Moody's reconsiders PLDT review for upgrade after increasing stake in Meralco

MANILA, Philippines - Plans of telecom giant Philippine Long Distance Telephone Co. (PLDT) to acquire up to a 20 percent stake in Lopez-led Manila Electric Co. for P20 billion prompted Moody's Investors Service to reconsider its review for possible upgrade with "direction uncertain." In a statement, Moody's Vice President Laura Acres said the purchase would reduce PLDT's liquidity reserves even if it will be funded "without any material adverse impact on consolidated financial metrics." "The acquisition also raises concerns as it represents a move by shareholders and senior management into a non-core business, albeit into another utility with a small telecommunications-related business with an established fiber optic network covering the Metro Manila area," said Acres, who is Moody's lead analyst for PLDT. "It is however noted that PLDT has indicated that it will limit its investment in Meralco to a 20% shareholding." The review will focus on potential funding support PLDT will have to provide to Meralco; PLDT's financial polices over the next two years, especially with regard to leverage and uses of cash; and strategy of PLDT's principal shareholder First Pacific Company Limited, and the degree to which this investment signals a shift in strategy for the telco operator. Moody's also affirmed PLDT's foreign currency bond rating, which "reflects the fact that the rating is unlikely to change without there first being a change in the Philippines foreign currency country ceiling or downward rating action on PLDT." Last week, Moody's said it would place PLDT's senior unsecured local currency issuer rating under review for possible upgrade amid economic slowdown and increase in mobile phone usage. The country's leading telecommunications service provider PLDT provides fixed-line, broadband, cellular and Information and Communications Technology services. As of end-2008, it had 35.2 million cellular, 1.8 million fixed-line and one million broadband subscribers. It also has a 52 percent market share for cellular telephony, 60 percent for fixed-line services and 70 percent broadband. Its major shareholders are First Pacific and NTT Communications/NTT DoCoMo, with effective common shareholdings of 26.3 percent and 20.9 percent, respectively as of January 2009. The remaining common shares are publicly held. - Ruby Anne M. Rubio, GMANews.TV