Moody's restores Singtel's 'stable' ratings outlook

SINGTEL'S ratings outlook has been restored to "stable" by Moody's Investors Service, on analysts' hopes that lower shareholder returns will improve leverage.

The upgrade by the credit ratings agency on Wednesday came nearly two years after it cut the outlook to "negative" in March 2019. Moody's had pointed to the mainboard-listed telco's net debt-to-earnings before interest, tax, depreciation and amortisation (Ebitda) ratio at the time.

The latest revision reflects expectations that Singtel will remain the market leader in Singapore, even as digitalisation and business diversification should result in "a stable business and financial profile" in the next two to three years, Moody's said.

Moody's senior analyst Nidhi Dhruv added: "The change in outlook to 'stable' from 'negative' reflects our expectation that reduced shareholder returns and the adoption of scrip dividend will help lower leverage to 2.4 times to 2.5 times over the next two years, from 2.6 times for the last 12 months ended Sept 2020."

Singtel shareholders voted to approve a scrip dividend scheme last July.

Still, Moody's said that it does not expect underlying Ebitda at Singtel to meaningfully improve in the next 12 to 18 months. It blamed intense competition and the business impact of the Covid-19 pandemic in Singtel's key operating markets of Singapore and Australia - woes likely to put the squeeze on revenue and profitability.

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"Singtel's capex requirements will also remain high in both Singapore and Australia, as it continues to expand its 5G network in both core markets," the report added.

Meanwhile, Moody's reaffirmed Singtel's senior unsecured rating of "A1", which it had bestowed on the telco in 2017 after a downgrade from Aa3.

Singtel closed at S$2.40 on Wednesday, down S$0.03 or 1.24 per cent, after the news.