Fitch Ratings downgraded Philippines telecoms operator PLDT’s rating as its aggressive capex strategy over the next three years and the pending entry of a third operator in the country are expected to weaken its credit metrics.
The government’s push for a third operator is credit negative for PLDT and the second-largest telecom operator Globe Telecom as it is likely to intensify competition and dilute the market share of incumbent operators. The threat of a new entrant is likely to slow revenue growth, which is already experiencing industry-wide structural declines in legacy revenues, Fitch said.
PLDT is also likely to rely on further debt financing, given the anticipated slow recovery in EBITDA. This is despite its stated intention to fund the higher capex through asset sales. It raised PHP23 billion ($430 million) through asset sales in the first half of the year, including the PHP10 billion divestment of its stake in German internet company Rocket Internet and PHP7 billion through the sale of receivables from Metro Pacific Investments.
Fitch forecasts its capex to revenue ratio to increase to 35 per cent to 36 per cent in 2018 to 2020, up from 23 per cent in 2017. It intends to increase capex to PHP58 billion in 2018 from PHP37 billion in 2017, and expects 2019-2020’s figures to average nearly PHP60 billion, bringing its total five-year capex programme since 2016 to PHP260 billion. It is allocating 54 per cent of the total budget for wireless to support demand for rising data usage and the under-served fixed broadband market.
PLDT is on track to fulfill its commitment to cover 90 per cent of the country’s cities and municipalities and expand its fibre reach to 5.1 million homes by 2018. Its higher capex spend should help it retain its network strength, ahead of the entry of a third player, Fitch said.
The agency cut its long-term foreign and local-currency issuer default rating to ‘BBB’ from ‘BBB+’.
Rival Globe Telcom has gained revenue share in the mobile segment over the last two years at the expense of PLDT’s mobile unit Smart Communications. Globe’s mobile revenue share increased to 56 per cent in 1H 2018, up from 53 per cent in 1H 2017.
Smart had a 47 per cent market share by subscribers at end-June, just behind Globe with a 53 per cent share, data from GSMA Intelligence showed.Subscribe to our daily newsletter Back