February 9, 2023

Filipino Guardian

Sentinels of Filipino Free Press

PLDT says it will lower investment starting in 2023

REUTERS

PLDT INC. said Thursday it will cut its investment budget from next year as it deals with the fallout from the P48 billion budget overrun that sparked a sell-off and an investigation by regulators.

Alfredo S. Panlilio, chief executive officer and president of PLDT, said in a disclosure that a confluence of factors including years of underinvestment, increased competition and strong demand for fiber optic connections during the coronavirus pandemic led to the overspending.

Other factors included “former President Rodrigo R. Duterte’s threat to telcos to develop; Intense competition in the telecom sector with the then-expected entry of DITO Telecommunity Corp. funded by China Telecom Corp., Ltd., as well as the emergence of a fiber optic competitor, Converge ICT Solutions, Inc,” he added.

He noted that the pandemic and lockdowns “have pushed network teams to accelerate rollouts.”

“However, we plan to reduce new investments from 2023 onwards in the scope of the investments (investments) ordered. After that, we expect a continuous reduction in investments. 2023 will be a year of consolidation as we continue to strengthen and grow the business. We strive to be better,” said Mr. Panlilio.

Last week, the company said capital spending will continue to increase in 2023.

Mr. Panlilio made the remarks during the PLDT’s special investor briefing on Wednesday, which was attended by top management, including PLDT Chairman Manuel V. Pangilinan.

“Most of the P48 billion overspending relates to the procurement of network equipment needed to offer subscribers greater connectivity, specifically 5G cellular sites for our cellular network and fiber rollout. There will be no write-down of these assets,” Mr. Pangilinan said during the same briefing.

The PLDT chairman said the company’s ongoing review found “no fraud, no anomalies, no evidence of overpricing and no unrecorded transactions related to the overage.”

PLDT expects to exceed its P85 billion investment forecast for 2022 as the company hopes to expand its projects, including the Hyperscale data center in Sta. Rosa, Laguna, on course.

Company executives also reassured investors that the business remains “healthy and resilient” even as it continues to address its overspending.

Mr Pangilinan said PLDT’s earnings before interest, taxes, depreciation and amortization (EBITDA) for this year will not be affected by the budget overrun and is on track to reach P100 billion.

He said PLDT’s telco core net income this year is expected to reach the forecast of 32.6-33 billion pesos.

At the same time, the company hopes to pay the balance of the regular dividend for the year, which is estimated at P45 per share, and the remaining special dividend of P42 per share.

“This would bring the total dividend for 2022 to 134 pesetas per share, or 88% of expected earnings for 2022,” PLDT said.

Mr. Pangilinan was scheduled to attend the groundbreaking ceremony for Metro Pacific Investments Corp.’s Laguna Dairy Farm facility on Thursday. participate, of which he is also the chairman.

An official said Mr. Pangilinan had an “emergency meeting” with his group’s MediaQuest Holdings, Inc., a media conglomerate that provides radio and television broadcasting as well as direct-to-home satellite services and print media.

GOVERNANCE RISKS
Meanwhile, S&P Global Ratings said the budget overrun “could weigh on (PLDT)’s balance sheet and weigh on its credit profile,” citing governance risks.

“PLDT can only tolerate a small additional cash outflow from the budget overrun before it undermines the full leverage headroom at the current rating (BBB+/Stable/-),” S&P said.

It noted that PLDT’s balance sheet “has been thinned over the past two years by capital expenditures and working capital outflow.”

“We estimate that in 2023 the company will not be able to absorb more than Pta 10 billion in additional spending over our base case cash capex of Pta 75 billion to Pta 80 billion. After that, its debt-to-EBITDA ratio could deteriorate beyond the downgrade trigger to 2.5x,” the credit watcher said.

S&P said the budget overrun “points to management and governance failures.”

“PLDT’s management’s ability to timely halt over-budget investments and the ability of the company’s board of directors to provide adequate oversight are in question. This is because the overrun is due to investments going back to 2019,” the credit watcher said.

However, S&P noted that PLDT’s own investigation did not uncover any fraudulent transactions or sourcing anomalies.

“All in all, we believe PLDT has some leverage that could mitigate the impact on its credit rating,” S&P said, citing the company’s plan to sell more towers and the restructuring of management.

PLDT shares closed Thursday down 0.08% at Ptas 1,249 a share.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., controls BusinessWorld through its controlled Philippine Star Group. — Arjay L. Balinbin