Moody’s assigns Aaa to STE’s MTN program; outlook stable

Singapore, July 07, 2009 -- Moody's Investors Service has today assigned 
an Aaa senior unsecured rating to the USD1.2 billion multi-currency 
medium-term note ("MTN") program of ST Engineering Financial I Ltd, a 
wholly-owned special purpose funding subsidiary of Singapore Technologies 
Engineering Ltd ("STE"). 

The MTN program is unconditionally and irrevocably guaranteed by STE, and 
to which its proceeds will be on-lent. The net proceeds will be used for 
funding new capital expenditures, acquisitions, general corporate 
purposes and/or refinancing existing borrowings.

At the same time, Moody's has affirmed STE's Aaa issuer rating. The 
outlook for all ratings is stable.

STE's Aaa rating combines the: (1) company's underlying credit strength 
-- its Baseline Credit Assessment (BCA) of 4, which is equivalent to the 
Aa3 level under Moody's Global Rating Scale; and (2) strong support 
enjoyed from its major shareholder, Temasek Holdings (Private) Ltd 
("Temasek," Aaa/stable), which owns 50.29% of shareholding interest.

"STE's underlying credit strengths reflect its strategic role as a major 
supplier of defense products, support services and electronics
solutions/services to the Singapore government. It also reflects its 
enlarged scale and improved product and geographic diversity, global 
leadership in the niche third-party maintenance repair and overhaul 
market, solid backlog of orders supporting future revenue, and strong 
credit metrics," says Kathleen Lee, a Moody's VP/Senior Analyst.

"At the same time, the BCA rating also considers the company's small size 
in the context of major global aerospace and defense contractors, the 
challenging global aviation sector conditions, and its high level of 
dividend payments which has led to negative free cash flow in the last 
few years," adds Lee, also Moody's lead analyst for STE.

Moody's expects that the Singapore government's increasing defense budget 
spending and the company's strong order book on hand should continue to 
enable STE to report stable operating performance over the medium term, 
even in the face of a challenging macro environment. However, the 
company's balance sheet is likely to switch from a historically net cash 
position to a net debt position over the next two years, if it continues 
with its high dividend payout policy.

STE's rating is highly sensitive to changes in Moody's assessment of the
likelihood of support from Temasek. Accordingly, the rating would be 
downgraded if evidence emerged of a weakening in support from Temasek, 
such as reduction in ownership, or increasing debt leverage without 
either adjusting dividend policy or a capital injection from Temasek.

The outlook of the Aaa rating is stable, reflecting Temasek's stable
outlook. Moody's expects that STE will continue to generate relatively
stable earnings and enjoy good access to the banking and capital markets. 
Furthermore, Moody's expects that its management will not take on
significant fully debt-funded acquisitions, and will maintain its 
adjusted net debt to EBITDA at no more than 1x.

Since STE's rating is Aaa, there is no further possibility of an upgrade.

Downward pressure could emerge if: (a) Ministry of Finance's special 
share is converted to an ordinary share to signify lower support from the 
Singapore government; (b) the relationship between Temasek and STE 
changes, including a reduction in ownership below 50.1%; and/or (c) a 
downgrade in the rating of Temasek.

In addition, a consistent deteriorating financial profile would also be 
negative for STE's ratings. This could be due to (i) further pressure on 
the company's profit caused by weak market conditions; and/or (ii) 
increasing leverage, arising from new acquisitions, substantial capital 
expenditures, a shrinking order book, or a high level of dividend 
payments, with the result that its credit metrics are no longer 
supportive of a Aa3 level, such as Adjusted Net Debt/EBITDA exceeding 1x 
on a sustained basis