S&P revises SMRT outlook to negative

Lackluster performance, weak government support factored in.

Standard & Poor's revised its SMRT outlook to negative mainly because the transport company's financial performance has been weaker than it had expected.

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

"The negative outlook reflects the uncertainty about the timing and details of support from the Singapore government for SMRT. It also reflects our expectation that SMRT's financial performance will remain weak. If the new rail financing framework is not effectively implemented by fiscal 2015, we believe the company's financial metrics may not remain commensurate with the current rating," added S&P.

S&P may also lower the rating if SMRT's stand-alone credit profile weakens to 'a+' from 'aa-' currently.

"This could happen if government support is significantly delayed. We may also lower the stand-alone credit profile if SMRT's cash flow deteriorates significantly to make us believe that the company's ratio of FFO to debt is unlikely to recover above 45% in the next 12-24 months even with a new rail financing structure," said the credit rating agency.

"In addition, a material change in the regulatory and transport policy framework that negatively affects SMRT's role as an essential public service provider may lead us to lower our expectation of extraordinary government support to 'very high' from 'extremely high.' We may also downgrade SMRT if the sovereign rating on Singapore is lowered. We may revise the outlook to stable when we get more clarity about the government support and the regulatory environment for SMRT, leading us to believe that the ratio of FFO to debt will improve above 45% on a sustained basis," it added.

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