S&P Global Ratings has affirmed Singapore-based mobility, delivery, and digital financial services provider Grab Holdings ‘BB-‘ rating with stable outlook as it sees the firm can absorb $1.5 billion bond issuance.

The rating agency said in a note on Tuesday that the stable rating outlook reflects its view that Grab will continue to improve its earnings before interest, taxes, depreciation, and amortization (EBITDA) and operating cash flow, and maintain ample liquidity over the next 12-24 months.

According to S&P, Grab’s leverage will remain within its tolerance for the rating over the next 12-24 months despite a spike following the company’s $1.5 billion convertible bond issuance this month.

It noted that Grab has ample liquidity and is likely to generate positive earnings and cash flow over the period.

That said, the use of proceeds of the issuance will be a key rating driver, it added.

S&P expects Grab’s debt-to-EBITDA ratio to jump to 5.3 times in 2025 from its previous expectation of 1 to 1.5 times.

“The forecast ratio is still within our tolerance level for the rating. Our adjusted debt metrics for Grab do not net off the company’s cash holdings,” it said.

The rating agency also believes Grab’s leverage will decline to 3.6 times in 2026 and 3 times in 2027.

It noted a nearly 30 percent compounded annual growth rate in EBITDA over the next three years will help in this.

“Grab’s operating cash flow (OCF) should also improve from higher earnings in its ride-hailing and food delivery segments, as well as increasing customer deposits in its fast-growing digital financial services segment,” it added.

Furthermore, it opined that Grab’s EBITDA coverage will remain well above 10 times over the next two years, given the convertible bonds do not bear any interest.

According to S&P, the step-up in leverage following the bond issuance could signal a higher debt tolerance than we previously anticipated.

“The company is also undertaking shareholder-friendly actions as its earnings and cash flow strengthen,

“Actions such as larger buybacks and dividends could delay leverage improvement, in our view,” it noted.

The primary use of proceeds–for pursuit of growth or for shareholder returns–will be key for S&P assessment of Grab’s creditworthiness.

“Should the company use the proceeds for a large-scale acquisition or investment, we would reassess its business competitiveness and whether any incremental business improvement compensates for potentially higher leverage,” it said.

S&P also expects Grab to maintain its measured approach toward potential acquisitions.

It noted the company has not made any outsized acquisition since its takeover of Uber Technologies Inc.’s southeast Asia business in 2018.

“Considering the track record, we believe any acquisition or investment will have a material synergy with Grab’s existing business segments,” it said.

S&P’s base case assumes Grab will have more than $7 billion of cash and short-term investments through 2026.

This is even after taking into account additional share repurchase programs following completion of its inaugural share repurchase of $500 million in 2024-2025.

“In our view, Grab has demonstrated prudent risk aversion to ensure ample liquidity,” the rating agency said, adding that the company has maintained at least $4.9 billion of cash and short-term investments since 2021, supporting its strong assessment of its liquidity.

It also highlighted that Grab’s hefty liquidity balance of about $10 billion at its peak after public listing cushioned the initial cash burn during the pandemic.

S&P estimates Grab will maintain at least $2 billion in cash holdings while pursuing growth.

“We believe the company will maintain robust liquidity of at least $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, however, said it may lower the rating if it believes Grab is unlikely to sustain positive EBITDA or operating cash flow, or if the company’s liquidity buffer weakens.

“This could happen because of heightened competition or Grab adopting more aggressive tactics to boost or defend market share,

“A decline in gross merchandise value (GMV), take rate, or number of monthly transacting users (MTU), or rising incentive spending could signal such deterioration,” it explained.

The rating agency may also lower the rating if Grab increases its leverage without operational benefits.

This could happen if it takes sizable additional debt or grows inorganically, without business accretive opportunities, it noted.

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

The debt-to-EBITDA ratio remaining below 2 times on a sustained basis could indicate such improvement, it noted.

It added that upside could also flow from a significant strengthening of the company’s operational scale and competitiveness.

Maybank : Grab’s convertible issuance boosts net cash position to $7.7B