PLDT’s credit profile seen to improve over near term

The overall credit picture for Philippine Long Distance Telephone Co. (PLDT) is seen to improve further propelled by the solid financial performance of wireless subsidiary Smart Communications, combined with a deleveraging story that remains broadly intact, international investment analyst UBS said.

In its April 2004 report, UBS noted that near-term liquidity for PLDT remains manageable with just $288 million of debts falling due this year. In 2004, PLDT plans to cut its debt stock by $250 million.

The intensity of debt maturing, though, rises onwards, with $1.25 billion of debt falling due from 2005-2007, or an average of $418 million each year.

"Although PLDT’s cash flow position is improving, we expect the group will still need to refinance a significant portion of this maturing debt, probably in the international debt market," UBS said. The PLDT group’s consolidated debt stood at P159.8 billion as of end-2003, with debt/EBITDA (earnings before interest, taxes, depreciation and amortization) ratio improving to 2.73x compared to 3.6x in 2002.

At the parent level, leverage remains high, with debt/EBITDA ratio at 5.3x in 2003 as against 5.4x in 2002 and EBITDA/interest coverage ratio of just 2.3x. However, if dividends from Smart are included, debt/EBITDA improves to 4.2x and EBITDA/interest ratio rises to 2.9x.

In its report, UBS also noted that Smart’s latest plan to take over another PLDT subsidiary Piltel and its debts will be credit-neutral to PLDT credit. Just recently, a list of options has been offered to Piltel creditors, aiming to acquire Piltel’s debts at a discount.

"If Piltel’s debt is assumed at 50-percent discount, this raises Piltel’s debt by 57 percent to P32.3 billion, taking debt/EBITDA to 1.0x from 0.65x in 2003. More importantly, the removal of a lingering strategic overhang should be viewed as positive for the group," the UBS report said.

Meanwhile, dividends from Smart will remain a key catalyst to PLDT’s ongoing deleveraging program and improvement in credit metrics, the report added.

PLDT’s impressive 2003 results, with net income at P11.2 billion or up 272 percent from the previous year, were mainly driven by Smart. On the back of a 47-percent increase in subscribers, Smart’s revenues jumped 51-percent year-on-year to P49.9 billion last year. The report noted that growth did not come at the expense of profitability as EBITDA increased 77 percent to P31.6 billion. EBITDA margins also improved from 54 percent in 2002 to 63 percent in 2003 and finished on 75 percent EBITDA margin in the fourth quarter. Net profit of Smart came in at P16.1 billion, of which around P10 to P11 billion will be given to PLDT this year as dividends.