PLDT gets credit score downgrade after budget fiasco
MANILA -S&P Global Ratings lowered PLDT Inc.’s investment grade by a notch, citing the telco’s weakened credit position after incurring a budget overrun in the billions that triggered a plunge in stock prices after it was revealed and inspired several lawsuits in the United States.
The credit watcher gave PLDT a “BBB” score from the previous “BBB+”, but maintained a “stable” outlook as it expects the telecommunication giant’s revenues to grow by 4 percent to 5 percent in 2023 and 2024, providing it buffer against future financial obligations.
S&P noted the listed company’s debt-to-Ebitda (earnings before interest, tax, depreciation and amortization) ratio would no “longer be commensurate with a ‘BBB+’ rating” because of high capital expenditure (capex) level. This ratio measures a company’s ability to settle its obligations, thus a higher figure means heavier debt load.
A “BBB” rating, the second to the lowest in S&P’s investment grade scale, means a company has “adequate capacity to meet financial commitments, but more subject to adverse economic conditions.”
“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,” the credit watcher explained. S&P noted that PLDT’s debt-to-Ebitda ratio stood at 2.8x last year despite the cash inflow from tower sales.
PLDT earlier launched an internal probe on the P48-billion budget overruns accumulated in the last four years as it engaged in a massive campaign to improve 5G technology. The amount was slashed to P33 billion after negotiations with major vendors.
The telco has since “identified no evidence of fraud, intentional concealment, or bad faith conduct on the part of any employee.”
S&P, however, warned that PLDT’s “persistently high [capex] will continue to weigh on its balance sheet.”
It estimated that PLDT would spend about P85 billion to P87 billion this year, including P20 billion to P22 billion to cover the budget overrun. About P10 billion of the overspending is expected to be reflected on its financial performance next year, according to S&P.
The telco has earmarked P80 billion to P85 billion for its capex this year, down from the P96.8 billion deployed last year that was used mainly for fiber ports and investments in data center and cable systems, among others.
PLDT will also borrow P19 billion this year to finance some of its expenses.
Regina Capital Development Corp. head of sales Luis Limlingan said the elevated capex level might “pose some headwinds on the company’s credit position as the amount from the budget overrun is still expected to carry over to the next two to three years.”
“With the downgrade of PLDT’s credit ratings, investors would have to digest carefully as theory tells that lower credit ratings mean riskier investments,” he added.
On Monday, PLDT shares fell by 5.85 percent to P1,337 each as the main index climbed by 0.47 percent to 6,529.99.
PLDT has yet to comment on the matter as of press time.
Still, S&P sees revenue growth this year for the company, supported by its fixed-line business. This segment is expected to improve by 9 percent to 11 percent this year and 8 percent to 10 percent in 2024. INQ
