ST Engineering downgraded to AA+ on TransCore post-acquisition, outlook stable
S&P Global Ratings on Wednesday downgraded ST Engineering, given the company’s “growth appetite to keep its debt level elevated for at least the next two to three years”.
The lowering of the issuer credit rating follows the revision of the company’s stand-alone credit profile (SACP) to BBB+ from AA-, S&P Global Ratings said in press release.
“Our issuer credit rating of AA+ for ST Engineering incorporates a six-notch uplift from the company’s SACP of BBB+. This continues to reflect our view of an extremely high likelihood of extraordinary support to ST Engineering from the government of Singapore through Temasek Holdings,” the agency said.
"Following the TransCore transaction, S&P Global Ratings’ view of ST Engineering’s stand-alone creditworthiness has been significantly weakened by a notable increase in the company’s leverage tolerance.
“Although the acquisition of TransCore will immediately be cash flow accretive, the S$3.6 billion [THB88.96 billion] debt-funded acquisition will almost triple ST Engineering’s debt to S$5.3 billion in 2022 from $2.1 billion as of December 31, 2021. We forecast ST Engineering’s debt-to-EBITDA ratio will increase to about 4.0x in 2022, improving by about 3.0x-3.5x thereafter,” the agency said.
The addition of TransCore to ST Engineering's portfolio will provide a new product offering in the smart mobility segment and provide some geographical diversification for ST Engineering.
“Nevertheless, we believe the benefits from potential business synergies will take some time to materialise. Compared with rated aerospace and defence peers, ST Engineering’s size and product offering constrain the company’s creditworthiness,” S&P Global Ratings added.
