PLDT’s results to reflect capex overrun, says S&P

S&P Global Ratings said that it is expecting up to PHP 22 billion of PLDT Inc.’s capital expenditure (capex) budget overrun to be reflected in the listed telco’s results this year.

The remaining PHP 10 billion of the post-2022 capex commitment amounting to PHP 33 billion could be reflected in its 2024 results, the US credit rating agency added.

“We forecast around PHP 20-22 billion of the PHP 33 billion to enter in 2023, which will increase our projected cash capex to PHP 85-PHP 87 billion in 2023. And the remaining of about P10 billion of the capex overrun will be reflected in 2024,” S&P Associate Director Spencer Ng said in a briefing on Tuesday.

S&P earlier lowered its credit rating for PLDT to BBB from BBB+, and revised its assessment of the company’s management and governance score to “fair” from “satisfactory.”

A BBB rating means that the company has “adequate capacity to meet financial commitments, but more subject to adverse economic conditions.”

“We also view the capex budget overrun as a signal of shortcomings in the company’s management and governance,” Mr. Ng added.

Mr. Ng said the capex budget overrun originating in 2019 signals that the issue has not been detected more timely by PLDT management.

Meanwhile, S&P Associate Director Yijing Ng said that S&P downgraded its rating on PLDT as it now operates above 2.5x debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio.

According to Ms. Ng, PLDT’s debt-to-EBITDA ratio is expected to peak in 2023 at 2.8x to 3.0x and remain above 2.5x through 2025.

“We previously expected PLDT’s tower sales in 2022 to alleviate some of the balance sheet pressure but it proved to be insufficient,” Ms. Ng said.

Ms. Ng said that she expects PLDT’s capex to remain elevated this year, which will continue to weigh on the telco’s leverage.

“Together with this would be our expectations that earnings will continue to turn upwards and therefore we expect leverage to ease from 2024 but nonetheless for the debt-to-EBITDA ratio to remain above 2.5x through 2025,” she added.

S&P saw PLDT’s prepayments and advances rising, which she said could mean more cash outflow for the telco.

However, Ms. Ng said that PLDT’s rising earnings will provide some cushion against its rising debt.

“Overall, we expect [PLDT] revenues to be up by 4% to 5% annually through 2025 and this is supported by rising fixed-line service revenues,” Ms. Ng said.

She said the fixed line segment is expected to rise 9-10% in 2023, and 8-10% in 2024 mainly due to the growing adoption of home broadband. She added that S&P expects PLDT’s EBITDA margin to remain weak through 2023.

“We expect EBITDA margin to remain weaker before recovering in 2024 benefiting from cost-cutting measures,” she added.

Beginning in 2024, S&P expects PLDT’s EBITDA margin to rise and reach 49% to 51%.

On the stock market on Tuesday, PLDT shares closed lower by PHP 57 or 4.26% at PHP 1,280 apiece.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls. —By Justine Irish D. Tabile