Moody’s upgrade not likely for PLDT

MANILA, Philippines - Dominant carrier Philippine Long Distance Telephone Co. (PLDT) is unlikely to get another credit rating upgrade from Moody’s Investors Service which is set to grant the Philippines its third investment grade rating soon.

Moody’s assistant vice president and analyst Yoshio Takahashi said in a statement that the decision to review the sovereign ratings of the Philippines for upgrade would not have any immediate impact on the Baa2 rating and stable outlook of PLDT.

In October last year, Moody’s upgraded the local currency issuer rating and foreign currency bond rating of PLDT by one notch to Baa2 or a notch above the minimum investment grade from Baa3 or minimum investment grade. The ratings outlook is stable.

Moody’s placed the Ba1 foreign and local currency long-term issuer and bond ratings of the Government of the Philippines on review for upgrade last Thursday.

Given Moody’s guidelines regarding the differential between government and corporate ratings, Takahashi said the possible upgrade of the sovereign rating would allow Moody’s to review PLDT’s rating for upgrade if its fundamental credit quality is assessed to be at Baa1 or above.

However, he said that Moody’s believes that PLDT’s Baa2 rating appropriately reflects its fundamental credit strength.

Takahashi pointed out that Moody’s would consider upgrading PLDT if it maintains adjusted consolidated EBITDA margins of over 45 percent and lowers its adjusted consolidated debt/EBITDA to below 1.5 times on a sustained basis.

He added that PLDT would have to ensure that shareholder returns and asset investment policies do not substantially weaken its financial profile. “We expect PLDT to maintain its strong earnings,” the analyst added.

Moody’s said the adjusted consolidated EBITDA margin of PLDT is likely to stay at around 50 percent due to its strong market positions in the fixed-line, broadband, and cellular services businesses in the Philippines.

On the other hand, he said the rating of PLDT is constrained by the high dividend payout ratio and the perceived increase in the company’s investment appetite.

Moody’s expects PLDT’s adjusted debt/EBITDA to remain in the range of 1.5 times to two times in the next two years as it is likely to maintain a 100-percent dividend payout ratio, comprising a 70-percent regular dividend and 30-percent special dividend.

Moreover, the rating agency said PLDT would likely continue to invest in or acquire businesses to maintain revenue and earnings growth.

“In particular, Moody’s believes that the firm will increase its investments in the media industry to expand data and broadband revenue, although the size of investments is not expected to be so large in the near-term.