Proceeds from the sale will be used to reduce debt.

Singapore Post's (SingPost) proposed sale of its Australian business, Freight Management Holdings (FMH), will cloud its future strategy, as FMH is a key earnings contributor, according to S&P Global Ratings.

For the first half of FY2025, ending on 31 March 2025, Australia accounted for 58% of SingPost's total revenue.

S&P said the move will also unwind management efforts over the past four years to diversify the company's portfolio and to build a second home base.

However, S&P expects SingPost's balance sheet to materially strengthen following the debt repayment as the transaction could generate a net gain on disposal of $312.1m. As of 30 September, Singapore Post's total Australian dollar-denominated debt was $544.9m.

"The company expects to receive net cash proceeds of $682.8m which is net of debt at FMH of $224.1m. We anticipate that the company will repay the residual Australian dollar-denominated borrowings amounting to $320.8m undertaken for its acquisition of FMH," S&P noted.

Meanwhile, S&P said a portion of the remaining proceeds will likely be allocated to a special dividend and is not expected to be used for further debt reduction.

"Based on our estimates, the debt-to-EBITDA ratio will reduce to below 2x following the completion of the transaction, which is a material improvement from our previous projection of more than three times for fiscal 2025 and 2026," S&P said.