(The following statement was released by the rating agency)
Nov 23 - Fitch Ratings has affirmed the Philippines-based Globe Telecom, Inc.'s
(Globe) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BBB-'. The
Outlook is Stable. A full rating breakdown is provided below.
The ratings reflect Globe's stable credit metrics as the number-two telecom
operator in the Philippines with over 30% market shares in wireless and
broadband. The Stable Outlook reflects Fitch's view that the company's
financial metrics, despite on-going margin deterioration, will remain
commensurate with its current rating level over the next 12 to 18 months.
Fitch expects the company's operating margin to continue to decline over the
medium term due to growing competition on unlimited tariff offerings and handset
subsidies. Fitch believes that this trend is unlikely to reverse in a maturing
wireless industry with an over 100% penetration rate. This also means subscriber
acquisition cost will increase as operators seek to protect market share.
In addition, Fitch believes that regulatory risk is increasing as the domestic
regulatory body, National Telecommunications Commission (NTC), becomes more
consumer-oriented. NTC recommended that Philippine telecom operators lower
standard text message fees by 20% and reimburse any over-charged amounts to
subscribers. Operators have indicated that they would appeal on a legal basis.
However, Fitch does not believe the potential revenue cut will materially impair
Globe's credit profile. This is because revenue generated from standard text
service, subject to the regulation, is significantly lower as a share of total
revenue than that from unregulated bucket-pricing tariffs. Fitch also expects
Globe's operating EBITDAR margin, despite deterioration, to remain high at over
40% compared with other investment-grade Asia-Pacific telecom operators.
Fitch forecasts that the company's free cash flow (FCF) generation will turn
negative in 2012 given high capex and dividends. In addition, the company's
tender offer to acquire Bayan Telecom's debt could amount to USD134m which could
increase funds flow from operations (FFO)-adjusted net leverage to 2.3x by
end-2012 from 1.9x at end-2011. However, Fitch expects leverage to gradually
improve towards 2x over the medium- to long-term as capex requirements decline.
What Could Trigger A Rating Action?
Negative: Future developments that may, individually or collectively, lead to
negative rating action include
-sharp deterioration in the operating profile; debt-funded acquisitions or
capital management initiatives, which result in FFO-adjusted net leverage
Positive: Future developments that may, individually or collectively, lead to
positive rating action include
- FFO-adjusted net leverage falling below 1.0x on a sustained basis, which would
lead to Local-Currency IDR being upgraded
- an upgrade of the Philippines' Country Ceiling ('BBB-'), which would lead to
the Foreign Currency IDR being upgraded. Globe's Foreign Currency IDR is capped
is capped by the former.
A list of rating actions
- Long-Term Foreign-Currency IDR affirmed at 'BBB-'; Outlook Stable
- Long-Term Local-Currency IDR affirmed at 'BBB-; Outlook Stable
- National Long-Term rating affirmed at 'AAA(phl)'; Outlook Stable
- Foreign senior unsecured rating affirmed at 'BBB-'