Some bad news for SingTel this week, as credit ratings agency Moody's cut its outlook for both the company and wholly-owned Australian subsidiary Optus.
Moody's lowered its rating for SingTel to Aa2 from Aa3, blaming a weakening in the operator's key financial parameters over the last year.
The downgrade applies to both SingTel's senior unsecured credit rating and all notes issued by treasury unit SingTel Group Treasury.
“The downgrade reflects a weakening in key financial parameters - Debt/EBITDA, RCF/Debt and FCF/Debt - over the last year, fueled by rising absolute debt levels and a willingness by the company to re-leverage its balance sheet,” Moody's lead analyst for SingTel Nidhi Dhruv said.
But Dhruv stressed that the downgrade does not reflect any change in Moody's assumption of support from SingTel's 55% owner, Temasek Holdings, which is itself 100% owned by the Singapore government.
Moody's also noted that SingTel remains strong operationally, notwithstanding the relatively high debt levels.
At the same time, Moody's has reduced its outlook on Optus' senior unsecured Aa3 long term credit rating to negative from stable.
In this case, the agency cited expectations for elevated leverage over the next 2-3 years, as Optus evaluates additional acquisitions and spends to secure new spectrum.
Moody's further expects the likely requirement for both SingTel and Optus to bid for new 4G spectrum in 2013-2014 to place more pressure on their balance sheets.
SingTel has responded to the downgrades with a terse statement. “Optus remains financially-disciplined in its approach to investments and is committed to maintaining an investment-grade credit rating,” the statement reads.