Moody's to review PLDT credit rating after Meralco buy-in

MANILA, Philippines - International credit rating firm Moody’s Investors Service said yesterday it will review the status of Philippine Long Distance Telephone Co.’s Baa2 local currency issuer rating following its entry into power utility Manila Electric Co. (Meralco).

Moody’s, however, has affirmed PLDT’s Ba2/positive foreign currency bond rating.

The review of the local currency rating has been prompted by PLDT’s recent announcement that it plans to acquire up to a 20-percent stake in Meralco at a cost of approximately P20 billion.

“While the acquisition can largely be funded out of cash on hand and without any material adverse impact on PLDT’s consolidated financial metrics, which remain strong for a Baa rating, it will reduce the company’s liquidity reserves,” according to Laura Acres, Moody’s vice president.

“The acquisition also raises concerns as it represents a move by shareholders and senior management into a non-core business, albeit into another utility with a small telecommunications-related business with an established fiber optic network covering the Metro Manila area,” Acres, also Moody’s lead analyst for PLDT, added.

She, however, noted that PLDT has indicated it will limit its investment in Meralco to a 20-percent shareholding.

Moody’s review will focus on potential funding support PLDT will have to provide to Meralco; PLDT’s financial policies over the next two years especially with regard to leverage and uses of cash; and strategy of PLDT’s principal shareholder, Hong Kong-based First Pacific; and the degree to which this investment signals a shift in strategy for the telco operator.

Moody’s said its affirmation of PLDT’s foreign currency bond rating reflects the fact that the rating is unlikely to change even without a change in the Philippines foreign currency country ceiling or downward rating action on PLDT.

The last rating action was taken on March 10, 2009, when PLDT’s Baa2 local currency issuer rating was placed on review for possible upgrade and the foreign currency bond rating was affirmed at Ba2/positive.