TEXT-S&P: Singtel Optus Pty Ltd. Long-Term Rating Lowered To 'A'

(The following was released by the rating agency)

Overview

-- We have lowered our stand-alone credit profile on Singtel

Optus' (Optus) parent company, Singapore Telecommunications Ltd.

(Singtel, A+/Stable/A-1), to 'a' from 'a+'.

-- We continue to view Optus as a core subsidiary of the

Singtel group and align its rating with the stand-alone credit

profile on Singtel.

-- Accordingly, we have lowered the long-term rating on

Optus to 'A' from 'A+', and affirmed the 'A-1' short-term rating

on Optus. The outlook on the long-term rating is stable.

-- The credit rating on Optus does not factor in any

extraordinary support from the government of Singapore, unlike

our credit rating on Singtel.

Rating Action

On Aug. 22, 2012, Standard & Poor's Ratings Services lowered

its long-term corporate credit rating on Australian

telecommunication company Singtel Optus Pty Ltd. (Optus) to 'A'

from 'A+'. At the same time, we have affirmed our 'A-1'

short-term rating on Optus. The outlook on the long-term rating

is stable.

Rationale

The downgrade of Optus to 'A' from 'A+' reflects the

lowering of our stand-alone credit profile (SACP) assessment on

Optus' parent, Singapore Telecommunications Ltd. (Singtel,

A+/Stable/A-1), to 'a' from 'a+'. We continue to view Optus as a

core subsidiary of the Singtel group and align its rating with

the stand-alone rating on Singtel.

We consider that the Singtel group's financial profile will

remain within our expectations for the current 'a' SACP in the

next two years. The group faces strong competition in its core

markets and continues to invest in new growth opportunities.

Importantly also, we believe Optus will not benefit from

extraordinary support from the Government of Singapore in times

of financial stress, unlike its parent company.

Notwithstanding the downgrade, we continue to view Optus'

credit profile as robust. The 'A' rating reflects the company's

position as a core subsidiary of Singtel; its solid market

shares in its key business segments (including a near one-third

mobile market share in Australia); the company's low debt

levels, and its strong free-operating cash flow. Partly

offsetting these strengths are the highly competitive operating

environment in Australia; Optus' significant capital-expenditure

requirements associated with ongoing technological change and

developing new revenue streams; and the company's concentrated

earnings profile, which is dominated by mobile services.

Although Singtel does not guarantee Optus' debt obligations,

the rating on Optus benefits from the credit quality of its

parent. In our opinion, Singtel's continuing 100% ownership of

Optus is an important factor underpinning the long-term rating

and reflects Optus' position as a core, material subsidiary in

the Singtel group. Optus is also a significant lender to

Singtel; if Singtel were to repay all of its loans to Optus,

Optus would be in a net cash position. For the year ended March

31 2012, Optus contributed about 59% of Singtel's operational

EBITDA, or about 31% of total proportionate EBITDA when earnings

from Singtel's associates are included.

Optus' revenues and EBITDA for the quarter ended June 30,

2012 declined 3.2% and 2.6% respectively. This is due to

continuing competitive operating conditions in the Australian

market, as well as the impact of reduced mobile termination

rates, and lower equipment sales and service credits under

device repayment plans. We expect the competitive pressure to

become less intense in the next 12 months, compared to that

observed in the past 18 months. Furthermore, our base-case

forecasts indicate that Optus will continue to generate strong

free operating cash flows of about A$1 billion per year despite

market competition and increasing tax payments. These cash flows

will be bolstered by cash inflows from the recently agreed

transaction with the National Broadband Network Company. This

should enable the company to fund future capital investment and

spectrum payments, while maintaining a robust financial risk

profile, including remaining in a net cash position after

netting off intercompany loans to Singtel.

Liquidity

The short-term rating on Optus is 'A-1', which is aligned

with the short-term rating on Singtel. Our assessment of Optus'

"strong" liquidity is also aligned with the parent. We note that

Optus generates robust free-operating cash flow of about A$1.0

billion annually, has no material near-term debt maturities, has

a high standing in credit markets, and has a track record in

maintaining undrawn committed banking lines for financial

flexibility. Also enhancing Optus' liquidity is the company's

ability to borrow from Singtel if required, which could include

the repayment of Singtel's intercompany loans. The next material

debt maturity for Optus is a A$1.2 billion syndicated facility,

maturing in June 2014.

Outlook

The stable outlook on the Optus rating reflects that on the

rating of the company's 100% owner Singtel.

The ratings on Optus may face downward pressure if:

-- Singtel's SACP is further lowered;

-- Singtel reduces its shareholding in Optus, or there is

other evidence that Optus' importance in the Singtel group is

diminishing; or

-- Optus' business or financial risks materially increase.

-- An upgrade on Optus would likely be reliant on a raising

of Singtel's SACP. Related Criteria And Research

-- Singapore Telecommunications 'A+/A-1' Ratings Affirmed;

Outlook Stable, Aug. 22, 2012

-- 2008 Corporate Criteria: Analytical Methodology, April

15, 2008

-- Stand-Alone Credit Profiles: One Component Of A Rating,

Oct 1, 2010 Ratings List Downgraded

To From

Optus Finance Pty Ltd.

Senior unsecured A A+

Downgraded; Ratings Affirmed

To From

SingTel Optus Pty Ltd.

Corporate credit rating A/Stable/A-1 A+/Stable/A-1

New Rating

Singapore Telecommunications Ltd.

Analytical factors

Local currency a

Ratings Affirmed

Singapore Telecommunications Ltd.

Corporate credit rating A+/Stable/A-1

Optus Finance Pty Ltd.

Senior unsecured cnAAA

SingTel Group Treasury Pte. Ltd.

Senior unsecured cnAAA

Senior unsecured A+

Singapore Telecommunications Ltd.

Senior unsecured A+

Source: http://news.yahoo.com/text-p-singtel-optus-pty-ltd-long-term-044207554--finance.html

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