Singapore Technologies Engineering Ltd. -- Moody's Disclosures on Credit Ratings of Singapore Technologies Engineering Ltd
Moody's current ratings on Singapore Technologies Engineering Ltd and its affiliate are:
Singapore Technologies Engineering Ltd
Long Term Issuer (foreign currency) rating of Aaa
ST Engineering Financial I Ltd
BACKED Senior Unsecured (foreign currency) rating of Aaa
BACKED Senior Unsecured MTN Program (foreign currency) rating of (P)Aaa
As a Government Related Issuer (GRI), STE's Aaa rating takes into account its Baseline Credit Assessment (BCA) of 4, which is equivalent to Aa3 under Moody's Global Rating Scale, as well as the presence of very strong support from Temasek under the Joint Default Analysis approach.
STE's BCA reflects its strategic role as a major supplier of defence products to the Singapore government. Its importance as a key defence contractor for the government is further demonstrated by the special share in the company held by the Minister of Finance.
The BCA also reflects the company's strong technological capabilities, which drives its commercial business, while its defence contracts continue to support underlying operations. At the same time, STE's diversified portfolio, focusing on four different segments -- aerospace, electronics, land systems and marine - partially mitigates demand volatility in any individual segment. Notably, the company is a leading player in the global commercial maintenance, repair and overhaul (MRO) segment in the aerospace industry.
Over the past years, STE has achieved a track record of stable revenues and operating margins. As of 31 December 2011, its order backlog stood at SGD12.3 billion, which is approximately twice the size of its FY2011 revenue. Although the company has maintained sound credit metrics and a good liquidity position, its cash flows remain weak because of its high dividend policy.
The outlook for STE's Aaa rating is stable, reflecting Moody's expectation that (1) the outlook for Temasek is stable; and (2) STE will continue its current business model and prudent financial profile of maintaining excellent liquidity with a net cash position.
What Could Change the Rating - Up
Since STE's rating is Aaa, there is no further possibility of an upgrade.
What Could Change the Rating - Down
A downgrade in the rating of STE could develop if (1) MOF's special share is converted to an ordinary share, signifying lower support from the Singapore government; (2) there is a change in the relationship between Temasek and STE, which includes, but is not limited to, a reduction in ownership below 50.1%; or (3) a change in STE's role as a key defence and government supplier; or (4) Temasek's rating is downgraded.
STE's rating could also be downgraded if its standalone credit profile showed consistent deterioration due to (1) further pressure on its profit margins, in turn caused by weak market conditions; or (2) decreased liquidity, arising from new acquisitions, substantial capital expenditures, a shrinking order book, or a high capital distribution. In such a scenario, its credit metrics could deteriorate with adjusted net debt/EBITDA remaining above 1.0x.
The principal methodology used in these ratings was the Global Aerospace and Defense Industry Methodology published in June 2010. Other methodologies used include the Government-Related Issuers methodology published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.
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Alan Greene VP - Senior Credit Officer Corporate Finance Group Moody'sInvestors Service Singapore Pte. Ltd.50 Raffles Place #23-06 Singapore Land TowerSingapore 48623 Singapore JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (65) 6398-8308 Philipp Lotter Associate Managing Director Corporate Finance Group JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (65) 6398-8308 Releasing Office: Moody's Investors Service Singapore Pte. Ltd.50 Raffles Place #23-06 Singapore Land TowerSingapore 48623 Singapore JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (65) 6398-8308 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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