Fitch affirms PLDT ratings

MANILA, Philippines - Global ratings agency Fitch Ratings has affirmed Philippine Long Distance Telephone Co.’s credit ratings, pointing out that any inherent synergies between the group and Manila Electric Co. (Meralco) are moderate and will take time to deliver value.

It added that PLDT subsidiary Pilipino Telephone Inc.’s move to acquire a 20 percent stake in Meralco, which is in addition to the 10.17-percent stake earlier purchased by the PLDT Beneficial Trust Fund (BTF) from the open market, is primarily a tactical move in light of San Miguel Corp.’s planned entry into telecommunications in partnership with Qatar Telecom.

San Miguel has announced that it is finalizing plans to acquire cellular mobile licensee Express Telecommunications (Extelcom). It likewise confirmed that it is in talks to purchase a 60 percent stake in Liberty Telecom.

With an estimated stake of 27 percent, San Miguel is a major shareholder of Meralco, and expects to leverage Meralco’s infrastructure to offer telecom services.

Fitch also affirmed PLDT’s long-term foreign currency issuer default rating (IDR) and outstanding global bonds and senior notes at ‘BB+’ and its national long-term rating at ‘AAA(phil).’

It noted that the rating outlook is stable and at the same time, affirmed PLDT’s long-term local currency (LC) IDR at BBB but revised the rating outlook to negative from stable.

The rating action followed PLDT’s agreement to acquire a 20 percent stake in Meralco from the Lopez group for P20 billion in cash, representing around 40 percent of the PLDT group’s pre-dividend free cash flow.

The proposed transaction will be executed through PLDT’s 92.8-percent owned Piltel. PLDT expects BTF’s stake to be transferred to affiliate Metro Pacific Investment Corp. (MPIC) over time, also the vehicle for any future Meralco stake acquisitions.

MPIC chairman Manuel Pangilinan earlier said they are open to acquiring more shares in Meralco. On the other hand, PLDT, which he also chairs, has said it will not be purchasing an additional stake in Meralco.

Meralco is the largest distributor of electricity in the country with a customer base of 4.5 million and population coverage of about 25 percent. In addition to electricity distribution, its subsidiary e-Meralco Ventures (eMVI) provides data services over a 1000-kilometer fiber-optic network.

Fitch noted that potential telecom synergies arising from the acquisition include provision of broadband over electricity lines, access to eMVI’s fiber optic network, power poles to serve last-mile requirements and access to Meralco’s right of way.

With regard to capital management, Fitch noted that the proposed acquisition by PLDT of an additional stake in Meralco will not impact cash dividend payouts in 2009 and the group remains committed to its share buyback program for about three million common shares in 2009-2010.

“On aggregate, the acquisition of an effective 10.17 percent stake in Meralco can be accommodated within PLDT’s local currency rating of ‘BBB’, with net adjusted leverage for fiscal year 2009 expected to remain below the maximum threshold of 1.0x set by the agency,” according to Priya Gupta, director in Fitch’s Asia-Pacific telecommunications, media, and technology team.