S&P Global Ratings downgraded the credit rating of PLDT Inc. by a notch because of the telecommunication company’s P48-billion capital expenditures overrun over the past four years.
“We lowered our long-term issuer credit rating on PLDT to ‘BBB’ from ‘BBB+’. At the same time, we lowered our issue rating on PLDT’s senior unsecured notes to ‘BBB’ from ‘BBB+,” S&P said.
S&P, on the other hand, kept PLDT’s outlook to “stable” as its rising earnings would provide some “cushion against rising debt.”
“The stable outlook reflects our view that rising earnings will provide some cushion against rising debt for the company, such that its debt-to-EBITDA ratio will remain below 3x,” S&P said.
The credit ratings agency said PLDT’s adjusted debt-to-EBITDA (earnings before interest, tax, depreciation and amortization) ratio will no longer be commensurate with a ‘BBB+’ rating.
“We forecast the ratio will weaken to 2.8x to 3.0x in 2023, 2.6x to 2.8x in 2024 and remain above 2.5x in 2025, despite rising earnings,” it said.
S&P said it may lower the rating if PLDT’s competitiveness had deteriorated, leading to a decline in operating performance.
“We may also lower the rating if we believe the company will operate with a higher leverage tolerance over a sustained period. An indication of this would be if PLDT’s debt-to-EBITDA ratio rises to beyond 3x on a sustained basis,” it said.
S&P said they would raise the rating if PLDT improves its operating performance and deleverages, while maintaining its solid market position.
PLDT reduced its outstanding commitments to vendors from the budget overrun to P33 billion, from an initial P48 billion. The company announced in December 2022 that it faced a capex budget overrun and finalized the financial impact in March 2023.
“We now project the company’s cash capex to be P85 billion to P87 billion during the year. This includes P20 billion-P22 billion stemming from a PLDT capex budget overrun the company revealed in 2022,” S&P said.
S&P expects PLDT’s overall revenue to increase to 4 percent to 5 percent annually in 2023 and 2024.
“The growth will come from the company’s fixed-line segment, which we anticipate to rise 9 percent to 11 percent in 2023 and 8 percent to 10 percent in 2024. This is on the back of growing adoption of fixed-line home broadband and growing digitalization, which benefit the corporate data and information and communication technology services [ICT; for example, data centers, cloud, and cybersecurity services] segments,” it said.
“We expect Philippines’ low fixed-line broadband penetration to support subscriber additions despite competition.In contrast, competitive pressure could intensify in the wireless segment, where there has been a relatively new entrant–Dito Telecommunity Corp.,” S&P said.
S&P also expects PLDT’s spending on workforce reduction to continue in 2023 and ease from 2024. “The company incurred P5 billion on this in 2022, significantly higher than the P269 million spent in 2021. This spending weighed on EBITDA in 2022,” it said.
“We project PLDT’s adjusted EBITDA margin will dip to 47 percent to 48 percent in 2023, from 50.4 percent in 2021. But we expect the margin to improve to 49 percent to 51 percent from 2024 as the company’s cost structure benefits from its prior cost-cutting measures, including workforce reduction,” it said.
