GLOBAL ratings agency S&P said on Thursday (Dec 5) it has placed Singapore Post (SingPost) on CreditWatch negative, following a change in its future strategy and the sale of its Australian business.
On Monday, the national postal service provider said it has entered a share purchase agreement to divest its Australian business at an enterprise value of A$1 billion (S$870 million). This was part of the outcome of a strategic review, launched earlier this year, seeking to explore strategic options to enhance its business value and maximise shareholder value.
S&P believes that the sale will be “transformative” for SingPost and clouds its future strategy.
“Over the past four years, SingPost has invested into the logistics industry in Australia to mitigate the structural decline in the postal sector,” said the agency. SingPost’s Australian business is now a key contributor, accounting for 58 per cent of total revenue in the first half of FY2025.
The segment includes fourth-party logistics services, third-party logistics solutions such as transportation and distribution, and last mile courier delivery, as well as warehousing services.
The loss of a key earnings pillar introduces uncertainty over SingPost’s future strategy and earnings contribution, said S&P.
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It also unwinds management efforts over the past four years to diversify the business, and “calls into question the consistency and execution of the company’s stated strategy”, said the agency.
With the sale of SingPost’s Australian business, S&P reckoned that its remaining business is likely to be narrower with significantly reduced scale and diversity.
Still, S&P noted that the transaction is expected to generate a net gain of S$312.1 million, with the company receiving cash proceeds of S$682.8 million. The proceeds can be used to pay down its outstanding Australian dollar-denominated debt of S$544.9 million.
A portion of the remaining proceeds is likely to be earmarked for a special dividend, rather than used for further debt reduction, it said.
Based on the agency’s estimates, SingPost’s debt-to-Ebitda (Earnings before interest, taxes, depreciation and amortisation) ratio will reduce to below two times, following the completion of the sale. This will be a material improvement from S&P’s earlier projection of more than three times for FY2025 and FY2026, it said.
Meanwhile, S&P said SingPost’s leverage policy and future capital allocation appear uncertain.
“The improved leverage position may not be sustained through investment cycles,” it said. “This will depend on the company’s future business strategy, which could require further investment and time.”
The company’s longer-term leverage tolerance also remains unclear, said S&P.
It added that there remains uncertainty around the use of SingPost’s proceeds, even as the company continues to work on divesting other non-core assets.
“A potential sale of SingPost Centre could provide significant financial flexibility to the company and could further reshape the business,” it said. “Should a sale occur, the way in which SingPost reallocates capital could have a bearing on both its business and financial risk profiles.”
Shares of SingPost closed at S$0.59 on Thursday, down 0.8 per cent or S$0.005, prior to the announcement.
