Singtel's 'Aa3' ratings unlikely to get affected post acquisition of stakes in Intouch, Bharti Telecom: Moody's

Singapore Telecommunications' (Singtel) proposed acquisition of stakes in Intouch Holdings Public Company (Intouch) and Bharti Telecom is unlikely to impact its 'Aa3' senior unsecured ratings and stable outlook in the near term, according to a ratings agency. 

Singtel on Thursday announced to acquire shares in Intouch and Bharti Telecom from its largest shareholder-Temasek Holdings for an aggregate Singapore dollar 2.47 billion (nearly US $1.8 billion ). 

Singtel is 51% owned by Temasek Holdings, which is wholly-owned by the Singapore government.

The proposed acquisition will be funded partially through a proposed placement of new Singtel shares to Temasek totaling Singapore dollar 1.605 billion (nearly US $1.18 billion) as well as short-term debt and cash.

"Although the proposed transactions will prompt, in the case of Singtel, a modest uptick in net adjusted leverage to around 2.1x in the fiscal year 2016-2017 (FY17) from our previous expectation of 2.0x, they are in line with the company's strategy of increasing its interests in valuable regional associates to support continued growth in its mobile business, " said Moody's Investors Services vice president and senior credit officer Annalisa DiChiara in a press release on Friday. 

Intouch is the largest shareholder of Advanced Info Services Public Company (AIS) and it's the largest mobile operator by subscribers in Thailand.

Singtel will own around a 21% stake in Intouch after the proposed acquisition of its shares and around a 31.8% effective stake in AIS up from its existing 23.3% interest. Singtel is the leading integrated communications services provider in Singapore.

Bharti Telecom is the largest shareholder of Bharti Airtel (Baa3, stable), which is India's leading telecommunications company. After acquiring 7.39% stake in Bharti Telecom, Singtel will own around 47.17% interest in Bharti Telecom and around 36.2% effective interest in Bharti Airtel. 

"While we view Singtel's increased stake in these associates positively, leverage remains elevated at the top end of our tolerance range for the rating. As a result, we expect the company to reduce its absolute debt levels, such that net adjusted leverage -- based on cash dividends from associates added back to EBITDA - trends below 1.8x over the next 12-15 months," DiChiara added.

According to Moody's, further deterioration in Singtel's leverage profile or a prolonged period of leverage at its current high level would lead to downward pressure on the company's underlying credit quality.

Moody's also expects Singtel to monetise its non-core assets and reduce debt.

The deadline for the divestment of NetLink Trust -- a trust for infrastructure assets used for the Next Generation Nationwide Broadband Network in Singapore -- is April 2018. NetLink Trust is currently 100% owned by Singtel, the ratings agency noted. It expects Singtel to use a substantial portion of the divestment proceeds to repay debt.

The ratings agency predicts the company's solid financial metrics and liquidity profile to remain supportive of its 'a2' baseline credit assessment.

"Singtel's final rating of 'Aa3' incorporates a two-notch uplift for expected support from its major shareholder, Temasek Holdings (Private) Limited (Aaa stable)," it said.