Lockdown rules and economic deterioration hit Singtel "especially hard" in the first quarter of its 2021 financial year, said S&P Global Ratings.

Improvements are anticipated only in the second half of 2021, the credit ratings agency said yesterday.

Its report was not a ratings action. S&P gave the telco an "A" rating with a stable outlook.

Singtel's weak operating performance will offset any rating headroom gains from a likely reduction in dividends, S&P said.

It noted that careful management of dividend payouts should help Singtel soften the impact of Covid-19 on its balance sheet. S&P estimates cash dividends will fall to between $1.8 billion and $2 billion next year, from $2.86 billion this year.

"The amount could be lower if Singtel's major shareholder, Temasek Holdings, opts to take a larger proportion of its dividend entitlement in shares," S&P said.

It added that cash dividends are predicted to remain in the low $2 billion range in 2022.

Singtel's reported earnings before interest, taxes, depreciation and amortisation (Ebitda) are forecast to decline by 11 per cent to 13 per cent to between $3.9 billion and $4.1 billion next year, S&P noted.

Adjusted Ebitda - which includes dividends from associates - is estimated to drop by 6 per cent to 8 per cent to between $5.1 billion and $5.2 billion.

At the level of Singtel's Australian subsidiary Optus, S&P predicts credit metrics to "remain under pressure" through next year, given that the operating environment remains challenging.

Optus' standalone credit profile of "BBB" relies on it maintaining disciplined capital management.

"We expect management to take decisive actions to weather the earnings squeeze in fiscal 2021, including prudent spending and shareholder returns," S&P said.

Singtel shares closed down 0.43 per cent to $2.32 yesterday.

THE BUSINESS TIMES