Ratings agency Standard & Poor's has affirmed Temasek Holdings' top AAA credit rating and stable outlook, citing its consistent record of generating positive returns from a sizeable, high-quality and liquid investment portfolio.
The strong rating on Temasek's long-term corporate credit takes into account S&P's view that there is an "extremely high" likelihood that Temasek would receive "extraordinary support" from the Singapore Government if necessary.
But even disregarding government support, Temasek still garners a standalone credit profile of "aaa", which reflects its excellent business risk profile and minimal financial risk profile, S&P said.
Temasek's stable outlook, meanwhile, reflects S&P's opinion that, despite recent acquisitions, there is a low likelihood of a marked deterioration in its financial risk profile over the next 12 to 24 months. This is due to the company's "excellent financial flexibility", anchored on minimal debt and robust cash flow generation, S&P said.
"The outlook also factors in our expectation that the company will further improve its information flow and disclosure standards, and our opinion that there will be no change to ongoing and extraordinary government support."
S&P would lower the rating on Temasek if it took on a lot of debt, for example, or if Singapore's sovereign debt rating - also AAA - was slashed.
IG market strategist Bernard Aw said this is unlikely to happen in the near future. "Furthermore, Temasek is in a very strong financial position, and has a record of limited debt. It has been in a net cash position since 2004," he noted.
Temasek grew its net portfolio value by $43 billion to a record $266 billion for the year ended March 31.
S&P said Temasek's latest large acquisitions, such as stakes in A.S. Watson and Olam International, reflect two key trends in its investment strategy. These enhance exposure to consumer-based industries and growing middle classes in developing markets. The acquisitions will also improve returns through investments in unlisted assets.
Late last year, S&P proposed an overhaul of the way it rates investment holding companies such as Temasek.
It drew a strongly worded response from Temasek, which noted that the "confusing" proposal lumps Singapore together with countries such as Greece, which is battling a debt crisis. S&P has not made further announcements on the proposal, and its latest assessment of Temasek was based on its existing framework.