S&P raises Globe Telecom credit rating

SINGAPORE – Standard & Poor’s raised yesterday its long-term corporate credit and senior unsecured debt ratings on Philippine cellular operator Globe Telecom Inc. to BB from BB-minus.

The outlook is stable.

The ratings on Globe reflect its continued strong operations and improving financial performance, following the recently completed acquisition of cellular operator, Isla Communications Co. Inc. (Islacom).

These positive factors, however, are moderated by price sensitivity in the domestic cellular market, and its aggressive capital expenditures.

Globe’s operating performance was impressive in the third quarter of 2001; consolidated operating revenues and net income rose year-on-year 81 percent and 220 percent, respectively.

Also, its total cellular subscriber base almost doubled to four million, largely as the result of a surge in prepaid subscribers.

Credit protection measures also improved; total debt to capital fell to 50 percent on Sept. 30 from 58 percent in fiscal year 2000, and annualized funds from operations to total debt jumped to 37 percent from 26 percent.

The post-acquisition consolidated entity should strengthen its competitive position in the Philippines by increasing bandwidth capacity for future subscriber growth, and by realising economies of scale in network build-out, and other cost savings.

Globe’s three major shareholders — Ayala Corp. Singapore Telecommunications Ltd and Deutsche Telekom AG — injected US$103.2 million into Islacom in May 2001, before the merger, and a further US$52 million will be transferred before year-end.

The domestic cellular market has become a duopoly in the past year, between Philippine Long Distance Telephone Co.

Another player, Digital Telecommunications Philippines Inc, is expected to begin operations in 2002, and this might increase the industry’s competitive environment in the medium term.

Globe’s financial profile remains aggressive.

It expects to spend US$2.3 billion in 2001-2005, 90 percent or more of which will be spent on the wireless sector. The company will spend more than one-third of the total (about US$843 million) in 2001.

As part of this financing need to be raised externally, weak global conditions might make these funding requirements difficult to achieve. Globe’s credit quality is likely to be maintained in the medium term, however.

Globe remains susceptible to the volatility of the Philippine peso. About 38 percent of Globe’s loans are effectively denominated in pesos, including swaps.

Although hard currency debt makes up almost one-half of the total, Globe’s hard currency revenues accounted for only 22 percent of total net revenues in the first nine months of 2001.

As of September 30, the company has total capitalised foreign exchange losses of 5.8 billion pesos since August 1997 (or 16 percent of equity as of third quarter 2001), of which only 823 million pesos has been recognised in Globe’s profit and loss account.

Outlook: Stable

Continued market growth and a further improvement in operating performance are expected to underpin Globe’s credit quality, and should provide an adequate cushion for debt service in the near-to-medium term.