PLDT to retire debts of fixed line business by 2008

Telecommunications leader Philippine Long Distance Telephone Co. (PLDT) expects to retire completely the debts of its fixed line business by 2008.

By the end of 2005, PLDT’s fixed gross debt will be at $1.46 billion which is projected to go down further to $1.2 billion by the end of next year, and only $880 million by end of 2007. "If you assume a cash balance of $150 million, then we will have a net debt of about $1 billion by the end of next year," PLDT chairman Manuel V. Pangilinan told The STAR.

PLDT reduced debts by $251 million in the first half of 2005, resulting in a stand-alone debt balance declining to $1.7 billion. An additional $110 million of 2005 PLDT bonds were also paid last Aug. 1.

Interest on loans decreased by 15 percent to P4.7 billion compared to P5.6 billion during the same period last year as PLDT fixed line continued to reduce debts.

For this entire year, PLDT fixed line is eyeing a debt reduction of $600 million from an earlier guidance number of $500 million, of which $312 million has already been accomplished in the first half. With the company’s leverage ratio (total debt/EBITDA) already at two times, the company is targeting to further bring this down to 1.5 times by 2006.

"We are seeing net debt to free cash flow down to not more than two times by 2006. Two years from that time, we expect to completely retire our debts," Pangilinan said.

PLDT’s free cash flow during the first six months of the year was at P7.1 billion, supplemented by the P14-billion dividend from wireless subsidiary Smart Communications Inc. As a result, it was able to reduce fixed line debts to $1.7 billion as of end-June 2005 from a high of over $3 billion five years ago.

PLDT also reported that it had in place hedges and dollar cash balances covering 66 percent of its total debt as of June 30, 2005. Voluntary conversions of Series 5 and 6 convertible preferred shares resulted in the issuance of one million new common shares in the first half of the year and reduced potential put option liability due in 2008 by P2.4 billion. Total amount of potential put option liability due in 2008 and 2009 stood at $208 million and $141 million, respectively, as of June 2005.

"Our deleveraging has been progressing ahead of schedule and we expect our net debt position to be strong in 2006. By 2007, we will have a significant free cash flow for dividends and investments," he added.

With PLDT fixed line debts down to more manageable levels, the company has switched on the investment mode, starting with the completion of the acquisition of Meridian Telekoms before yearend.

PLDT is also spending P15 billion over the next three years for the migration of its legacy fixed line network to a next generation network (NGN), which officials said will simplify the architecture of the network. The migration is expected to add an additional 50,000 line capacity for PLDT’s digital subscriber line (DSL) which as of end-June 2005 already had 68,800 subscribers. The target is to increase the number to 100,000 by yearend.

"This IP-based core network will put the fixed line business in a position to lay down more cable and fiber since it will be cheaper than the legacy network," Pangilinan added.

He said that P15 billion in investments in the NGN is cheap compared to the P200 billion spent for the old system and the bigger capacity the new network will yield.