Singtel Optus Pty Ltd. #A/A-1# Ratings Outlook Stand-Alone Credit Profile Revised To #bbb+#

Stocks and Financial Services Press Releases Friday May 19, 2017 17:57
MELBOURNE--19 May--S&P Global Ratings

MELBOURNE (S&P Global Ratings) May 19, 2017--S&P Global Ratings said today that it had affirmed its 'A' long-term corporate credit rating on Australia-based telecommunications company Singtel Optus Pty Ltd. (Optus). The outlook is stable. We also affirmed our 'A-1' short-term rating on the company. At the same time, we affirmed the 'A' long-term issue rating on the group's debt and the 'cnAA+' Greater China regional scale rating on subsidiary Optus Finance Pty Ltd.'s Hong Kong dollar notes.

"The rating on Optus reflects our assessment that Optus remains a core subsidiary of the Singapore Telecommunications Ltd. (Singtel) group," said S&P Global Ratings credit analyst Graeme Ferguson.
The rating on Singtel includes a full consolidation of Optus and equity accounting of the group's minority telecom investments.

Competition in the Australian telecommunications sector remains intense. Optus' EBITDA fell 4% in fiscal 2017 (year ended March 31, 2017), affected by heightened price competition and increased content costs. Debt also increased as a result of the company's elevated capital expenditure to improve network coverage and quality, as well as payment to the Australian Taxation Office (ATO) of A$134 million associated with the acquisition financing of Optus by Singtel (currently being disputed).

That said, we expect Optus' ongoing investment in its 4G network and product offering to underpin its market position in mobile services. The National Broadband Network (NBN) should also provide Optus with opportunities to enhance its product offering, particularly through bundling.

In our opinion, the entry of TPG Telecom as Australia's fourth mobile network operator is likely to further intensify competition for Australian mobile network operators over the next few years. In our opinion, Optus generates about two-thirds of its EBITDA from mobile services. We expect Optus to maintain S&P Global Ratings' adjusted debt-to-EBITDA ratio of 1.5x-2.0x over the next couple of years.

"The stable rating outlook on Optus reflects that on the company's sole owner Singtel," said Mr. Ferguson.
The ratings on Optus may face downward pressure if:

We revised Singtel's stand-alone credit profile (SACP) downward;Singtel reduces its shareholding in Optus, or other evidence emerges that shows Optus' importance in the Singtel group is diminishing, making it no longer consistent with its existing core group status; or Optus' business or financial risks materially increase, and as a result, we no longer view Optus to be a core subsidiary of the group.

This could include a scenario where Optus maintains a substantially more aggressive financial risk profile than the broader Singtel group.An upgrade on Optus would likely be reliant on raising Singtel's SACP.

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