S&P Downgrades PLDT Credit Rating

PLDT Inc.'s credit rating has been downgraded due to concerns over the firm's finances in the wake of a massive budget overrun announced last year.

Photo Insert: The rating could be lowered further if PLDT's competitiveness deteriorates and leads to a decline in operating performance.

"We lowered our long-term issuer credit rating on PLDT to 'BBB' from 'BBB+'," S&P Global Ratings said. "At the same time, we lowered our issue rating on PLDT's senior unsecured notes to 'BBB' from 'BBB+," it added.

The outlook on PLDT, however, was kept at "stable." S&P said this "reflects our view that rising earnings will provide some cushion against rising debt for the company, such that its debt-to-EBIDTA (earnings before interest, tax, depreciation and amortization) ratio will remain below 3x."

Still, the debt watcher said that an expected weakening in the telco's debt-to-Ebitda ratio meant that a 'BBB+' rating was no longer commensurate. "We forecast the ratio will weaken to 2.8x-3.0x in 2023, 2.6x-2.8x in 2024, and remain above 2.5x in 2025, despite rising earnings," it added.

The rating could be lowered further if PLDT's competitiveness deteriorates and leads 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," S&P said.

"An indication of this would be if PLDT's debt-to-EBIDTA ratio rises to beyond 3x on a sustained basis," it added. An upgrade, on the other hand, could be made if the firm improves its operating performance and deleverages while maintaining its solid market position.

PLDT has reduced its outstanding commitments to vendors from the reported budget overrun to P33 billion from the P48 billion announced in December. The company claims that no fraud was involved and that the overspending was the result of a rush to compete and improve its services.

"We now project the company's cash CapEx (capital expenditures) to be P85 billion-P87 billion during the year," S&P said. "This includes P20 billion-P22 billion stemming from a PLDT capex budget overrun the company revealed in 2022," it added.

PLDT's overall revenue, meanwhile, is expected to grow by 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," S&P said.

"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 segments," it added.

"We expect Philippines' low fixed-line broadband penetration to support subscriber additions despite competition," the debt watcher continued. "In contrast, competitive pressure could intensify in the wireless segment, where there has been a relatively new entrant — Dito Telecommunity Corp."

S&P also said that PLDT's spending on workforce reduction would continue this year and ease from 2024. "The company incurred P5 billion on this in 2022, significantly higher than the P269 million spent in 2021," it noted, which affected EBIDTA in 2022.

"We project PLDT's adjusted Ebitda margin will dip to 47 percent-48 percent in 2023, from 50.4 percent in 2021," S&P added. "But we expect the margin to improve to 49 percent-51 percent from 2024 as the company's cost structure benefits from its prior cost-cutting measures, including workforce reduction."

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