S&P downgrades outlook on SMRT to 'negative'

Credit ratings agency Standard & Poor's (S&P) has lowered its outlook on SMRT Corp from "stable" to "negative" over concerns about its financial position, particularly its cash flow.

S&P said last Friday that the transport operator's operating expenses are higher than expected. It also pointed to high capital spending over the 12 months to June, while noting the uncertainty over government financial support such as funding for the firm.

However, it affirmed SMRT's long-term corporate credit rating as "AAA".

"In our view, without more certainty regarding the nature and timing of financial support from the Singapore Government by the end of the fiscal year ending March 2014, the pressure on the rating could rise," it said.

"This is because the lack of timely government support could delay a recovery in SMRT's key financial metrics."

SMRT's "moderate" financial risk profile is weakening, S&P added.

It said it expects the group's bottom line will be hit by increased operating expenses such as wages and repair and maintenance costs, without the offsetting factor of higher fares.

S&P added that SMRT's capital expenditure will likely remain high at about $600 million.

It noted that the group's capital spending will likely ease in 2015 as it implements a new rail financing framework. This, in turn, will ease its debt situation.

"Nevertheless, we base this on a positive and timely outcome for the ongoing discussions between the company and the Government."

S&P said SMRT's business risk profile remains "excellent", backed by its dominance in Singapore's rail sector.

Its passenger numbers have grown steadily over the past two years despite breakdowns in December 2011.

The agency predicts that passenger numbers will continue to rise as the economic environment improves and it retains its dominant position here.

S&P continues to believe that the likelihood of "extraordinary government support" for SMRT Corp is "extremely high".

It said: "This is based on the company's critical role as a provider of essential public transport service in Singapore, and its very strong link with its majority owner, the Government, through Temasek Holdings, which owns 54.2 per cent of SMRT."

rachaelb@sph.com.sg

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