See why SingTel held on to its credit rating

Despite dismal revenue growth for FY2013.

In an advisory, Moody's Investors Service noted that Singapore Telecommunications Limited's (SingTel) full year March 2013 results were in line with Moody's expectations, despite negative revenue growth year-on-year; as such there is no immediate impact on SingTel's Aa3 current rating and stable outlook.

Moody's said hroup revenue fell 3.4% for FY2013, largely driven by Optus in Australia (6.7% decline) where there was a mandated reduction in mobile termination rates, decline in equipment sales and service credits associated with device repayment plans. The impact from Optus is also exacerbated by currency fluctuations which contributed 1.3 percentage points to the revenue decline for the Group. Singapore-based operations reported a revenue growth of 2.8% YoY driven by broad based growth across Mobile, Data and Internet and IT and Engineering.

"The Group's cost cutting initiative coupled with reduced contribution from the margin dilutive handset sales business in Australia, has limited the impact of falling group revenue, such that absolute EBITDA for the year remained relatively flat at S$5.2 billion, thereby contributing to an increase in reported group EBITDA margins to 28.6%," says Nidhi Dhruv, a Moody's Analyst and also the Lead Analyst for SingTel.

Mobile continues to be the principal driver behind SingTel, accounting for 43.1% of group revenue. Total mobile revenues fell 3.8% during the year reflective of declining ARPUs in Australia and to a lesser extent in Singapore -- markets which continue to remain highly competitive. However there was a marked decline in subscriber acquisition costs and operating expenses in Australia which helped to keep absolute Group EBITDA stable.

Cash dividends from associates increased 8% during the year to S$993 million, the increase mainly attributable to Telkomsel (Baa1/stable) in Indonesia and AIS (unrated) in Thailand. Total cash dividends increased despite negligible dividends from International Cableship that paid a special dividend of S$54 million last year.

For FY2013, the Group's adjusted EBITDA (based on cash dividends from associated added back to EBITDA) remained relatively flat at S$6.4 billion, whereas adjusted debt reduced by approximately S$660 million compared to March 31,2012 on account of scheduled repayments. Consequently, SingTel's adjusted net leverage is about 1.45x , a marginal improvement from 1.5x recorded at FY March 31, 2012.

Moody's expects the company's capex to remain elevated over the next 1-2 years as it expands the Group's LTE and 3G network coverage. SingTel has guided to investments of S$2 billion for its digital business over the next three years and S$2.5 billion for capex in FY2014. In addition, Optus needs to make payments of A$649 million (S$800 million) for the 4G spectrum.

Furthermore, the company has increased its dividend payout policy to 60-75% of net profit from the earlier payout range of 55-70%. In line with expectations, SingTel has announced dividends of S$2.68 billion for FY2013, which translates to a payout ratio of 74%. In addition, Moody's expects the company to periodically return surplus cash to shareholders through special dividends or share buybacks.

"SingTel's commitment for higher shareholder returns, coupled with the ongoing need to invest in its businesses will continue to be a drag on the company's cash flow metrics. Nonetheless, the company's financial metrics and liquidity profile remain strong and continue to leave its standalone rating well positioned at a2," says Dhruv, adding "the final rating incorporates expected support from its major shareholder, Temasek Holdings (Pte) Limited (Temasek, Aaa/stable).