S&P affirms AAA rating, stable outlook for Temasek

Finding based on firm's strong assets portfolio, strict investment guidelines, government support

Ratings agency Standard & Poor's (S&P) affirmed Temasek Holdings' AAA long-term credit rating and stable outlook yesterday.

It made the finding on the basis that the firm will continue to adhere to strict investment guidelines that support the "strong credit characteristics" of its assets portfolio.

S&P's report said Temasek's limited debt supports its investment capabilities, allowing it to mobilise "substantial funds on a timely basis to seize opportunities".

Its affirmation of Temasek's corporate credit ratings also took into account its view of an "extremely high" likelihood of extraordinary support from the Singapore Government, if necessary.

But even if it disregards government support, S&P still assessed Temasek's stand-alone credit profile as "aaa". This is based on the investment company's strong assets portfolio characteristics, above-average investment capabilities and minimal leverage, the report added.

S&P said the stable outlook on Temasek reflects its opinion that, despite sustained investment activity, there is a "low likelihood of a marked deterioration" in the company's assets characteristics and capital structure over the next 12 to 24 months.

S&P credit analyst Bertrand Jabouley said: "This is due to the company's excellent financial flexibility anchored on minimal leverage, robust cash flow generation and active investment policy."

For example in China, Temasek recently raised its stake in the Industrial and Commercial bank of China. It also invested in the Postal Savings Bank of China.

S&P said its outlook also factors in its expectation that Temasek will "further improve its information flow and disclosure standards, and our opinion that there will be no change to ongoing and extraordinary government support".

The agency added that it would lower the rating on Temasek if its stand-alone credit profile deteriorates to below "aa-", or if Singapore's sovereign debt rating - also AAA - is downgraded.

It said negative rating pressure on Temasek's stand-alone credit profile could increase if it views that Temasek's assets' liquidity or quality is deteriorating.

This could happen if Temasek deviates from its investment strategy by significantly increasing its exposure to start-up projects, unlisted ventures and companies with weak credit profiles, for example.

A version of this article appeared in the print edition of The Straits Times on December 15, 2015, with the headline 'S&P affirms AAA rating, stable outlook for Temasek'. Print Edition | Subscribe