The Market Monitor Minding the Nation's Business
In affirming its investment grade of ‘BBB-” on local telecom giant Globe Telecom Inc., international credit-rating firm Fitch Ratings Inc. said Globe will still have the edge over rival Philippine Long Distance Telephone Co. (PLDT), with its higher average revenue per user (Arpu) postpaid subscribers.
The higher Globe Arpu is seen to turn into “stronger data monetization and market share gains,” Fitch said as it forecast a stable outlook for the company.
But Fitch at the same time said Globe’s free cash flow would remain negative until 2018, as its P36-billion to P37-billion cash flow from operation may not be enough to cover its massive capital expenditure (capex) requirements and dividends.
Still, Fitch said its forecast of 77-percent dividend payout on the prior year’s net income was still within the company’s stated payout range of 75 percent to 90 percent.
In terms of liquidity, the credit-rating firm expects Globe to meet partial refinancing of short-term maturities worth P20.1 billion as of end-June due to its unrestricted cash balance of P9.5 billion.
In a statement issued Thursday, Fitch said the investment grade 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 earnings before income tax, depreciation and amortization (Ebitda) margin of about 37 percent to 39 percent in 2016-2018, compared to 40.5 percent in 2015; obtain an annual capex of $750 million (P35.25 billion) in 2016, rising to $800 million (P37.6 billion) 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 to 2018 due to higher capex and slower Ebitda growth in line with tighter market competition.
“Globe’s operating Ebitda margin is likely to decline by 100 basis points [bp] to 50 bp 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 in the first half, 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 to equity covenant ratio to 2.5 times from the present two times.
This, according to Fitch, is a sign of the company’s strong financial flexibility that 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 its capex budget of P35.25 billion 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 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.
Out of Globe’s total debt of P88.1 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.
Globe had also started an aggressive deployment of the 700 megahertz (MHz) band by rolling out recently more than 150 sites mostly in Metro Manila to improve the mobile internet service.
Globe Senior Vice President for Program Governance, Network Technical Group Joel Agustin said Globe is fast-tracking the rollout of LTE service nationwide using the 700 MHz frequency under the co-use agreement approved by the National Telecommunications Commission (NTC).
“We are confident that more and more of our customers will experience improved services as adoption of LTE-capable devices increases and as we continue to deploy LTE 700 in more sites. This is consistent with our strategy of continuously improving internet services using the previously idle 700 MHz spectrum that the NTC now allowed us to co-use,” Agustin said.
According to Agustin, the LTE 700 sites cover major business districts and highly urbanized and populated areas in the country, noting that customers using LTE 700 devices are steadily increasing in these areas. Citing Quezon City, where Globe activated the first LTE 700 site in the country, Agustin said the technology now covers a majority portion of the city after the LTE 700 sites activated by Globe increased four times from the initial rollout of just 11 sites.
The company plans to activate more than 500 LTE 700 sites across the country by the end 2016, Agustin said. He added that majority of these sites are located in Metro Manila, enabling Globe to deliver close to 100-percent coverage of LTE 700 for the entire metropolitan area. This is turn, is expected to substantially improve mobile internet experience of customers in the region.
Globe is maximizing the use of the 700 MHz band in fulfillment of its commitment in the co-use agreement with BellTel following the sellout of San Miguel’s telco assets. The company committed to deploy about 4,500 multiband, multimode software defined radio base station equipment to 95 percent of total municipalities and cities in the country. This will improve overall customer experience in terms of speed and reliability of mobile internet services.
Aside from the 700 MHz, the NTC-approved co-use agreement also provided Globe with access to additional allocation in the 1800 MHz, 2300 MHz, and 2600 MHz bands.
This supports the capacity enhancement initiative launched by the company early this year amid growing customer requirement for bandwidth-intensive multi-media content. Globe also launched early this year an initiative of creating an internet superhighway by deploying fiber optic cables in 20,000 barangays all over the country to provide faster and more reliable Internet access in about 2 million homes nationwide. RIZA LOZADA