THE Philippine Long Distance Telephone Co. (PLDT), one of the most valuable listed companies in the country, is rewiring its business from a simple telecommunications provider to an Internet and digital player, a global debt watcher said in a report.
Standard & Poor’s (S&P) Ratings Services also observed that, given the pace by which the telecommunications giant acquires companies that are related to Internet services, the locally listed company will likely spend up to P20 billion in just two years for mergers and acquisitions.
“PLDT plans to become an Internet and digital player, leveraging its technical expertise as a telecommunications-services provider and its vast customer base. The company’s leverage could increase as a consequence and exceed our base-case assumption,” S&P’s credit analyst Bertrand Jabouley said.
Thus, it revised its assessment of the telecommunications giant’s liquidity from “strong” to “adequate,” because “we expect the company to have negative discretionary cash flows over the next 12 to 24 months.”
“We expect PLDT’s spending to remain elevated in 2015 and 2016, at least. The company has invested about P30 billion annually over the past 10 years to enhance its network. PLDT is contemplating further investments as part of its ongoing digital evolution and transformation. We forecast that the company could spend up to P10 billion annually on mergers and acquisitions in 2015 and 2016,” Jabouley said.
The global debt watcher also affirmed its “BBB+” long-term corporate credit rating on PLDT, while keeping a stable outlook on the company. For its long-term Asean Regional Scale Rating, the Philippine-based telecom-services provider was given an “axA+” rating.
“We affirmed the ratings, because we believe that PLDT’s strong balance sheet can accommodate the company’s sizable capital spending over the next two years,” Jabouley said.
This year the company is planning to spend about P39 billion to improve and expand its network.
“The stable outlook on PLDT for the next 12 months reflects our view that the growth in the company’s broadband and data businesses would continue to offset gradually eroding revenue from traditional voice and SMS operations,” Jabouley said. “The outlook also factors in our expectation that PLDT will continue to generate free operating cash flows over the next two years in spite of heavy capital expenditure, and that the company’s acquisitions appetite will moderate compared to 2014.”
Earlier, PLDT Chairman
Manuel V. Pangilinan said the company is planning to acquire at least 10 Internet companies in the next few years. This is part of the “digitization” initiative that the telecommunications giant has been implementing for quite some time now.
The digital footprint of subsidiaries Smart Communications Inc. and Digitel Mobile Philippines Inc. (Sun Cellular) are also undergoing modernization and expansion programs. The companies have also partnered with over-the-top content providers such as Facebook, Twitter and Viber, among others.
The Philippines’ top telecommunications company also has a significant investment in Berlin-based corporation Rocket Internet and Malaysian Internet television company iflix.