 2010

The telco’s financial metrics and liquidity profile remain robust and continue to leave its standalone rating well positioned at the single A range.

Moody's Investors Service says that Singapore Telecommunications Limited's ("SingTel") financial results for the year ended 31st March 2011 were generally in line with the rating agency's expectations and have no immediate impact on the company's Aa2 rating. The rating outlook remains stable, according to a Moody's report.

"SingTel reported healthy year-over-year revenue growth bolstered by strong additions in post-paid smart phone subscribers in both Singapore and Australia, as well as solid performance in the company's data and internet, and IT & Engineering businesses," says Laura Acres, a Vice President and Senior Credit Officer at Moody's.

Group revenue grew by 7.1% year-over-year and 3.8% quarter-over-quarter for the 3 months ending March 2011, although this growth was tempered in terms of EBITDA by increasing operating costs, as such core EBITDA margins fell slightly to 28.3% on a reported basis.

"Rising costs were particularly evident for the Singapore-based operation where reported margins fell by some 300 basis points year-on-year reflecting higher content and programming costs as well as rollout for mio TV, and higher maintenance costs required to support the growing multimedia customer base," adds Acres.

Cash dividends from associates showed a 25.2% increase year-on-year, primarily the result of a higher payout from Telkomsel (Baa1/stable) in Indonesia, as well as a special divided from Thailand's AIS. Overall, the company's leverage, measured at 1.4x adjusted debt/EBITDA and 1.0x adjusted net debt/EBITDA (based on adding cash dividends from associates back to EBITDA), has remained stable, and consistent with an investment grade credit profile.

Although stable year-on-year, gross leverage metrics increased quarter-on-quarter for the 3 months ended 31st March 2011 reflecting the successful closure of the US$600 million notes due 2021, which were raised in March 2011. It is Moody's expectation that the proceeds will be used for general corporate purposes, including refinancing of existing bank and bond facilities, including the S$2.7 billion of lines falling due in Q4 2011; as a result, gross leverage is expected to fall back below 1.4x by year-end.

Shareholder remuneration continues to act as a drag on the company's cash flow metrics, and it is our expectation that this will continue, particularly as SingTel in November 2010 increased its dividend payout
policy to 55% - 70%.

"SingTel's financial metrics and liquidity profile remain strong and continue to leave its standalone rating well positioned at the single A range," says Acres, Moody's Lead Analyst for SingTel, adding "The final Aa2 rating factors in the expected support from its major shareholder, Temasek Holdings (Pte) Limited ("Temasek", Aaa/stable)."

SingTel's 30% owned associate Warid Telecom (Private) Limited ("Warid") remains in discussions with its lenders in relation to a proposed restructuring of its loan facilities. As of 31st March 2011, the company had approximately US$757 million in borrowings - US$90 million of which were guaranteed by SingTel (US$512 million is guaranteed by Warid's majority shareholder), which is reflected in our adjusted metrics.

Warid currently represents a very small portion of SingTel's overall operations, and has yet to make any contribution to SingTel's EBITDA with cash dividends. While not obligated, SingTel has supported Warid in the past with equity injections, although Moody's is unable to ascertain the likelihood of forthcoming support as a result of restructuring proceedings apart from the company's US$90 million guarantee.

The principal methodology used in this rating was the Global Telecommunications Industry published in December 2010.

SingTel is the leading integrated communications services provider in Singapore, and, through its wholly owned subsidiary SingTel Optus, is the second largest integrated telecommunications operator in Australia. SingTel also has a number of investments in cellular operators throughout the region which give it a regional footprint in 25 countries and more than 402.5 million mobile subscribers.

SingTel is 55% owned by Temasek which in turn is 100% owned by the Singaporean government.