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Optus Finance Pty Limited -- Moody's downgrades Singtel Optus and Optus Finance to A3; outlook stable

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Rating Action: Moody's downgrades Singtel Optus and Optus Finance to A3; outlook stable

Global Credit Research - 27 Jan 2021

Sydney, January 27, 2021 -- Moody's Investors Service has downgraded Singtel Optus Pty Limited's (Optus) issuer rating to A3 from A2, Optus Finance Pty Limited's (Optus Finance) backed senior unsecured medium-term note (MTN) rating to (P)A3 from (P)A2, and its backed senior unsecured rating to A3 from A2. At the same time, Moody's has changed the outlook to stable from negative.

"IMPORTANT NOTICE: MOODY'S RATINGS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS. SUCH USE WOULD BE RECKLESS AND INAPPROPRIATE. SEE FULL DISCLAIMERS BELOW."

RATINGS RATIONALE

Optus is the parent and guarantor of Optus Finance and both of their A3 ratings include a two-notch uplift based on Singapore Telecommunications Limited's (Singtel, A1 stable) 100% ownership of Optus, which Moody's believes will result in credit support in times of financial stress.

The downgrade reflects the deterioration in Optus' credit profile over the fiscal year ending March 2020, and Moody's expectation of further deterioration in fiscal 2021. In particular, Optus faces industry headwinds such as lower retail fixed margins due to a higher mix of NBN customers, lower NBN migration payments, as well lower levels of equipment sales. Adding to this are the effects of the coronavirus pandemic, which have lowered mobile service revenue as customer growth, roaming and prepaid revenues were impacted by lockdowns and international border closures. Operating revenue was also affected by customer support measures, including late payment fee waivers for customers and free credits for healthcare workers.

As a result of these challenges, Optus' EBITDA declined 30% in the first half of fiscal 2021, which Moody's expects will raise debt/EBITDA to a peak of around 3.0x in fiscal 2021 from 2.2x in fiscal 2020.

The stable outlook reflects Moody's expectation that debt/EBITDA will remain below 3.1x in fiscal 2021 and will gradually reduce thereafter to provide reasonable headroom relative to the threshold for the rating.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's may upgrade the rating if free cash flow moderates to a level that keeps debt/EBITDA below 2.5x.

Moody's may downgrade the ratings of Optus and Optus Finance if (1) implied support from Singtel weakens or Singtel's rating is downgraded, (2) if there is a weakening in Optus' financial profile from factors such as increased dividend payments to Singtel, or (3) if debt/EBITDA exceeds 3.1x

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Telecommunications Service Providers published in January 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1055812. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Singtel Optus Pty Limited is an integrated communications services provider in Australia, and the second-largest provider of mobile services and third-largest in fixed line services, as measured by the number of subscribers.

The company is 100%-owned by Singapore Telecommunications Limited (A1 stable). Singtel is 52.5%-owned by Temasek Holdings (Pte) Limited, which is in turn 100%-owned by the Singapore Government (Aaa stable).

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

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These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ian Chitterer VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service Pty. Ltd. Level 10 1 O'Connell Street Sydney NSW 2000 Australia JOURNALISTS: 61 2 9270 8141 Client Service: 852 3551 3077 Patrick Winsbury Associate Managing Director Corporate Finance Group JOURNALISTS: 61 2 9270 8141 Client Service: 852 3551 3077 Releasing Office: Moody's Investors Service Pty. Ltd. Level 10 1 O'Connell Street Sydney NSW 2000 Australia JOURNALISTS: 61 2 9270 8141 Client Service: 852 3551 3077

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