S&P affirms PLDT’s BBB+ rating, outlook

MANILA, Philippines — S&P Global Ratings expects telco giant PLDT Inc.’s business fundamentals to remain unchanged over the next two years despite increased competitive pressures, affirming the firm’s BBB+ rating with stable outlook on ability to withstand competition.

The international debt watcher said PLDT is seen maintaining its dominant market position in the fixed-line segment of the telecommunications market, while also preserving a substantial portion of its wireless market share.

“In our view, PLDT will maintain its dominant position and a resilient foothold in the Philippines fixed-line telecommunications segment. The company has increased capital spending to improve its fiber network. We believe PLDT’s improving fixed-line network puts it in good stead to benefit from growing home broadband demand. The ability of PLDT’s fiber offering to support market demand for heavy bandwidth use will bolster uptake,” S&P said.

In terms of the wireless market, S&P said some loss of mobile subscribers for the company is inevitable with the third player Dito Telecommunity, formerly Mislatel, seen competing on price upon its entry in the second quarter of 2020.

“About 40 percent of PLDT’s revenue will be exposed to this competition, as the third player will compete in the individual mobile space. PLDT’s bundling of its quad-play services will provide continued value to its subscribers. Therefore, we believe that PLDT will preserve a substantial and meaningful proportion of its wireless market share,” it said.

Overall, S&P expects PLDT’s growth in fixed-line broadband and enterprise business to offset the effect of competition in its wireless segment, as well as continued decline in traditional voice and SMS services.

However, S&P view PLDT’s business position as weaker compared to regional rated peers like Malaysia’s Telekom Malaysia Bhd. and  Singapore Telecommunications Ltd. (Singtel).

The debt watcher said Telekom Malaysia has a monopoly in its fixed-line business and is also a strategic partner of the government in furthering the country’s telecommunications industry, while Singtel has strong geographical diversification and a much larger scale.

“We also take into account the increased pressure on PLDT’s business with Dito’s impending entry. Therefore, in our credit assessment of PLDT, we have removed the previous one-notch positive adjustment for comparable rating analysis,” S&P said.

S&P on July 12 affirmed its BBB+ long-term issuer credit rating on PLDT.

S&P said it may raise the rating if PLDT deleverages, “such that its ratio of debt to EBITDA declines to sustainably below 2.0x,” but could also lower the rating should PLDT’s capital structure weakens, “such that the ratio of debt to EBITDA increases and remains above 2.5x on a sustained basis.”

However, it said an upgrade is unlikely in the near term due to elevated capital spending and increased competitive pressures.