PLDT credit rating affirmed despite higher country risk

STANDARD & Poor’s Ratings Services (S&P) has affirmed PLDT Inc.’s “BBB+” long-term corporate credit rating and assigned a “stable” outlook despite the Philippines’ “increased risk,” citing good prospects for the business and the strength of its balance sheet.

In a statement, the debt watcher said it likewise affirmed PLDT’s “axA+” long- term Association of Southeast Asian Nations ( ASEAN) regional scale score.

“We affirmed the ratings on PLDT because expect the company to maintain its business fundamentals over the next 12-24 months despite our assessment of an increase in country risk in the Philippines. We expect PLDT to continue on its strategic investments to protect its market share and grow data revenues,” S& P said.

The credit rater said the “stable” outlook on PLDT’s rating reflects its view that the telecommunications giant “will preserve its dominant market position in the Philippines and manage its capital expenditure and shareholder distributions to protect its capital structure.”

“The stable outlook on PLDT for the next 12 months reflects our view that the company will continue to have a dominant market position in Philippines’ telecom market and a higher EBITDA (earnings before interest, tax, depreciation and amortization) margin than its regional peers. We expect growth in the company’s broadband and data businesses to continue to offset gradually eroding revenue from traditional voice and SMS operations,” it added.

The debt-watcher added PLDT is expected to continue dominating the local industry, citing its “degree of resilience” and “strong market position.”

PLDT reported its cellular subscribers, which include both postpaid and prepaid, stood at 63.03 million in 2016, still the market leader.

Meanwhile, S&P noted PLDT and Globe Telecom, Inc.’s joint acquisition of San Miguel Corp.’s ( SMC) telco assets last year bodes well for the company since it increases the capacity to expand data services.

The acquisition provides PLDT with 140 megahertz (MHz) of spectrum across various bands — including the 700 MHz band.

“We believe that the move will dampen the near-term likelihood of a third player entering the Philippines telecommunication market, cementing PLDT’s already strong market position,” S&P said in its statement released late on Wednesday.

PLDT and Globe in May 2016 announced its joint acquisition of SMC’s telecommunications business for P69.1 billion. Under the deal, the two companies acquired the coveted 700-MHz spectrum, which is able to penetrate walls and useful for providing in-building coverage.

“Our credit assessment of PLDT includes a one- notch positive adjustment to reflect our view that the company will be able to keep its ratio of debt to EBITDA below 2.5x on a sustainable basis. This ratio is at the stronger end of an intermediate financial risk profile range. We also expect the company to continue to rebalance its dividend payments and capital outlays while maintaining its robust competitive position,” S&P added.

The credit rating agency noted that its outlook is tied to its expectation that PLDT will continue to generate free operating cash flows over the next two years, “in spite of heavy capital expenditures” and that the company’s acquisition appetite will remain moderate.

S&P said PLDT’s rating may be lowered if its “capital structure weakens “such that the ratio of debt to EBITDA remains above 2.5x on a sustainable basis.” This may be caused by higherthan-expected capital spending, or if PLDT’s operating performance “deteriorates materially due to aggressive competition.”

“We may upgrade PLDT if we raise the foreign currency rating on the Philippines, which we believe could also result in the raising of the ‘ BBB+’ transfer and convertibility ( T& C) assessment for the country; and [if ] we raise our assessment of the company’s stand- alone credit profile,” S&P said.

The debt watcher noted that on May 23, it lowered the country risk score of Philippines from “moderately high risk” to “high risk”, reflecting “slightly diminished predictability of future policies as a result of the government’s pronouncements on foreign policy and national security.”

“In our view, the Philippines no longer demonstrates an evident strength in its business or financial environment compared to those of similarly ranked countries such as Indonesia and Vietnam. The rating outlook for the sovereign credit ratings on Philippines is stable and we do not expect improvements in the country’s economic, financial, and institutional environment in the near term,” it added.

PLDT shares added P103 or 6.38% to end Thursday’s trading at P1,718 apiece.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a stake in BusinessWorld through the Philippine Star Group, which it controls. —