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Mass Registration | Fitch Upgrades Philippine Long Distance Telephone Company's Long-Term Debt Ratings | admin October/31/2011

By: Ian Mansfield | 30th Oct 2011

­Fitch Ratings has upgraded Philippine Long Distance Telephone Company's (PLDT) Long-Term Local-Currency (LTLC) Issuer Default Rating (IDR) to 'A-' from 'BBB+', and simultaneously removed it from Rating Watch Positive. The Outlook is Stable.

On 26 October 2011, PLDT announced that the regulator, the NTC had approved the acquisition of a 51.55% ownership interest in the third-largest telco - Digital Telecommunications Philippines (Digitel) - in an all-equity deal. PLDT had earlier received shareholders' approval on 14 June 2011 for the issuance of common shares for the acquisition.

According to the most recent announcement, PLDT will issue 27.7 million new PLDT shares to acquire, among others, 3.3 billion Digitel common shares (representing a 51.55% stake) and zero-coupon bonds owned by JG Summit Holdings (JGS). Also, the transaction has triggered a mandatory tender offer to the remaining minority shareholders (48.45%) who can opt to tender each Digitel share at PHP1.6033, or swap it in at a ratio of 1.567 Digitel shares for every PLDT share. Fitch does not expect the amount of minority shareholders' payment, if debt-funded, to materially affect PLDT's credit profile.

The rating upgrade reflects Fitch's expectation that the PLDT-Digitel combined entity will have a significantly improved market position despite having broadly the same credit profile. PLDT-Digitel will become a dominant operator, having about 70% and 66% of subscriber and revenue market shares, respectively, (versus PLDT's 53% and 56% in Q211). Also, PLDT will have a much larger spectrum (25MHz in 2100MHz band) compared to the second-largest operator, Globe Telecom (Globe, 'BB+'/Stable), which has only 10Mhz.

As part of regulatory approval, PLDT has committed to divest 10MHz of spectrum in the 2100MHz band and to keep the popular 'Unlimited Tariff' packages alive in the market.

PLDT will divest its subsidiary, Connectivity Unlimited Resource Enterprises (CURE) which owns 10MHz of spectrum. CURE will be sold through competitive bidding by PLDT under NTC supervision, which should fetch PLDT a minimum bid price that would allow it to recover its investment in acquiring, developing and operating CURE, including, among others, the USD10m acquisition price for CURE and PHP65m annual spectrum users' fee.

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Tags: [pldt]  [Philippines ]