November 5, 2012 / 7:10 AM / 5 years ago

TEXT-Fitch affirms the Philippines' PLDT at 'BBB-'; outlook stable

Nov 05 - Fitch Ratings has affirmed Philippine Long Distance Telephone Company's (PLDT) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB-' and 'A-' respectively. The Outlook is Stable. A full rating breakdown is provided below.

The ratings reflect PLDT's market leadership that has been reinforced by the acquisition of 99.5% of Digital Telecommunications Philippines, Inc. at end-Q312. PLDT boasted dominant subscriber market shares across the wireless (68%), fixed-line (65%) and broadband (63%) segments at end-H112. PLDT's ratings also benefit from the company's strong credit metrics including high EBITDA margins (H112: 45.6%), despite yoy deterioration (H111: 54.1%), as well as sound leverage, measured by funds flow from operations (FFO)-adjusted net leverage, of 1.3x at end-2011.

The Stable Outlook reflects Fitch's view that the company's financial profile will remain commensurate with the current rating level over the next 12 to 18 months. However, Fitch expects the company's operating margin to continue to decline over the medium-term due to aggressive competition and as lower-margin data revenue increases its share. In addition, free cash flow (FCF) generation is likely to turn negative in 2012 given high capex requirements and dividend payment leading to increase in financial leverage over 1.5x by end-2012.

PLDT's Foreign Currency IDR continues to be constrained by the Philippines' Country Ceiling of 'BBB-', reflecting the country's foreign currency transfer and convertibility risk. On the other hand, PLDT's Long-Term Local Currency IDR exceeds the sovereign's Long-Term Local Currency IDR by three notches - the maximum allowed by Fitch for this company - as does not take into account foreign currency transfer and convertibility risk. It is also reflective of the company's unconstrained credit profile.

- Long-Term Foreign Currency IDR affirmed at 'BBB-'; Outlook Stable

- Long-Term Local Currency IDR affirmed at 'A-; Outlook Stable

- National Long-Term rating affirmed at 'AAA(phl)'; Outlook Stable

- Foreign senior unsecured rating affirmed at 'BBB-'

What Could Trigger A Rating Action?

Negative: Future developments that may, individually or collectively, lead to negative rating action include

For Long-Term Local Currency IDR

-FFO-adjusted net leverage rising over 2x on a sustained basis

-Negative rating action on the sovereign's Long-Term Local Currency IDR

For Long-Term Foreign Currency IDR

-Negative rating action on the Philippine Country Ceiling

Positive: Future developments that may, individually or collectively, lead to positive rating action include

For Long-Term Local Currency IDR

-Positive rating action on the sovereign's Long-Term Local Currency IDR, coupled with an improvement in the country's jurisdictional framework from a creditor protection perspective

For Long-Term Foreign Currency IDR

-Positive rating action on the Philippine Country Ceiling

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