Smart issues P5-B fixed rate notes for capex

Smart Communications executed yesterday a facility agreement for P5 billion worth of five-year fixed rate notes, proceeds of which will be used to finance the company’s capital expenditure and other requirements.

The facility was arranged by First Metro Investment Corp., the investment banking arm of the Metrobank Group.

Smart said the issuance gathered strong support from the debt capital market, allowing the company to raise the issue amount to P5 billion from the original target of P2 billion.   

The 16 participating financial institutions were a mix of big trust banks, top savings banks, leading insurance companies, retirement and provident funds. 

During the signing ceremony, First Metro Investment president Francisco Sebastian noted that the issue’s oversubscription was a testament to investor confidence and willingness to extend credit to Smart given its remarkable track record over the past 10 years.

Meanwhile, Smart president and CEO Napoleon Nazareno expressed his appreciation to the arranger and participants for the successful issue, amidst the current global financial turmoil and the very tight peso funding market where a number of prime companies are competing for a limited pool of funds.

He added that the Philippine Long Distance Telephone Co. (PLDT) Group will continue to tap the peso market for its funding requirements.

PLDT earlier revealed that it is reducing its capital expenditure budget further this year from an earlier budgeted P27 billion to a slightly lower P25 billion.

This is the second time this year that PLDT cut back on its capex budget. Just last month, the company announced that its capex for 2008 is down to P27 billion from an earlier guidance number of P28.5 billion.

For the first nine months of 2008, PLDT’s consolidated capex was at P16.8 billion. About P11.5 billion was spent for increased capacities for 2G, 3G and partly for the rollout of HSPA 850 and expansion of wireless broadband capacities. Another P6.5 billion was allocated for the fixed line business.

PLDT chairman Manuel Pangilinan explained that around P8 billion is expected to be spent for the last quarter of the year. He said some of the expenses will have to be deferred to next year. The remaining P8 billion capex budget for the year will be largely spent for the fourth quarter rollout of the new HSPA 850 service.

Next year’s capex requirement is estimated to be at the same level as this year. Pangilinan emphasized that since many of the projects are scaleable, it would be easy to increase or reduce the capex, depending on market conditions.

Pangilinan earlier explained that they have reduced their capex forecast for 2008 by P1.5 billion to P27 billion, having chosen to postpone some of their investments in wireless broadband and cellular infrastructure.

“Our capex have always been designed to be scalable such that we can accelerate spending when rising demand dictates it or reduce in times when caution is called for — such as now. We  will reassess our capex program in early 2009 once we have a better grasp of the  overall market situation,” he said.

Pangilinan has projected a drop in PLDT’s reported net income this year, largely due to expected huge foreign exchange losses.

He said this year’s reported net income will be lower than last year’s P36 billion, but did not say by how much.

But he emphasized that they are sticking to their core income guidance number for 2008 of P37 billion, which is five percent higher than last year’s P35.2 billion profit.

He explained that the company’s reported net income this year has been adversely affected by the weakening of the peso vis-à-vis the dollar. The value of the peso, Pangilinan noted, was slightly weaker during the fourth quarter of 2008 compared to the third quarter.

But he stressed that there should be more focus on the core income numbers, since the reported net income includes exceptionals, which do not reflect recurring company income and oftentimes includes mere “paper profits and losses.”

Pangilinan also revealed that the fourth quarter 2008 income numbers will be better compared with the third quarter of this year as well as the fourth quarter period of last year, “but not as good as the first and second quarter 2008 numbers.”

Meanwhile, he disclosed that PLDT wireless subsidiary Smart Communications will end 2008 with a subscriber base of 35 million.

He, however, expressed concern that next year’s subscriber net additions will be lower than the 2007 as well as 2008.

“With the cellular penetration rate now at 75 percent, this means that there are only 15 to 16 million Filipinos left that do not have mobile phones. And because most of these Filipinos belong to the lower income bracket, it will be harder to sell to them. We also have to consider that the economic prospects next year will be tougher,” he explained.