The rating headroom for Singapore Telecommunications (Singtel), currently at “A/Stable”, is said to improve, according to Fitch Ratings, as the telco is likely to use its cash proceeds from the sale of its Australian tower assets.
The proceeds, which total some A$1.9 billion ($1.83 billion), are likely to fund Singtel’s 5G capex or to deleverage, says the ratings agency.
For the FY2023 to FY2024, the team at Fitch has estimated Singtel’s net debt/EBITDA to be at 1.8x to 1.9x, compared with the downgrade trigger of 2.2x.
Singtel’s net debt/EBITDA for the FY2021 and FY2022 stood at 2.2x and 1.6x respectively.
“Singtel’s net debt/EBITDA may approach 1.9x as it seeks to expand its information, communication and technology arm, NCS, into new markets via M&A. However, we believe Singtel is committed to its current ratings and will manage its shareholder return policy,” writes the team at Fitch.
To this end, the team believes that Singtel is “committed to its sustainable dividend policy of paying dividends at 60%-80% of underlying net profit, defined as net profit before exceptional items, in the medium term”.
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“Singtel cut dividends in FY2021 to manage its leverage,” it adds.
Further to its report, the team sees Singtel’s 5G priorities driving capex over the medium, with a group capex estimate of $2.7 billion to $2.8 billion in FY2023 to FY2024, including spectrum payments, compared to FY2022’s $2.5 billion.
In addition, the team expects Singtel’s Fitch-defined EBITDA, excluding associate dividends, to grow by high single digits annually in FY2023-FY2024, compared to a 4% drop in the FY2022. This, according to the team, is likely to be driven by subsidiary Singtel Optus Pty Limited's improved wireless monetisation and group cost-saving initiatives.
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“Singtel’s ratings include a single-notch uplift from the Standalone Credit Profile (SCP) of ‘a-’ due to the links with the Singapore sovereign (AAA/Stable), as assessed under Fitch's Government-Related Entities Rating Criteria.”
Shares in Singtel closed 2 cents lower or 0.79% down at $2.50 on June 15.
