tel: fitch ratings commentary

8/20/2019 TEL: Fitch Ratings commentary

1/9

"PLOT~,

October 2,2015

Philippine Stock Exchange

3/F Philippine Stock Exchange Plaza

Ayala Triangle, Ayala Avenue

Makati City

Attention: Ms. Janet A. Encarnacion

Head. Disclosure Department

Gentlemen:

We submit herewith a copy of our letter dated October 2, 2015 to the Philippine Dealing and

Exchange Corp. in response to their letter dated October 2,2015 requesting for clarification and/or

confirmation of the news article entitled "PLOT loses A rating" published in the October 1, 2015

issue of Manila Standard Today.

Very truly yours,

f-1t~(MA. LOURD~SC. RAUSA-CHAN

Corporate Secretary Y

General Office P.O. Box 2148 Makali City, Philippines

PLD


2/9

Attention: Mr. Vicente Graciano P. Felizmenio, Jr.

Director - Markets and Securities Regulation Dept.

SECURITIES & EXCHANGE COMMISSION

SEC Building, EDSA

Mandaluyong City

October 2,2015

Gentlemen:

Respectfully yours,

~~(MA. LOURDES C. RAUSA-CHAN

Corporate Secretary

General Office P.O. Box 2148 Makati City. Philippines


3/9

COVER SHEET

S E C R e g i s tr a ti on N u m b e r

C o m p an y N a m e

Pr inc ipal Of f i ce (No. lSt reet lBarangay/C i ty lTown/Prov ince)

For m Type Depar tm ent r equ ir ing the r eport

[!ErE ~C O M P A N Y I NF O R M A TI O N

C o m p a n y' s E m a i l A d dr e ss C o m p a n y' s T e le p h o ne N u m b e r/ s

I I 816-8553

I I

Annua l M eet i ng

No. o f S tockho lder s MonthlDay

11,831 Every 2nd Tuesday

As of August 31, 2015 of June

S e c o n da r y L ic e n se T y p e, I f

Appl icable

rnJJ

M o b il e N u m b e r

F i sca l Year

M onth /Day

December 31

C O N T A CT P E R S O N I N F O R M AT IO N

T h e d e s ig n a te d c o n ta c t p e rs o n MUST be an O f f ice r o f t he Cor por a ti on

N a m e o f C o nt a ct P e r so n Em ai l Addr ess Te l ephone

Num ber / s

M ob i le Num ber

Atty. Ma. Lourdes C. Rausa-Chan I ~1__ lr_c_ha_n_@_p_ld_t_.c_o_m_._p_h_1~1__ 8_1_6-_8_5_5_3 __ 1 I ~ _

Contact Person's Address

9/F MGO Building, Legaspi cor. Dela Rosa Streets, Makati City

Note: In case of death, resignat ion or cessat ion of of fi ce of the off icer designated as contact p erson, such incident shal l be repor ted to the Comm ission wi thin

thi r ty (30) calendar days f rom the occurrence thereof wi th infonmat ion and complete contact detai ls of the new contact person designated.


4/9

SECURITIES AND EXCHANGE COMMISSION

CURRENT REPORT UNDER SECTION 17OF THE SECURITIES REGULATION CODE

AND SRC RULE 17.1

1. October 2, 2015

Date of Report (Date of earliest event reported)

2. SEC Identification Number PW-55

3. BIR Tax Identification No. 000-488-793

4. PHILIPPINE LONG DISTANCE TELEPHONE COMPANY

Exact name of issuer as specified in its charter

5. PHILIPPINES

Province, country or other jurisdiction

of Incorporation

6. (SEC Use Only)

Industry Classification Code

7. Ramon Cojuangco Building, Makati Avenue, Makati City

Address of principal office

1200

Postal Code

8. (632) 816-8553

Issuer's telephone number, including area code

9. Not ApplicableFormer name or former address, if changed since last report

10. Securities registered pursuant to Sections 8 and 12 of the Securities Regulation Code and

Sections 4 and 8 of the Revised Securities Act

Title of Each Class Number of Shares of Common Stock

Outstanding and Amount of Debt Outstanding


5/9

11. Item 9 (Other Events)

Attached hereto is a copy of our letter to the Philippine Dealing and Exchange Corp. in responseto their letter dated October 2, 2015 requesting for clarification and/or confirmation of the news

article entitled "PLOT loses A rating" published in the October 1, 2015 issue of Manila Standard

Today.

