PLDT, Globe credit profiles to converge in next 18 months – Fitch

The credit profiles of the country's two main telecommunications companies are expected to converge over the next 18 months as leverage is expected to increase given the expansion of capital ahead of the rollout of a new mobile operator, Fitch Ratings said Tuesday.

In an emailed statement, Fitch said it has rated PLDT's long-term foreign and local-currency issuer default rating at "BBB" with a stable outlook, and Globe one notch lower at "BBB-," also with a stable outlook.

A "BBB" rating means that the capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity.

The modifiers "+" or "-" may be appended to ratings to denote relative status within major rating categories.

"Leverage headroom for PLDT is likely to be more limited over the next three years amid the larger capex needed for both its fixed-broadband and mobile network," said Fitch.

"We forecast leverage – measured by FFO adjusted net leverage – to increase to around 3.0x for PLDT and Globe as they ramp up capex expansion ahead of a new mobile operator, Dito Telecommunity (formerly Mislatel)," it added.

Dito Telecommunity Corporation, formerly Mislatel Consortium, was awarded its permit to operate as the third telecommunications player of the country on July 8, 2019, and is scheduled to start commercial operations in the second quarter of 2020.

PLDT has earmarked a P78.4-billion spending program for this year, a chunk of which to be used for its network and information technology (IT) platforms.

Meanwhile, Globe said it plans to spend P262 billion in combined capital expenditures (capex) for its businesses this year.

Fitch explained that the profiles would likely converge as Globe was seen to grow its revenues at a higher pace than its rival PLDT.

"We expect Globe's revenue to increase at a high-single-digit rate, faster than PLDT's mid-single-digit growth, due to its larger post-paid subscriber base and continued market share gains in mobile," said Fitch.

"However, PLDT’s near-term catalyst may stem from an acceleration of subscriber take-up in its home-broadband services, which had been affected since mid-2018 by a regulatory ruling involving repair and installation services."

Meanwhile, Fitch said Dito Telecom was likely to have a limited network for at least a year from now, given the lengthy regulatory approval process for permits.

"We believe the newcomer will pursue aggressive pricing to win market share," said Fitch.

"However, it would need to offer more than mobile services to tap into fast-growing home-broadband and enterprise services to generate sufficient returns." — Jon Viktor Cabuenas/DVM, GMA News