PLDT decision to sell BPO unit credit positive – Moody’s

MANILA, Philippines - New York-based Moody’s Investors Service believes that the decision of dominant carrier Philippine Long Distance Telephone Co. (PLDT) to unload its business process outsourcing (BPO) business to be credit positive and would have no material impact on its core operations.

Moody’s assistant vice president and analyst Yoshio Takahashi said in a report that the net cash proceeds from the transaction would improve the company’s earnings before interest, taxes, depreciation, and amortization EBITDA by 0.1 times to 0.2 times.

EBITDA gives an indication on the operational profitability of the business such as how much profit would a company make with its present assets and its operations on the products it produces and sells taking into account possible provisions that need to be carried out.

Last month, PLDT announced that it has unloaded its interest in SPi Global Holdings Inc. in favor of European private equity firm CVC Capital Partners through Asia Outsourcing Gamma Ltd. (AOG) for a total consideration of $300 million.

PLDT decided divest entire interest in SPi Global and reinvest 20 percent in AOG after the buyer committed to further expand and retain its presence here in the Philippines.

 â€œMoody’s believes that the planned sale of the BPO business is credit positive. PLDT estimates that the net cash proceeds from these transactions will surpass $300 million, or over 30 percent and 10 percent of its cash and reported debt, respectively,” Takahashi said.

BPO is a non-core business that accounted for only five percent of the company’s consolidated revenues and three percent of EBITDA last year.

 â€œSo the sale should not have a material impact on its core business operations.

Instead, it should also help improve its overall margins slightly as the EBITDA margin of the BPO business was relatively low at about 18 percent in 2012,” Takahashi said.

PLDT reported early this week that its net income jumped 12 percent to P35.5 billion last year from P31.7 billion in 2011 while its core net income slipped four percent to P37.33 billion from P39.03 billion due to the net effect of the losses on foreign exchange and derivatives transactions as well as additional depreciation charges and recognition of deferred tax assets.

PLDT’s overall consolidated service revenues rose 10 percent to P169.33 billion last year from P153.96 billion on the back of the combined effect of a 15 percent increase in wireless revenues, four percent increase in fixed line revenues, and a 15 percent rise in BPO revenues.

The PLDT Group’s total cellular subscriber base stood at 69.9 million subscribers with 28.4 million from Talk ‘N Text, 25.5 million from Smart, and 15.7 million from Digitel’s Sun Cellular.

PLDT has earlier earned the distinction of being the first Philippine corporate to be given investment grade credit ratings by Moody’s, Standard & Poor’s Ratings Services, and Fitch Ratings.

Takahashi said PLDT’s full-year results for 2012 were in line with expectations, and have no impact on PLDT’s current Baa2 rating and its stable outlook.

“While reported consolidated EBITDA margin based on its service revenues fell to 46 percent in 2012 from 52 percent in 2011, such a decline had already been considered in its rating,” Takahashi said.

Moody’s had expected the decline in margin as PLDT had acquired Digitel Telecommunications Philippines Inc. for P69.2 billion in October 2011.