TPG Telecom Limited (ASX: TPG) has been assigned a ‘BBB’ long-term issuer credit rating by S&P Global Ratings, according to a report released today. TPG is the third-largest telecommunications service provider in Australia by revenue and one of only three mobile network operators in the country, offering a wide range of telecommunications products and services. The rating reflects TPG’s solid market share, stable earnings, and supportive financial policies, particularly its position as the third-largest player in the mobile market and second-largest in wholesale fixed-line services.
The report highlights that TPG will undertake several capital management initiatives following the receipt of approximately A$4.7 billion in net proceeds from the sale of assets to Vocus Group Ltd. S&P anticipates that TPG will use these funds to repay debt and maintain a steady-state debt-to-EBITDA ratio of around 2.5x. The completion of the sale of its fixed enterprise, government, and wholesale business to Vocus is expected to reduce TPG’s operating and capital expenditure, enhancing profitability and cash flow, forecasting an EBITDA margin of 30%-33% over the next two years.
However, the outlook is negative, indicating uncertainty regarding the timing and amount of the group’s capital reinvestment plan and subsequent debt reduction. S&P Global Ratings noted that TPG’s fiscal 2025 capital structure may not align with the 2.75x leverage threshold considered consistent with the ‘BBB’ rating. Downward pressure on the rating could occur if TPG’s debt-to-EBITDA ratio exceeds 2.75x on a sustained basis, potentially due to incomplete capital reinvestment or a deterioration in its competitive position.
Conversely, the outlook could be revised to stable in the next 6 to 12 months if TPG completes its capital reinvestment plan and maintains debt to EBITDA below 2.75x. A stable outlook also hinges on TPG maintaining its market shares and favorable access to infrastructure sharing arrangements. The report indicates that environmental, social, and governance factors have no material influence on the credit rating analysis of TPG.
