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Tuesday, September 8, 2009

Fitch revises PLDT outlook to stable from negative

London-based Fitch Ratings raised its outlook for telecom giant Philippine Long Distance Telephone Co.’s (PLDT) long term local currency default rating to stable from negative after Manila Electric Co. buy in.

The rating agency also affirmed its long-term foreign currency issuer default rating (IDR) and outstanding global bonds and senior notes at “BB+" as PLDT remains constrained by the Philippines' country ceiling.

The agency also affirmed the company's national long-term rating at “AAA(phl)," which indicates its relative credit strength among all Philippine companies.

“Under the aegis of new major shareholders, PLDT and San Miguel Corp., Meralco's operating prospects appear to have improved somewhat. Notably, the company has been able to raise distribution charges under performance-based regulation in second quarter in 2009," Fitch said.

Priya Gupta, director in Fitch's Asia-Pacific telecommunications, media and technology group, said the rating “factors in a slight weakening in credit protection measures" for 2009 due to additional 20 percent stake in Meralco.

"While this increase in leverage can be accommodated at PLDT's current local currency rating of 'BBB', there is virtually no headroom for further debt-funded acquisitions of material size," she said.

Fitch cited the ratings signal PLDT’s position as the country’s incumbent operator with “diversified and integrated" telecommunications operations as well as growing operations in call centers and business process outsourcing.

It holds a leading share of fixed-line subscribers around 60 percent and a dominant share of approximately 67 percent of the nascent broadband market.

“Fitch expects fixed-line services to remain a core contributor to earnings and cash flow over the medium term, with strong demand for fixed-data, offsetting substitution pressures on traditional voice services," the statement read.

As PLDT’s cellular business accounts 61 percent of its revenue, Fitch said the market heavyweight’s medium-term growth prospects are “modest" since penetration of subscriber identification modules are now at a high of approximately 82 percent.

“The ratings also take into account rising industry risks, with potential for increased competition from new entrant, San Miguel, over the medium-term, as well as heightened regulatory risks in light of recent directives on prepaid-cellular load extension and on the change in the unit of billing for cellular services," it added.

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