SingPost’s credit rating placed on negative watch. Here’s our thoughts.

What has happened?

• S&P Global Ratings placed the 'BBB' long-term issuer credit rating on SingPost and 'BB+' issue rating on its SGD$250M senior perpetual securities on CreditWatch on 5 December. CreditWatch placement reflects a higher probability that S&P could cut their ratings by one notch. In this case, the potential to be cut from ‘BBB’ to ‘BBB-‘.
• The placement on CreditWatch comes after SingPost's proposed sale of its Australia business, Freight Management Holdings (“FMH”), one of the leading 4th party logistics (4PL) service providers in Australia. S&P rating sees the planned sale of SingPost’s Australian assets as a loss of a key earnings driver and greater uncertainty over the Group’s future strategy.
• In recent years, the Group has been expanding in Australia as part of its key strategy to transform its business beyond providing postal and parcel delivery. The Group has been relatively successful as Australia has been a key contributor to the company, accounting for 57.9% of total revenue (as of 1H25).
• This is not the first time something similar has happened. In late May 2023, S&P Global Ratings downgraded the long-term issuer credit rating on SingPost to 'BBB' from 'BBB+' and issue rating on the SGD$250M senior perpetual securities to 'BB+' from 'BBB-'.

Reasons for divestment of the Australian business

• SingPost deems the divestment to be the best option for shareholders. The deal offers a net gain on disposal which can be used to enhance shareholder value and improve the Group’s liquidity as well as balance sheet. The proposed divestment is subjected to regulatory approvals but is expected to be completed by March 2025.
• Despite news of the asset disposal and CreditWatch placement, bond prices across SingPost’s three Singapore dollar-denominated bonds saw minor movements while the share price dropped slightly. We think this suggests that markets are taking the news with a mixed approach, weighing a more uncertain earnings outlook against greater shareholder value and potential balance sheet improvements.

How will the sale of FMH affect SingPost?

• The sale of FMH is expected to generate cash proceeds of SGD$682.8M, which is expected to pay down its Australian dollar-denominated debt of SGD$321.1M. A portion of the remaining estimated SGD$361.7M is earmarked for a special dividend in due course.
• As the Australia business is a major contributor to the Group’s earnings, the sale will likely weigh on SingPost’s profitability in the near term. That said, the negative impact on earnings will be partly mitigated by lower interest costs (interest cost savings) after paring down the AUD debt which has an estimated finance cost of around 5%.
• Management has yet to comment on the future growth outlook of SingPost following the divestment, but we think the Group will continue to look for opportunities overseas as the postal business faces structural challenges.
• We expect SingPost’s balance sheet and credit metrics to improve post-divestment, especially after repaying the AUD debt. The remaining proceeds from the sale (minus the amount set aside for special dividend) will likely be used to invest in other growth opportunities, but present as a potential buffer if the Group’s liquidity is under pressure.

Our thoughts on SPOST bonds

• Despite the sale, we see little risk for the SPOST 3.230% Mar2027 Corp (SGD) and SPOST 2.530% 19Nov2030 Corp (SGD). We think SingPost will be able to pay off the cumulative SGD$350M Singapore dollar-denominated debt and their coupon payments.
• The Group’s liquidity position has gradually improved in recent years. As of 1H25, the group holds a cash balance of around SGD 428.4M (more than adequate to cover short-term borrowings of SGD$5.4M). Weaker revenue may weigh on cash generation, but we expect it to be gradual in the near term.
• We expect the Group to conduct further asset sales which can be used to (more than sufficiently) pay off the SGD debt. In line with the divestment plans, we think the Group could dispose the other Australia asset, Famous Holdings (freight consolidator and freight-forwarder). The Group also has the option to dispose of other non-core assets – an intention highlighted by management in 1Q. This would include SingPost Centre (with an estimated value of around SGD$1B) and some of its post offices.
• For SPOST 4.350% Perpetual Corp (SGD), we think the Group has no issues making coupon payments till the next call date (6 Apr ’27) even if earnings decline significantly, given the reasons above. There could be greater uncertainty beyond the next call date, but it depends on the Group’s new growth strategy and plans for asset disposal. The perp has a thin step-up margin of 25bps on its first reset date (6 Jul ’27) which may add to the possibility of non-call.
• At the moment, we do not recommend SPOST’s fixed-rate bonds given unappealing yields relative to peers of similar years to maturity. Similarly, we do not recommend SPOST’s perps as yields are low for a ‘BB+’ rated bond as compared to peers.