Three international credit ratings agencies have affirmed Philippine Long Distance Telephone Co.’s (PLDT) ratings following the company’s moves to improve capital management.
Standard and Poor’s affirmed its BB+ foreign currency rating on PLDT following solicitation from shareholders of the company’s 2009, 2012 and 2017 senior notes to amend certain covenants.
The changes to covenants include elimination of restricted payments, balanced by stricter leverage ratios such as reducing the maximum consolidated leverage ratio. Based on the proposed changes, PLDT will be allowed to make dividend payments and capital distributions, while allowing sufficient room for the company to make additional investments limited by the maximum leverage according to the bond covenants.
Given PLDT’s improved credit metrics, S&P said it does not expect the company’s increasing focus on delivering shareholder value through capital distributions to significantly weaken its credit standing.
Also in a recent report, Fitch Ratings said it has affirmed PLDT’s issuer and instrument ratings, including PLDT’s long-term local currency issuer default rating (IDR) at BBB, its long-term foreign currency IDR at BB+ and its national long-term rating at AAA. The outlook remains stable. Also, PLDT’s senior notes have been affirmed at BB+.
Apart from some financial compensation to bondholders, PLDT intends to tighten the maximum threshold on its leverage and capital structure ratios in return for consent to modify the covenants. In doing so, the company intends to reduce the maximum threshold on consolidated debt to EBITDA as well as that on long-term debt to tangible net worth.
“The proposed covenant amendments would afford the company higher capacity for dividend payments and capital management initiatives, which could potentially lead credit protection ratios to weaken from current levels. There is however, moderate headroom for an increase in net debt at the current local currency IDR level, before pressure is exerted on the rating,” according to Priya Gupta, director in Fitch’s Asia-Pacific telecommunications, media and technology team.
Meanwhile Moody’s Investors Service likewise affirmed PLDT’s local currency issuer and foreign currency bond ratings at Baa2 and Ba2, respectively. The outlook on the ratings is stable.
This affirmation also followed PLDT’s proposals to amend certain of its bond indentures such that restrictions on the payment of dividends have been lifted.
“While this theoretically puts no restrictions, over and above the Philippines regulatory requirements, on PLDT’s ability to pay dividends, Moody’s would expect that the company continue to maintain a credit profile commensurate with its rating level,” Moody’s vice president Laura Acres said.
Moody’s added that PLDT’s local currency issuer rating of Baa2 reflects the company’s position as the largest telecommunications operator in the Philippines, strong consolidated financial metrics, dominant market position founded on its integrated business platform and the company’s moderate sensitivity to technological developments and competitive pressures.