Fitch upgrades Globe rating, affirms PLDT credit
Global debt watcher Fitch Ratings gave out positive rating actions for the country’s top two telecommunications firms this week as the industry returned to a lucrative duopoly.
In a statement, Fitch said it had upgraded its rating, with an outlook of stable, for Globe Telecom’s long-term foreign and local currency obligations from junk (BB+) to BBB-, which is within investment grade.
“Although Globe will now be competing against a larger telecom operator with a combined 64 percent market share and increased economies of scale, Fitch believes that Globe will, over the medium term, benefit from the market consolidation by way of a more stable pricing environment,” Fitch said in a statement.
The upgrade also comes after Globe’s recent announcement of a plan to ramp up spending significantly over the next five years to improve its network’s capacity. The plan, Globe officials said, would have a negative impact on the firm’s profit margins.
Still, Fitch believes that Globe’s credit and operating metrics are comparable to other investment-grade number-two telcos across the Asia-Pacific.
The firm likewise said Philippine telcos like Globe would also benefit from a benign regulatory environment, including less competition and regulatory in terference compared with most other markets in Asia-Pacific.
In a separate statement, Fitch said it had affirmed its investment grade status of BBB- for the long term foreign currency obligations of Philippine Long Distance Telephone Co. (PLDT), the country’s largest telco and Globe’s chief rival.
This means that both firms are now rated a notch above the Philippines itself, which has a grade of BB+ from Fitch.
The outlook for PLDT’s long term local currency loans, which stands at A-, was also affirmed, with a stable outlook.
Fitch noted PLDT’s market dominance, which was solidified by its recent acquisition of Digitel Telecommunications Philippines Inc., operator of Sun Cellular.
As a result of the merger, PLDT now controls 70 percent of the market in terms of user count and revenue.
But according to Fitch, local telcos are still at risk as more and more subscribers turn to mobile Internet messaging and social networking services, cutting deep into the traditional call and text messaging revenues of telecommunications firms.
“Compared with other Asia-Pacific telcos, this risk is highest in the Philippines due to the operators’ high revenue contribution from SMS services, at about 50 percent of wireless revenues,” Fitch said.
