Bangkok--6 Aug--Standard & Poor's
SINGAPORE (Standard & Poor's) Aug. 6, 2015--Standard & Poor's Ratings Servicessaid today that it had affirmed its 'AA' long-term corporate credit rating onSingapore Power Ltd. (SingPower). The outlook is stable. At the same time, weaffirmed our 'axAAA' long-term ASEAN regional scale rating on theSingapore-based power and gas transmission and distribution (T&D) company.
"We affirmed the rating because we expect SingPower to continue to benefitfrom its status as an important government-related entity," said Standard &Poor's credit analyst Bertrand Jabouley. "In addition, we anticipate that thecompany will maintain its strong and sustainable position in the stable,
regulated power and gas T&D business in Singapore."
We see a "very high" likelihood that the government of Singapore will providesufficient and timely extraordinary support to SingPower in the event offinancial distress. In our view, the company plays a key role for theSingapore economy as an exclusive provider of power and gas, given that
reliability of supply remains a cornerstone of the country's competitiveadvantage. We also anticipate that the government will remain a majorityshareholder of SingPower--through Temasek Holdings (Private) Limited--for thenext two years at least, and continue to yield considerable influence on the
company's policies and direction.
"SingPower's natural monopoly in its key businesses remains the foundation ofthe company's excellent business risk profile," said Mr. Jabouley.
SingPower's revenues grew 15% (net of power purchases) in 2015 with EBITDA ofSingapore dollar (S$) 1.6 billion, in line with our expectations. Thecompany's core electricity and gas T&D businesses operate in protectedmarkets, and we see the regulatory framework in both Singapore and Australia,which are the company's key markets, as supportive. SingPower's transparent,regulated weighted average cost of capital results in highly predictableEBITDA for the company.
We expect SingPower's large capital expenditure over the next two years toweaken its cash flow adequacy. A sizeable portion of this S$1.6 billionspending is for the company's flagship tunnel project in Singapore to replaceaging underground transmission cables and lay new cables to support the growth
in electricity demand. SingPower's resilient operating cash generationunderpins its "intermediate" financial risk profile. At this stage, we do notexpect the company to materially invest in offshore assets, given its domesticfocus.
SingPower has predictable cash flows, a large cash pile, and ample undrawncredit facilities, both for the funding of the tunnel project and generalcorporate purposes. We have revised our assessment of SingPower's liquidity to"strong" from "adequate."
The stable outlook on SingPower reflects the outlook on the sovereign creditrating on Singapore (AAA/Stable/A-1+; axAAA/axA-1+) and our expectation thatthe likelihood of government support to the company will remain "very high."The outlook also factors our expectation that SingPower will operate withinits regulatory allowances to maintain its stable cash flows and financial riskprofile over the next couple of years. Our assessment considers the company'shigher capital expenditure commitments and negative free operating cash flows.We expect SingPower to remain largely focused on the Singapore market andcommitted to its strategy of owning electricity and gas T&D assets in highly
regulated markets with strong legal frameworks.
We could downgrade SingPower if we lower the sovereign rating by threenotches. While less likely at this stage, downward pressure would arise if thecompany makes significant offshore investments, such that we lower thelikelihood of extraordinary government support to "high," or the company's'a+' stand-alone credit profile (SACP) weakens by three notches. The SACPcould deteriorate if: (1) SingPower departs significantly from its strategy ofstaying in its core T&D business in a stable regulatory environment such thatwe revise its business risk profile to "strong" from "excellent"; or (2) thecompany's cash flow adequacy and liquidity deteriorate such that the ratio ofFFO to debt falls toward 20% or lower, while free operating cash flows remainmarkedly negative.
We could raise the rating on SingPower if the SACP improves to 'aa-' while thelikelihood of government support remains unchanged. The company's commitmentto reach an FFO-to-debt ratio higher than 25% on a sustainable basis and freeoperating cash flows breaking even would underpin the improvement in the SACP.In a less likely scenario, we could upgrade SingPower if the likelihood ofextraordinary government support strengthens to "extremely high."