What's the Singtel outlook after S$1 billion perp securities sale?

Singapore’s biggest telco Singtel has priced a mega S$1 billion perpetual deal at 3.3%, after the issuance attracted ‘strong demand’ from investors.

  • Singtel (SGX: Z74) share price declines 0.8% to S$2.44 per share
  • Its subsidiary will issue S$1 billion of subordinated perpetual securities
  • The proceeds could refinance Singtel’s debts that are maturing soon, Moody’s says
  • Buy or sell Singtel shares with an IG account

Singtel share price loses ground

Shares of Singapore Telecommunications (Singtel) languished slightly on Thursday (08 April 2021), after it announced a huge perpetual securities issuance in the morning.

The stock lost 0.8% day-on-day to trade at S$2.44 as of 13:28 SGT, on 17.6 million shares traded.

Out of 19 analysts, 15 rated Singtel shares a ‘buy’ and four recommended ‘hold’ as of Thursday morning. They had an average 12-month target price of S$2.89, according to Bloomberg data.

This week, UOB’s research team gave a S$2.84 target while DBS eyed a S$2.75 target, both recommending ‘buy’.

RHB highlighted Singtel as its top stock pick in the telecommunications sector, with a ‘buy’ call and S$3.10 target price.

Singtel’s maiden perpetuals deal

Its wholly-owned subsidiary Singtel Group Treasury (SGT) has sold S$1 billion of subordinated, unsecured perpetual securities.

This is the group’s inaugural issuance of perpetual securities, the telco leader said. It is also the Singapore market’s biggest perp in almost a decade.

A wide range of investors showed ‘strong demand’ for the oversubscribed deal, with the order book receiving interest of about S$2.1 billion.

The perpetuals are guaranteed by Singtel. They carry an initial coupon rate of 3.3%. The first reset of the distribution rate will take place on 14 October 2031, with subsequent resets occurring every ten years thereafter.

Singtel group chief financial officer Arthur Lang said the issuance is aligned with the group’s ‘capital management strategy of achieving the optimal capital structure’.

DBS Bank, HSBC, OCBC, and Standard Chartered Bank were the joint lead managers and bookrunners.

What did Moody say about Singtel and the deal?

Credit rating agency Moody’s Investors Service assigned an A3 rating to the perpetual issuance, with a stable outlook.

This is two notches below Singtel’s baseline credit assessment, to reflect the subordinated nature of the hybrid securities.

According to Singtel’s filing, net proceeds from the issue will be used to fund SGT’s ordinary course of business.

Moody’s expects Singtel to use the majority of the proceeds to refinance debts maturing in the next 12 months. The issuance will not materially change the group’s credit metrics, as the issuance size is a relatively small portion of the company’s capital structure, the agency added.

For Singtel, Moody’s maintained an A1 senior unsecured rating. That reflects the company’s underlying strength thanks to its ‘well-established and geographically diversified business platform’, as well as the credit support that Singtel’s 52.6% shareholder Temasek Holdings will likely provide to the telco in a distressed situation, the agency said.

Singtel’s adjusted leverage will likely stay elevated at 2.4-2.5 times in fiscal 2022 and fiscal 2023, amid ‘operational challenges from the protracted coronavirus outbreak, increased competition in its core markets of Singapore and Australia, high levels of capital spending, and a commitment to shareholder returns’, said Moody’s analyst Nidhi Dhruv.

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