S&P adopts negative outlook on STC

Standard & Poor's Ratings Services (S&P) has revised its outlook on Saudi Telecom Co. (STC) to “negative” from “stable” and affirmed the telco’s “A+” long-term and “A-1” short-term corporate credit ratings.

The ratings agency said the revision reflects its negative outlook on Saudi Arabia’s sovereign rating, as STC was said to have “very strong” government links.

“We continue to view STC's stand-alone credit profile (SACP) at ‘A+', owing to the company's very low leverage and strong market position, profitability, and liquidity,” S&P said in the report.

STC’s business risk profile was labeled as “strong", based on the company's solid position within the kingdom’s telecom sector and its ability to maintain high profitability and an earnings before interest, taxes, depreciation and amortization (EBITDA) margin wider than 40 percent.

“Other factors that would pressure our ratings on STC include debt funded growth beyond our current expectations, accompanied by a more aggressive financial policy, causing adjusted debt to increase to more than 1.5x EBITDA,” the report said.

Last week, S&P cut the kingdom's unsolicited long and short-term foreign and local currency sovereign credit ratings to “A+/A-1” from “AA-/A-1+”, citing low oil prices and a noticeably negative swing in the country’s fiscal deficit.