S&P Global Ratings has on Thursday upgraded Singapore-based superapp Grab Holdings Ltd. to ‘BB-‘ with stable outlook, as it foresees sustained positive earnings before interest, taxes, depreciation, and amortization (EBITDA) and cash flow for the firm.

S&P said in a statement that the stable outlook reflects its expectation that Grab will sustain its trend of improving EBITDA and cash flows, while maintaining ample liquidity.

“We believe that the company will maintain robust liquidity of at least US$2 billion while pursuing growth,

“The outlook also reflects our view that Grab will maintain a conservative approach toward leverage management,” it said.

S&P also expects Grab’s rising gross merchandise value (GMV) and take rates, along with economies of scale, to drive a sustained EBITDA improvement.

According to S&P, the company’s differentiation strategy to pursue various market segments has pushed GMV up to $8.7 billion in the first half of 2024, from $7.5 billion a year ago.

It noted on-demand take rates marginally improved over the same comparative period, signaling the firm’s continued focus on capturing profitable growth.

It is noted that Grab has achieved four consecutive quarters of positive adjusted EBITDA as of the quarter ended June 30, 2024.

“We forecast its adjusted EBITDA at $260 million to $280 million in 2024, and $350 million to $400 million in 2025,

“This compares with negative adjusted EBITDA in 2022 and 2023 of $765 million and $26 million, respectively,” it said.

The improvement in EBITDA will also support OCF, which S&P estimate will be above $200 million in 2024, as per its base-case assumptions, up from $161 million in 2023.

S&P also believes Grab will maintain a solid liquidity buffer over the next 24 months.

“Our base case assumes over $3 billion of unrestricted cash and cash equivalents through 2025,

“This is even after taking into account Grab’s inaugural share repurchase program of $500 million between 2024-2025,” it said.

According to S&P, Grab has demonstrated prudent risk management in ensuring ample liquidity.

It noted that its hefty liquidity balance of around $10 billion at its peak after public listing helped to cushion the initial cash burn during the pandemic.

Even with the repayment of its $2 billion term loan B, it said Grab’s unrestricted cash and cash equivalents remained robust at $3.7 billion as of June 30, 2024.

This amount will be close to US$5 billion, including Grab’s long-term investments (which comprise of time deposits, debt and equity investments), it added.

S&P also believes Grab’s leverage can quickly improve, considering limited debt, and its forecasts of rising EBITDA.

“With the full repayment of its term loan B earlier this year, Grab’s debt-to-EBITDA ratio should be less than 2 times in 2024 and further improve in subsequent years,” ti said.

It also noted the company’s leverage tolerance will become increasingly important, given that it is undertaking shareholder-friendly actions as its earnings and cash flow strengthen.

Actions such as larger buybacks and dividend payouts could drag on leverage improvement, in S&P view.

S&P, however, noted that it may lower the rating if they believe Grab is unlikely to sustain positive EBITDA or operating cash flows, or if the company’s liquidity buffer weakens.

“This could happen because of heightened competition in the markets that Grab operates in or if the company undertakes more aggressive tactics to boost or defend market share,

“A decline in GMV, take rate, or monthly transactional users (MTU), or rising incentive spending, could signal such a deterioration,” it said.

S&P may also lower the rating on Grab if they believe its leverage tolerance is significantly higher than we anticipate.

This could happen if the firm undertakes large debt-funded shareholder-friendly actions or inorganic growth, it noted.

S&P could raise the rating on Grab if it maintains a track record of positive EBITDA and operating cash flow, all while keeping leverage at a prudent level and ample liquidity.

This would likely be due to improving operating metrics and economies of scale, it noted.

An indication of this would be the company’s debt-to-EBITDA ratio remaining below 2 times on a sustained basis.

Grab’s revenue grows 17 percent year-on-year in second quarter