Fitch affirms ‘BBB-‘ rating, stable outlook for Globe

MANILA — International credit rating firm Fitch has affirmed its ratings for local telecom giant Globe Telecom Inc. at ‘BBB-‘ and forecasted a stable outlook for the company.

In a statement issued Thursday, Fitch Ratings Inc. said this applies to Globe’s long-term foreign- and local-currency issuer default ratings.

With this, Fitch said it expects Globe’s revenue to grow by mid-single digits in 2016-2018; have a lower operating EBITDA margin of about 37 percent to 39 percent in 2016-2018 compared to 40.5 percent in 2015; obtain an annual capex of USD750 million in 2016, rising to USD800 million in 2017 and 2018; and set a dividend payment of 77 percent of prior year’s core net income.

The company’s net leverage adjusted from its funds from operation is seen to grow up to three times from 2016-2018 due to higher capital expenditures (capex) and slower earnings before interest, tax, depreciation and amortization (EBITDA) growth in line with tighter market competition.

“Globe’s operating EBITDA margin is likely to decline by 100bp-150bp annually due to competitive pressure and the ongoing structural shift to lower-margin data services,” Fitch said.

“Data services contributed 50 percent of its total revenue in 1H16, compared with PLDT’s 39 percent,” it added.

As Globe completed a consent solicitation effort to amend the trust indenture of its local bonds, it is likely to increase its maximum consolidated debt/equity covenant ratio to 2.5 times from the present 2 times.

This, according to Fitch, is a sign of the company’s strong financial flexibility which will make it capable of raising debt to increase capex.

Given its high capex, Globe is expected to aggressively expand into the long-term evolution network to keep its capex-revenue ratio at 27 percent to 28 percent until 2018.

With a capex budget of USD750 million for this year, Globe is set to beef up its broadband infrastructure and Internet access coverage to at least 90 percent of the country’s territory within the next three years, Fitch said.

In May, Globe and PLDT Inc. entered into separate co-use agreements with San Miguel Corp.’s (SMC) telecom business, which covered the frequencies obtained from the two firm’s joint acquisition of the latter’s telecom assets.

The credit rating agency also noted that stiff domestic competition is expected in 2017 as Globe’s main rival, PLDT, is set to craft an aggressive technique to acquire market share.

Fitch believes Globe will still have the edge over PLDT with its higher average revenue per user postpaid subscribers, which is seen to turn into “stronger data monetization and market share gains”.

However, it said Globe’s free cash flow will remain negative until 2018 as its PHP36 billion to PHP37 billion cash flow from operation may not be enough to cover capex and dividends.

Still, Fitch said its forecast of 77 percent dividend payout on prior year’s net income is still within the company’s stated payout range of 75 percent to 90 percent.

In terms of liquidity, the credit rating firm expects Globe’s partial refinancing of short-term maturities worth PHP20.1 billion as of end-June due to its unrestricted cash balance of PHP9.5 billion.

Out of Globe’s total debt of PHP88.1 billion, 84 percent is denominated in the local currency while 16 percent is denominated in US dollar.

“Dollar-linked revenues provide a natural hedge for Globe, contributing 12 percent of total gross service revenues,” Fitch said, noting that the telecom firm has a strong financial and market status. Benjamin Bondoc/PNA/