PLDT, Globe likely to retain ratings – Fitch

MANILA, Philippines - Philippine telecommunication firms are likely to keep their credit ratings even if they hike their capital expenditures next year to prepare for the possible entry of a new player in the market, according to Fitch Ratings.

“Fitch Ratings expects Philippine telecoms operators to maintain stable credit profiles, with high ratings headroom for Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom Inc.’s Foreign-Currency IDR (Issuer Default Rating),” Fitch said.

 The current rating of Fitch for PLDT is BBB or stable, while Globe’s is at BBB- or stable.

Telstra and SMC are in discussions to form a joint venture and compete in the wireless business in the Philippines.

Telstra chief executive officer Andrew Penn said the Australian company is looking to invest nearly $1 billion in the Philippine market for the business.

SMC president and chief operating officer Ramon Ang said the focus would be on postpaid and broadband, should both parties decide to pursue the business.

To prepare for the possible entry of a new market player as well as the government’s proposed rollout of free WiFi nationwide, Fitch said industry capex is expected to be high at around P85 billion next year from around P83 billion this year for aggressive network expansion and to improve fixed broadband services.

Amid higher spending, the two telcos would likely see continued free cash flow deficit next year.

Fitch also expects the operating EBITDAR (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs) margins of PLDT and Globe to narrow by around 100 basis points in 2016 to 45 percent and 44 percent, respectively, citing changing revenue mix from the traditional voice or text services to lower margin data services, and cheaper data plans.

While the possible entry of Telstra and SMC’s joint venture is likely going to have limited impact on PLDT and Globe in the next two years, Fitch warned that its effect could be greater over the longer term.