PLDT, Globe record capex plans to prompt higher debt — Fitch Ratings
MANILA, Philippines — Loans incurred by telco giants PLDT Inc. and Globe Telecom Inc. are unlikely to go down soon as both companies move to raise more debt to fund their record-high spending plans, debt watcher Fitch Ratings said Monday.
In a statement sent to reporters, Fitch said it expects both PLDT and Globe to spend more than their means, prompting them to turn more to debt to fund their aggressive capital investments, ahead of Dito Telecommunity's entry next year as a new competition.
In turn, the global debt watcher said it is keeping a "negative" outlook for the local telco sector this year as record-high capital expenditures planned for this year will likely “delay” deleveraging of both PLDT and Globe. This, in turn, would leave less headroom for the telco firms to add more debt in the future.
“The resultant increase will take telecoms capex to above 40% of total revenue, amongst the highest within Fitch's Asia-Pacific telecoms portfolio,” the credit rater said.
“Both PLDT and Globe had revised their debt/EBITDA covenant ratio in their bond trust indentures over the past 12 months, increasing their financial flexibility to raise more debt to fund future capex,” it added.
To support growth in data traffic, Manuel V. Pangilinan-led PLDT said last week it will earmark P83 billion for capital investments, including a P5.5-billion spillover from the P78.4-billion budget that the company committed to disburse but failed to fully spend last year. The firm only spent P72.9 billion in capex in 2019, albeit still a new record-high.
Similarly, Ayala-led Globe is hiking capex plans to P63 billion this year, up 23.5% year-on-year from a record-high of P51 billion in 2019.
The telco duopoly have been on massive expansion mode since last year, a preparation for the entry of Dennis Uy-led ahead Dito Telecommunity which looks to disrupt the telco industry through a massive P257 billion in investments on its first five years, all targeted to cover up to 84% of population by 2024.
On its first year of operation alone, Dito promised to cover 37% of the population with 27 mbps minimum average internet speed by 2021.
While delays have hit the roll-out of Dito's services, no thanks to disruptions on raw material deliveries from China which went on shutdown to temper the spread of Coronavirus Disease-19, Dito's entry is expected to unshackle the telco duopoly, which no less than President Duterte has vowed to dismantle as early as 2018. Dito is 40% owned by China Telecom.
Despite ambitious plans however, Fitch believes that Dito's initial service commitments, including faster internet speed, means it would most likely sacrifice coverage.
"We expect competition to intensify in the medium-term with Dito's entry... However, the newcomer's pledge to provide coverage for 37% of population by July 2020 and up to 84% by 2024, suggests limited coverage in the short-term," the debt watcher said.
Going forward, Fitch said reducing PLDT and Globe's debts will depend on the two telcos’ “flexibility to manage their balance-sheet strength.”
- Latest
- Trending
