Philippine economy

Fitch rates PLDT above investment grade
PLDT's above-investment-grade rating is a first in Philippine corporate history

MARKET LEADER. A man checks his mobile phone as he passes the headquarters of the Philippine Long Distance Telephone Co. at the Makati central business district. AFP Photo

MANILA, Philippines (UPDATED) – After upgrading the Philippines’ credit rating to investment grade status, Fitch Ratings raised the credit worthiness of giant Philippine Long Distance Telephone Company (PLDT) to one notch above investment grade — a first in Philippine corporate history. 

In a statement on Thursday, March 28, Fitch said it raised PLDT’s long-term foreign currency issuer default rating (IDR) and senior unsecured rating to ‘BBB’ from ‘BBB-‘.

(Editors’ note: The earlier version of the report said PLDT’s rating was an upgrade to investment grade. We regret the error.) 

Fitch assigns a ‘BBB’ credit rating to companies that it considers “satisfactory at the moment.” It is two notches above ‘BB’, which is “speculative” or a non-investment grade status.

In 2012, PLDT was the first Philippine company to be granted an investment grade status by the 3 international credit rating agencies — Fitch, Standard & Poors, and Moody’s Investment Service.

PLDT’s ‘BBB’ rating exceeds the sovereign’s ‘BBB-‘ rating, which is the entry level to the investment grade ranks in Fitch’s rating scale.   

Fitch said it cannot assign a higher IDR to PLDT since its credit rating for the telco is limited by the country’s own credit rating. 

“The company’s IDR  continues to be constrained by the Philippines’ Country Ceiling of ‘BBB’, reflecting the country’s foreign-currency transfer and convertibility risk. On the other hand, PLDT’s LC IDR exceeds the sovereign’s LC IDR by two notches as foreign-currency transfer and convertibility risk are not taken into account. It also reflects the company’s unconstrained credit profile,” it said.

Fitch also affirmed PLDT’s long-term local currency and national long-term rating at A- and AAA (phl), respectively. 

Fitch assigned a stable outlook, meaning the new ratings will hold in the next 12 to 18 months.


Apart from the upgrade of the Philippines’ credit rating, Fitch cited as among the main reasons for the upgrade the Pangilinan-led telecommunication firm’s strong credit profile.

Fitch cited PLDT’s dominant market shares in the wireless, fixed-line, and broadband segments by the end of 2012.  

“The ratings reflect PLDT’s dominant market shares with well over 60% in the wireless, fixed-line, and broadband segments at end-2012. The ratings also demonstrate the company’s strong financial profile, including high EBITDA margins (at 46% in 2012) and sound leverage,” Fitch said.

However, Fitch expects the company’s operating margin to continue to decline over the medium-term due to aggressive competition and as lower-margin data revenue increases its share.

“Fitch expects intense competition for subscribers will not ease over the short to medium term. This will result in a gradual margin decline. The operator’s aggressive marketing policies for wireless subscribers, including bucket tariff offerings and subsidies rather than differentiated services, will remain the basis of competition.”

“Fixed-line revenue growth will remain weak as the contribution from long-distance calls continues to be replaced by low-margin data services.” 

Fitch noted PLDT’s announcement that capital expenditure will slow down to P29 billion this 2013 after spending P37 billion in 2012 to complete a major network modernization effort.

However, Fitch said it expects free cash flow (FCF) margin to remain at low- to mid-single digits due to a continued high-dividend payment. –

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