Fitch affirms credit rating of PLDT, Globe

London-based Fitch Ratings has affirmed the credit ratings of rivals dominant carrier Philippine Long Distance Telephone Co. ( PLDT) and Ayala- led Globe Telecom Inc.

According to Fitch, it has affirmed PLDT’s Long- Term Foreign- Currency Issuer Default Rating (IDR) and senior unsecured rating at BBB.

Likewise, the agency affirmed the Long- Term Local- Currency IDR and National Long-Term Rating at A- and AAA(phl), respectively, while outlook remained stable on all the issuer ratings.

Fitch cited PLDT’s solid market position of a 57 percent revenue market share in mobile and broadband, and a 70 percent subscriber market share in fixed-line.

Fitch expects PLDT’s operating EBITDAR margin to be 47 percent next year from 48 percent in 2013, higher than most regional peers thanks to the duopoly market structure and relatively benign competition and regulatory risks in the industry.

“We expect operating EBITDAR margin to decline gradually by 100 basis points to 150 basis points each year over 2014-17 as lower-margin data services replace higher-margin traditional voice/ text and long distance services,” the agency added.

According to Fitch, competition is intense in the data segment because PLDT and Globe continue to provide handset subsidies and are only gradually migrating to volume-based tariffs from unlimited tariffs.

“We forecast that PLDT will continue to lose 100bp of market share annually to Globe, which increased its mobile revenue market share to 43 percent from 34 percent during 2010-13,” it said.

Fitch expects PLDT’s leverage to rise due to its $445 million investment in Rocket Internet AG of Germany last August that is unlikely to contribute to PLDT’s earnings over the next three years, and continued high capital expenditures.

On the other hand, Fitch also affirmed Globe’s Long-Term Foreign- and LocalCurrency Issuer Default Ratings (IDRs) at BBBas well as its senior unsecured and National Long-Term Rating at BBB and AAA(phl), respectively.

Fitch cited Globe’s 43 percent revenue market share in mobile and broadband from about 34 percent in 2010 after it increased handset subsidies and penetrated rural areas.

Fitch forecasts Globe’s funds flow from operations (FFO)-adjusted net leverage to remain stable at around 2.5x over the medium term.

“This is despite continued large capex and dividend commitments and declining profitability thanks to a P10 billion capital injection last August,” it said.

Just like PLDT, Fitch sees the operating EBITDAR margin of Globe declining gradually by 50bp-100bp over 2014 to 2017 as lower-margin data services replace higher-margin traditional voice/ text and long distance services.

“The company is investing much more aggressively than PLDT even though its revenue is only 60 percent of the latter’s, with capex of P29 billion in 2013 compared with PLDT’s P28.7 billion,” the agency added.