RPT-Fitch Affirms the Philippines' PLDT at 'BBB'; Outlook Stable
(Repeat for additional subscribers)
Oct 18 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Philippine Long Distance Telephone Company's (PLDT) Long-Term Foreign-Currency (LT FC) Issuer Default Rating (IDR) and senior unsecured rating at 'BBB'. The Long-Term Local-Currency (LT LC) IDR and National Long-Term Rating were affirmed at 'A-' and 'AAA(phl)' respectively. The Outlook is Stable.
KEY RATING DRIVERS
Solid Credit Profile: PLDT is the largest telecom operator in the Philippines with more than 65% market share in the wireless, fixed-line and broadband segments as at end-June 2013. The ratings also demonstrate the company's strong financial profile, including high EBITDA margins (45% in 2012) and sound funds flow from operations (FFO)-adjusted net leverage (end-2012: 1.5x).
Ratings Constrained: PLDT's LT FC IDR continues to be constrained by the Philippines' Country Ceiling of 'BBB', reflecting the country's foreign-currency transfer and convertibility risk. PLDT's LT LC IDR exceeds the sovereign's LT LC IDR by two notches because foreign-currency transfer and convertibility risk are not taken into account and it reflects the company's unconstrained credit profile.
Margin Erosion: Fitch expects to see a gradual margin decline. This is due to continued intense competition for subscribers and a structural shift from high-margin traditional services (long-distance voice and SMS) to low-margin data services. Operators in the Philippines are aggressive in acquiring wireless subscribers, including offering tariff plans with unlimited calls, SMS and data usage, and offering subsidies rather than differentiated services. While the contribution from long-distance calls will fall, overall fixed-line revenue will increase due to strong data growth.
Lower Capex; Moderate Leverage: Fitch expects PLDT's capex to fall to about PHP30bn (USD696m) in 2013 after peaking at PHP36bn in 2012 with the completion of a major network modernisation investment undertaken in 2011-12. However, free cash flow (FCF) generation will remain marginal due to a continued high-dividend payment. We forecast financial leverage will remain at about 1.4x in 2013.
Investment in Multimedia: PLDT has approval from its board of directors to invest a total of PHP9.6bn to acquire a 64% economic interest in the pay-TV business owned by MediaQuest, which operates under the brand name of Cignal TV.
As at the end of June 2013, Cignal had around 515,000 subscribers. This investment is in line with PLDT's intent to broaden its distribution platforms and increase the company's ability to deliver multimedia content to its customers across the company's broadband and mobile networks. The investment is funded by proceeds from the disposal of non-core assets (that is, the sale of its business process outsourcing segment) so there will be no impact on the company's leverage.
Negative: Future developments that may, individually or collectively, lead to negative rating action include
- PLDT's LT LC IDR could be downgraded if FFO-adjusted net leverage rises above 2.0x on a sustained basis.
- A negative rating action on the country ceiling will result in a corresponding action on PLDT's LT FC IDR.
Positive: Future developments that may, individually or collectively, lead to positive rating action include
- The agency does not foresee potential upgrade of PLDT's LT LC IDR over the medium to long term.
- PLDT's LT FC IDR could be upgraded if there is a positive rating action on the country ceiling.
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