S&P downgrades PLDT credit rating

Credit rating PLDT Inc. was downgraded due to concerns about the firm’s financial position following the announcement of a major budget overrun last year.

“We have downgraded our long-term PLDT issuer credit rating to ‘BBB’ from ‘BBB+’,” S&P Global Ratings said on Monday.

“At the same time, we have downgraded the PLDT senior unsecured bond issue rating from ‘BBB+’ to ‘BBB’,” it said in a statement.

However, the outlook for PLDT remained “stable”.

S&P said this “reflects our view that earnings growth will provide some protection against the company’s debt growth, so that its debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio will remain below 3x.”

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However, the debt watcher said the expected weakening of the telco’s debt-to-Ebitda ratio meant the ‘BBB+’ rating was no longer true.

“We forecast the ratio to decline to 2.8x-3.0x in 2023, 2.6x-2.8x in 2024 and remain above 2.5x in 2025 despite revenue growth,” the company added.

The rating could be further downgraded if PLDT’s competitiveness deteriorates and results in lower operating performance.

“We may also downgrade if we believe the company will operate at higher levels of leverage for an extended period,” S&P said in a statement.

“An indication of this could be that the PLDT debt to EBITDA ratio will increase more than 3x on a sustainable basis,” he added.

An increase, on the other hand, can be made if the firm improves its operating performance and de-levers while maintaining a strong market position.

PLDT reduced its outstanding supplier obligations due to reported budget overruns to 33 billion pesos from 48 billion pesos announced in December.

The company claims that there was no fraud and that the overrun was the result of a desire to compete and improve its services.

“We now forecast that the company’s cash capex (capex) for the year will be 85-87 billion pesos,” S&P said in a statement.

“This includes between 20 and 22 billion pesos due to the PLDT capex budget overrun that the company reported in 2022,” he added.

In the meantime, total PLDT revenue is expected to grow by 4-5% per year in 2023 and 2024.

“Growth will be driven by the company’s fixed-line segment, which we expect to grow from 9 to 11 percent in 2023 and from 8 to 10 percent in 2024,” S&P said in a statement.

“This is due to the growing adoption of fixed home broadband and growing digitalization, which is benefiting the corporate segments of data services and information and communication technologies,” he added.

“We expect low fixed-broadband penetration in the Philippines to support subscriber growth despite competition,” the Debt Watcher continued.

“On the contrary, competitive pressures could intensify in the wireless segment, where a relatively new entrant, Dito Telecommunity Corp, has emerged.”

S&P also said PLDT spending on workforce cuts will continue this year and decrease from 2024.

“The company earned 5 billion pesos from this in 2022, which is significantly more than the 269 million pesos spent in 2021,” the company noted, which affected Ebitda in 2022.

“We forecast PLDT’s adjusted Ebitda margin to fall to 47-48% in 2023 from 50.4% in 2021,” S&P added.

“But we expect margins to improve to 49-51% from 2024 as the company’s cost structure benefits from its previous cost-cutting measures, including workforce cuts.”

PLDT’s share price fell 5.85% or 83 pesos on Monday to 1,337 pesos as the Philippine Stock Exchange’s benchmark index rose 0.47 percent.