TPG Telecom’s Debt-to-EBITDA Set to Improve to 2.5x by 2026 After A$4.7B Asset Sale

S&P Global Ratings Assigns BBB Rating to TPG Telecom

On August 5, 2025, S&P Global Ratings assigned a BBB long-term issuer credit rating to TPG Telecom Limited (ASX, TPG), accompanied by a negative outlook. This rating reflects the credit agency's recognition of TPG's solid market position as Australia's third-largest mobile operator and its capital-light business model, which supports robust earnings and cash flow generation.

However, the negative outlook signals caution due to uncertainties surrounding TPG's capital reinvestment plan and the timing of its debt reduction initiatives following the recent sale of its fixed enterprise, government, and wholesale business to Vocus Group Ltd. The transaction generated approximately A$4.7 billion in net proceeds, which TPG plans to use for debt repayment and shareholder returns.

Capital Management and Leverage Outlook

TPG aims to reduce its debt substantially, targeting a debt-to-EBITDA ratio of about 2.5 times by fiscal 2026, down from an estimated 3.0 times in 2025. The company plans to repay around A$2.4 billion of bank debt and return approximately A$3 billion to shareholders through a capital reduction. Additionally, a capital reinvestment plan is scheduled for October 2025, expected to raise A$688 million from minority shareholders, with underwriting arrangements in place to cover any shortfall.

Despite these initiatives, S&P highlights execution risks that could affect TPG's ability to maintain leverage within the threshold consistent with the BBB rating. The rating agency also factors in substantial contractual commitments from network sharing agreements with Singtel Optus and Vocus, which it treats as debt, adding complexity to TPG's capital structure.

Competitive Position and Operational Efficiency

TPG's competitive position benefits from network sharing agreements, including a multi-operator core network deal with Singtel Optus and a transmission and wholesale fiber access agreement with Vocus. These arrangements are expected to improve network coverage and scale, helping TPG close gaps with larger competitors like Telstra Group Ltd.

Operationally, TPG is poised to enhance profitability by streamlining its cost structure, ending the 5G investment cycle, and pursuing IT modernization and business simplification initiatives. The company forecasts an EBITDA margin of 30% to 33% over the next two years, supported by its capital-light model and reduced capital expenditure following the asset sale.

Risks and Outlook

The negative outlook reflects the risk that TPG may not fully execute its capital reinvestment plan or that competitive pressures could erode its earnings and cash flow. A sustained debt-to-EBITDA ratio above 2.75 times or a significant loss of market share could trigger a rating downgrade. Conversely, successful completion of capital initiatives and maintenance of market position could lead to an outlook revision to stable within 6 to 12 months.

Liquidity is assessed as adequate, with expected sources exceeding uses by at least 1.2 times over the next year. TPG maintains solid banking relationships and prudent capital spending policies to mitigate liquidity risks.