In a statement, the ratings agency said it expected Optus' financial performance to deteriorate significantly in 2021.
"We anticipate adjusted EBITDA to decline by about 20% to 30%, due to persistent price competition, cautious business and consumer sentiment exacerbated by COVID-19, slow recovery of international travel, as well as margin dilution caused by the national broadband network," S&P said.
Due to these factors, adjusted leverage was likely to exceed 3x in fiscal 2021 and that would be above the current stand-alone credit profile of 2.75x. The profile had been revised down to bbb- from bbb.
"The negative outlook on Optus mirrors that on its parent company because we continue to view Optus as a core subsidiary to the group. The issuer credit rating on Optus does not factor in any extraordinary support from the government of Singapore, unlike our credit rating on Singtel."
S&P said it expected Optus to maintain its second position in the Australian telecommunications market. "Optus holds about 27% retail market share by revenue for mobile phone services in Australia and 15.5% of wholesale market share for NBN services," the ratings agency said.
"Recently, Optus announced its $250 million acquisition of amaysim, Australia's largest mobile virtual network operator with a customer base of nearly 1.2 million subscribers.
"We view the acquisition as a defensive investment that should help reinforce Optus' market position with a dual-brand strategy as well as secure its wholesale revenues.
"Moreover, the acquisition removes a key market disruptor, which should promote a more stable market environment among Australia's three mobile network operators. The Australian Competition and Consumer Commission is reportedly not planning to oppose the acquisition."