Pursuant to the requirements of the Securities Regulations Code, PLOT has duly caused this

Report to be signed on its behalf by the undersigned hereunto duly authorized.

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY

By:

H~(MA. LOURDES C. RAUSA-CHAN

Corporate Secretary

October 2, 2015


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Attention: Ms. Vina Vanessa S. Salonga

Head - Issuer Compliance and Disclosure Department

Philippine Dealing and Exchange Corp.

37/F Tower 1, The Enterprise Center

6766 Ayala Avenue corner Paseo de Roxas

Makati City

October 2,2015

Gentlemen:

General Office P.O. Box 2148 Makati City, Philippines

Respectfully yours,

We refer to your letter dated October 2, 2015 requesting for,,-confirmationof the/veracity of the

news article entitled "PLDT loses A rating" PUbl.ished.>tt{ ..e oC7ober ( 201B'issue' of 'Mahila

Standard Today. The article reported in partthat: / _ / / / /

"Fitch Ratings has downgraded the crecjWfiitings o f P9Wppi!}e Lon!?,;Dista'}.ceTelephone

Co. after the telecom firm allocated pi!gher caPi~eX/ditu/foL15. /

PLOT's long-term local currency default rating was Ieau/to B B B ", fr/~" Attached is a copy of the Ratings ActioJ COlmmentary.Jlom~"FitChl~Ch we received ana posted

on PLOT's webs;te yesterday. : .

. _1_ 1~

~~

MA. LOURDES C. R~U~.CHAN

Corporate secretaryy


7/9

Corporates

RACTemplate FitchRatings

Fitch Downgrades PLDT's LC IDR To 'BBB+'; Affirms FC at 'BBB'

Fitch Ratings, Singapore, 0 I October 2015: Fitch Ratings has downgraded Philippine Long

Distance Telephone Company's (PLDT) Long-Term Local-Currency Issuer Default Rating

(IDR) (LC IDR) to 'BBB+' from 'A-'. The agency has simultaneously affirmed PLDT's Long-

term Foreign-Currency IDR (FC IDR) and its foreign-currency senior unsecured rating at

'BBB'. Fitch has also affirmed the National Rating at AAA(phl). The Outlook on the issuer

ratings is Stable.

A full list of rating actions is at the end of this Rating Action Commentary.

The downgrade on the LC IDR reflects our expeqtation of a further deterioration in PLDT'sfunds flow from operation (FFO)-adjusted net leverage to 2.5x in 2015-2017 (2014: 1.9x) due

to significant capex expansion. However, the FC IDR remained at 'BBB' and it continues to be

capped at the Philippines' Country Ceiling, reflecting the additional risks associated with

transfer and convertibility of foreign currency.

KEY RATING DRIVERS

Increased Investment: PLDT's expansion in 3G/4G is likely to push the capex/revenue ratio to

25% in 2015-2016, from 20% in 2014. However, we expect capex to normalise to 20% of

revenue after 2016. In addition, PLDT has earmarked USDIOOm for digital acquisitions in

2015; of which USD20m hasalready been invested in internet TV service provider iflix and

online payment solution company Paywhere.' ':l"

I;,

Earnings Under Pressure: Fitch forecasts operating EBITDAR to weaken to about PHP77bn

(2014: PHP80bn) in 2015 due to flat revenue and continued pressure on margins. Furthermore,

the changing revenue mix and the build-out of the digital business are likely to erode operating

EBITDAR margin to 44%-45% (2014: 46.6%). Our forecast assumes losses in the digital

business over the next three years.

