S&P downgrades SingPost; postal firm says its credit rating remains strong among peers

Suntec City Post Office.
Suntec City Post Office.PHOTO: SINGPOST

SINGAPORE - Ratings agency Standard & Poor's (S&P) today downgraded its ratings on SingPost as it believes that the company's e-commerce growth strategy will contribute to increased earnings volatility due to higher competitive pressures.

S&P lowered its long-term corporate credit rating on SingPost to A- from A, with a stable outlook.

"We also lowered the long-term issue rating on the company's senior unsecured notes to A- from A and that on its senior perpetual securities to BBB+ from A-.

"At the same time, we lowered our long-term Asean regional scale rating on SingPost and the senior unsecured notes to axAA from axAAA and that on the perpetual securities to axA+ from axAA."

S&P felt that SingPost's expansion into e-commerce and logistics may offset the profitability of its traditional postal business, which has higher and more stable margins.

"We expect SingPost's Ebitda margins to decline to about 20 per cent in fiscal 2016 from 23 per cent in fiscal 2015 and 26 per cent in fiscal 2014,as the company transitions into a global e-commerce enabler."

As the national postal service provider of Singapore, SingPost has historically enjoyed high and stable profit margins, benefiting from its protected domestic market position, S&P noted.

"The company's highly efficient domestic postal infrastructure, high population density, and small geographic footprint further supported its margins.

However, as traditional mail volumes decline as a result of e-substitution, SingPost is moving into more volatile and lower margin e-commerce and logistics business lines, particularly outside Singapore."

In response, SingPost said its credit rating continues to be strong among its peers.

"The company is financially disciplined in its approach to investments and manages business risk as a fundamental process of its transformation into an integrated end-to-end eCommerce logistics group with a stable postal platform," SingPost said in a Singapore Exchange filing.

It added that it is committed to maintaining an investment-grade credit rating and the best long-term interest of its stakeholders.

S&P said it continued to view Singapore as a key strength for SingPost when compared to peers that are based in less geographically strategic locations with less sophisticated logistics infrastructure.

"We believe that SingPost has meaningful intentions to reduce its leverage, following high capital spending in the past two years.

We anticipate that the company will pause its acquisition activities in the near to medium term to focus on integrating its recent acquisitions with its existing network," S&P noted.

Furthermore, the upcoming S$187 million equity infusion from Alibaba Group Holding, which SingPost expects to close in June 2016, will also support deleveraging, on top of various other initiatives including potential divestment of non-core assets, the ratings agency said.

SingPost shares closed half a cent higher at S$1.445.