S&P Global Ratings has said Singapore Telecommunications Ltd's credit metrics may be further strained should it subscribe to the rights issue of Bharti Airtel Ltd.
Timely EBITDA recovery and portfolio recycling will be key for the Singapore-based telecommunications operator as it copes with a major 5G investment cycle over the next three years. Although S&P expects Singtel's initial outlay for the rights issue to be small relative to its total adjusted debt, it poses additional strain.
S&P anticipates Singtel's total outlay will be Rs 2,940 crore, corresponding to its 14 per cent direct stake in Bharti Airtel. Singtel had done the same for Bharti Airtel's 2019 rights issue.
Only 25 per cent of this amount will be paid on application date while the balance will be called in two tranches over the 36 subsequent months.
"We project Singtel's debt-to-EBITDA ratio could increase to 2.6x over the next 18 months from our previous forecast of about 2.5x. This is above our downgrade trigger of 2.5x. Singtel's credit metrics have already been hit by fallout from the pandemic."
Singtel's leverage could face additional pressure from the rights issue, should it take up any rights not subscribed by other shareholders. Bharti Airtel has announced that its promoter group (Bharti Telecom Ltd and Singtel) will collectively subscribe to any unsubscribed shares in the issue.
S&P said Singtel's further investment in Bharti Airtel could reap benefits over the longer term. Bharti Airtel has shown strong performance growth over the past few quarters and the proceeds of the rights issue are slated to support necessary investments to solidify its market position, particularly in the 5G era.
"Over the next two years, however, we do not expect Singtel to receive meaningfully higher dividends from Bharti Airtel, given the latter faces an impending 5G investment wave."
On August 29, Bharti Airtel announced a rights issuance of up to Rs 2,100 crore. S&P said it awaits clarity on the terms and conditions of the issue, including the issue period and the record date.