FC:;FDeficit: Fitch believes the company's free cash flow (FCF) will stay negative in the next

two years due to large capex. This is despite management plans to reduce special dividends to

conserve cash flows. Our forecasts assume dividend payment of around 80%-85% of core

profits; the company's stated dividend policy is to payout at least 75% of its core profit.

Continued Market Leadership: We expect PLDT to sustain its leading position in the

Philippine telecommunications market, although Telstra Corporation Limited's (A/Stable)

impending entry with San Miguel Corporation will ,iltensify competition over the longer term.

Large cash burn for the new entrant is likely in the initial period as it faces significant capital

investment to build its network in the absence of infrastructure sharing.

LIQUIDITYStrong Liquidity: PLDT's liquidity remains 'solid, with cash balance' of PHP3 7.2bn at end-June

2015 sufficient to cover its PHPI6.7bn short-term obligations maturing over the next 12


8/9

Corporates

RACTemplate FitchRatings

months. Its debt maturities are well spread out with over 60% of total debt due after 2017. In

addition, we believe PLDT has strong access to local banks and the retail bond market, givenits solid financial and leading market position in the Philippines.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for PLDT include:

- Flat revenue in 2015, and to grow by low single-digit percentages thereafter

- Operating EBITDAR margin of 44%-45% in 2015-2017

_ Capex/revenue ratio of 25% in 2015-2016, and to decline to 20%-21% in 2017

- USD 100m earmarked for new acquisitions

- Dividend payout ratio of 80%-85% of core profit.

RATING SENSITIVITIESPositive: Future developments that may, individually or collectively, lead to positive rating

action include: _ PLDT's Long-Term Local-Currency !DR (LT LC !DR) could be upgraded if FFO-adjusted

net leverage falls below 2.0x and FCF are positive on a sustained basis.

_ PLDT's Long-Term Foreign-Currency lOR (LT FC !DR) could be upgraded if there is a

positive rating action on the Philippines' Country Ceiling.

Negative: Future developments that may, individually or collectively, lead to negative rating

action include:~ PLDT's LT LC IDR could be lowered if FFO-adjusted net leverage rises above 3.0x on a

sustained basis. _ A negative rating action on the Philippines' Country Ceiling will result in a corresponding

action on PLDT's LT FC !DR.

FULL LIST OF RATING ACTIONS

Philippine Long Distance Telephone Company

Long-Term Foreign-Currency lOR affirmed at 'BBB'; Outlook Stable

Long-Term Local-Currency IDR downgraded to 'BBB+' from 'A-'; Outlook Stable

Foreign-currency senior unsecured rating affirmed at 'BBB'

Long-Term National Rating affirmed at 'AAA(phl)'; Outlook Stable "

Contact:

Primary Analyst

Janice Chong

Director

+65 6796 7241

Fitch Ratings Singapore Pte. Ltd.

6 Temasek Boulevard

#35-03/04/05 Suntec Tower Four

Singapore 038986

Secondary Analyst


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Corporates

RAC Temp late FitchRatings

Nitin Soni

Director +6567967235

Committee Chairperson

.Steve Durose

Managing Director

+61 2 8256 0307

Additional information is available on www.fitchratings.com.

Note to editors: Fitch's National ratings provide i t relative measure of creditworthiness for rated

entities in countries with relatively low international sovereign ratings and where .there is

demand for such ratings. The best risk within a country is rated 'AAA' and other credits are

rated only relative to this risk. National ratings are designed for use mainly by local investors

in local markets and are signified by the addition of an identifier for the country concerned,

such as 'AAA(phl)' for National ratings in the Philippines. Specific letter grades are not

therefore internationally comparable.
http://www.fitchratings.com./http://www.fitchratings.com./

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