Temasek Holdings #AAA/A-1+# Ratings Affirmed On Close Government Outlook Stable

Stocks and Financial Services Press Releases Monday September 11, 2017 17:37
SINGAPORE--11 Sep--S&P Global Ratings

SINGAPORE (S&P Global Ratings) Sept. 11, 2017--S&P Global Ratings today affirmed its 'AAA' and 'A-1+' long-term and short-term corporate credit ratings on Singapore-headquartered investment holding company Temasek Holdings (Private) Limited. The outlook remains stable. At the same time, we affirmed our 'AAA' rating on the guaranteed global medium-term notes (MTN) program of Temasek Financial (I) Limited and on the notes issued under the program.

We anticipate the close relationship between Temasek and the government of Singapore will remain intact, supporting the company's creditworthiness. At the same time, we see increasing pressure on Temasek's stand-alone credit profile (SACP) coming from its investment policy shift toward unlisted assets.

Our credit assessment on Temasek factors in our view of an extremely high likelihood of extraordinary support from the government of Singapore (unsolicited rating AAA/Stable/A-1+) since:
Temasek has a critical importance to the Singapore government due to the company's shareholding in some sectors, which we believe are strategic for the country's economy.
Temasek shows a very strong link with its sole owner, the Singapore government, which is very unlikely to dilute its ownership.
Under the Singapore Constitution, Temasek is subject to the country's constitutional safeguards where Singapore's President has an obligation to protect the company's past reserves.
We assess Temasek's SACP as 'aaa', based on its strong assets portfolio characteristics, above-average investment capabilities, and minimal leverage.

Therefore, the corporate credit rating is 'AAA' by its own merits. Accordingly, the benefit from this extremely high likelihood of extraordinary government support would materialize if we lower the SACP for Temasek.

Temasek's SACP could deteriorate because the increasing proportion of unlisted assets weighs on the investment holding company's net portfolio characteristics.
This is because we see quoted investments as typically easier to liquidate and more creditworthy than unlisted investments.
At the end of March 2017, unlisted assets accounted for about 40% of the Singapore dollar (S$) 275 billion net portfolio.

In the past seven years, the compounded annual growth rate (CAGR) of unlisted assets was 17%, meaning they more than doubled in value to S$110 billion on March 31, 2017, from S$43 billion in 2011. At the same time, listed assets' CAGR was 2%.

This demonstrates the gradual rebalancing of Temasek's net portfolio mix toward unlisted investments. The stable outlook on the rating reflects our opinion that Temasek's close relationship with, and hence, the likelihood of extraordinary and timely support from, the government will remain intact over the next 24 months.

We would lower the rating on Temasek if we lower the sovereign rating and our 'AAA' transfer and convertibility assessment on Singapore, or believe the government's commitment to the company has reduced.

Given our view of the extremely high likelihood of extraordinary support from the government of Singapore, we would downgrade Temasek if its SACP deteriorates to below 'aa-'. We would lower the SACP on Temasek if we view the company assets' liquidity or quality as deteriorating.

This could happen if Temasek steadily increases its exposure to start-up projects, unlisted assets, and companies with weak credit profiles, so that unlisted assets account for more than 40% of its portfolio, in conjunction with average ownership in listed assets above 20% or the assets' weighted credit quality deteriorates to below 'bbb-'. Negative rating pressure could also escalate on the company's SACP if its loan-to-value ratio rises above 10% on a sustained basis, prompting us to reconsider our view of Temasek's very conservative capital structure.

This could occur if the company undertakes large net debt-funded additions to its portfolio or provides financial support to its investee companies, such that it can no longer distance itself from their operating and financial risks.

We could also reconsider our assessment of Temasek's strategic investment capability in that case, if we believe it reflects a structural and permanent shift to a more aggressive financial policy from its current stance of having limited debt.

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