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MANILA – Moody’s Investors Service has raised its outlook for PLDT from “stable” to “positive” following a similar action for the Philippine government.
"Moody's believes that since PLDT is predominantly a domestic entity with substantially all of its revenues coming from, and assets based in the Philippines, its fundamental creditworthiness needs to closely reflect the potential risks that it shares with the
sovereign," the credit rating agency said in a statement.
"Despite PLDT's strong fundamental credit quality, underscored by its manageable leverage and excellent liquidity, its Baa3 ratings are constrained by the two-notch differential with the sovereign rating of Ba2. But, for the moment at least, its ratings can move in tandem with the sovereign rating," Moody’s said.
To be rated significantly above the sovereign, an issuer needs to be fundamentally stronger than the sovereign from a credit perspective, as well as demonstrate a degree of insulation from domestic macroeconomic and financial disruption, which generally accompanies a sovereign default.
Moody's said PLDT is unlikely to experience any upward rating pressure unless the sovereign rating of the Philippines is upgraded.
The rating firms aid PLDT would need to generate a substantially greater revenue share from outside of the Philippines, a situation that seems unlikely over the near to medium term.
"On a fundamental level, PLDT would also need to continue exhibiting strong investment-grade characteristics. In particular, it will need to maintain its existing sound financial and operating profile on a sustainable basis," Yoshio Takahashi, Moody's assistant vice president and analyst said.
The credit rating agency also said PLDT has to ensure that returns for shareholders and asset investment policies do not lead to a material deterioration of the company's financial profile.
Moody's said negative rating pressure is unlikely for PLDT, given the positive outlook.
"Any downward rating action at the sovereign level would, in all likelihood, result in negative rating actions for PLDT, as Moody's would seek to maintain the current notching gap in the absence of any further credit deterioration," the rating firm said.
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