S&P lowers ratings on SingPost

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

S&P dropped 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-," said the ratings agency.

S&P felt 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," it said. Ebitda is a measure of earnings.

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 that 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 e-commerce logistics group with a stable postal platform," SingPost said last night.

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 continues to view Singapore as a key strength for SingPost when compared to peers based in less geographically strategic locations with less sophisticated logistics infrastructure.

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

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

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

A version of this article appeared in the print edition of The Straits Times on February 25, 2016, with the headline 'S&P lowers ratings on SingPost'. Print Edition | Subscribe