Fitch deems PLDT, Globe of ‘good credit quality’

The country’s two largest and competing telecommunications giants, Philippine Long distance Telephone Co. and Globe Telecom Inc. both were rated as investment grade by international credit evaluator, Fitch Ratings.   The credit rating agency labeled Globe and PLDT as having “good credit quality” when it comes to the long-term foreign debt these telcos will be issuing.   Fitch said PLDT’s “successful acquisition of a 51.55 percent ownership interest in the third-largest telco — Digital Telecommunications Philippines Inc. in an all-equity deal” is reflected in the upgrade.   The debt watcher said, “PLDT’s ratings also benefit from the company's strong credit metrics.”   However, Fitch also saw that the market leader’s “leverage will deteriorate marginally in 2012 as average revenue per user continues to fall as a result of increasing popularity of bucket or “all you can eat tariff plans and a change in its revenue mix toward lower-margin data services.”   But the leverage slip is not expected to breach the threshold for negative rating action on long-term local currency issuer default rating.   High capital expenditures to cope with data services demand combined with “limited flexibility to cut dividends” are expected to restrict PLDT’s free cash flow, which is forecast to turn negative in 2012.   Fitch also said PLDT and Globe are exposed to SMS (short-messaging service) revenue erosion because of subscribers' growing adoption of data services and social networking.   “Compared with other Asia-Pacific telecom markets, this risk is highest in the Philippines due to the operators' high revenue contribution from SMS services, at about 50 percent of total wireless revenue,” Fitch explained.   Fitch noted that the credit and operating metrics of Globe “are comparable to other investment-grade number-two telecom operators across Asia-Pacific.”   As with PLDT, Fitch also saw some deterioration in Globe’s credit metrics due to planned capital expenditures and forecast decline in operating margins.   Fitch said Globe’s ongoing network modernization program will reduce free cash flow and make it turn negative next year. “This will result in a significant increase in its capex to sales ratio to 45 percent in 2012 from around 25 percent to 28 percent historically.” — ELR/VS, GMA News