Fitch affirms PLDT ratings

Fitch Ratings has affirmed Philippine Long Distance Telephone Co.’s ratings following the company’s decision to raise its dividend payout ratios over the next three years.

The credit ratings agency earlier gave the following ratings for PLDT: long-term foreign currency rating at ‘BB’, outlook negative; long-term local currency rating at ‘BB+’, outlook stable; global bonds at ‘BB’; senior notes at ‘BB’; and convertible preferred stock at ‘B+’.

The outlook on the long-term foreign currency rating reflects the outlook of the Philippine government’s ‘BB’ long-term foreign currency rating.

Fitch noted that while higher dividend payments will reduce PLDT’s ability to further de-leverage in the future, Fitch notes that the company generates solid free cash flow and will still maintain a good amount of debt reduction through to the end of 2006.

"In this regard, Fitch takes comfort in the fact that PLDT remains committed to further de-leveraging and to it targeting a leverage ratio of below 1.5 times by 2006 year-end," said Jonathan Cornish, Fitch’s head of TMT in Asia-Pacific.

PLDT earlier approached bondholders of its 11.375-percent notes due 2012 and 10.625 percent notes due 2007 to seek their consent to alter certain covenants under those securities so that the company can increase its ability to make dividend payments.

Apart from some financial compensation for consent to alter the covenants, PLDT said it will tighten its maximum leverage (total debt to EBITDA or earnings before interest, taxes, depreciation, and amortization) covenant to 3.5x from 4.5x.

Fitch said PLDT reported sound results during the first half of 2005 and remains on track to achieve its stated debt reduction target this year of $600 million.

PLDT president Napoleon Nazareno was earlier quoted as saying that the third quarter profit of the country’s biggest phone company would match, if not surpass, the second quarter net earnings of P8 billion.

The company has reported a consolidated net income of P16.8 billion for the first half of 2005, up 35 percent from the P12.4 billion in the same period last year, largely due to contributions from its wireless subsidiaries and stable fixed line business.

Consolidated net profit, before foreign exchange gains and derivative transactions, rose to P15 billion in the first half of 2005, nine percent over the adjusted and restated net income of P13.8 billion in the first half of 2004.

For the whole of 2005, PLDT chairman Manuel Pangilinan expects core earnings of the group to hit P29 billion compared to P25 billion last year.

Given the P15-billion core earnings for the first half 2005, Pangilinan said the company simply has to maintain the same level of earnings as the second half of 2004 of P13.8 billion to achieve the P29 billion whole year target for 2005.

Also for the entire year, PLDT is targeting a debt reduction figure of $600 million (as against the earlier target of $500 million), and a net debt to cash flow ratio to not more than two times by year-end. By next year, Pangilinan expects the leverage ratio to be below 1.5 times.