Daily TribuneS&P, nonetheless, said the overrun stems from capex dating as far back as 2019 and that investigation so far by the company has not uncovered any fraudulent transactions or procurement anomalies
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Credit watchdog Standard and Poors fired off a ratings warning on telco giant PLDT saying the capital expenditure or capex overrun debacle worth P48 billion "suggests management and governance shortcomings."
The ability of PLDT's management to arrest higher-than-budgeted capex on a timely basis, and the ability of the company's board to provide sufficient oversight have come into question, according to S&P.
S&P, nonetheless, said the overrun stems from capex dating as far back as 2019 and that "investigation so far by the company has not uncovered any fraudulent transactions or procurement anomalies."
"The bulk of the P48 billion capex overspend involves the procurement of network equipment necessary to provide stronger connectivity to subscribers, specifically 5G cell sites for our mobile network and fiber rollout. There will be no write-off of these assets," PLDT chairman Manuel V. Pangilinan said.
"The problem could stretch PLDT's balance sheet and weigh on its credit profile. "Governance risks arising from this overrun add to the stress," S&P explained.
PLDT can only tolerate a small amount of additional cash outflow from the budget overrun before it erodes all leverage headroom at the current rating of BBB+ with a stable outlook.
The rating on PLDT is two notches above credit grade.
Drain over years
The telco's balance sheet has been "worn thin from capex and working capital cash drain in the past two years." We estimate the company can withstand no more than an incremental P10 billion excess spending over our base case cash capex of P5 billion-P80 billion in 2023, After this, its debt-to-EBITDA ratio could deteriorate to beyond the downgrade trigger of 2.5x.
The implications and cause of the overrun remain under investigation by PLDT. Based on the company's worst-case scenario, it is estimated the debt-to-EBITDA ratio could reach 2.8x-2.9x in 2023. That is if the full overrun represents an extra cash outflow, resulting in incremental debt to fund it.
PLDT said the profitability of the business remains healthy and unaffected by the recent findings and an ongoing comprehensive process review to resolve the issue.
The company filed a disclosure at the Philippine Stock Exchange to inform stakeholders of the matters discussed during a Special Briefing on 21 December in Makati City, which was attended by fund managers, investment analysts and bankers.
In the report, PLDT said its management led by Pangilinan, president and CEO Alfredo S. Panlilio, and chief legal counsel Marilyn A. Victorio-Aquino, assured investors that the overall business remains "healthy and robust."
Particularly, Pangilinan said PLDT's EBITDA this year, an indicator of profitability, is unaffected by the capital expenditure overrun and is on track to hit P100 billion as originally indicated.
The telco's core net income is also within guidance as it is expected to reach between P32.6 billion to P33 billion.
Meanwhile, PLDT expects to pay the balance of the regular dividend for the full year 2022 estimated at P45 per share and the remaining special dividend of P42 per share.
