MOODY’S Investors Service has changed to positive from stable the outlook for peso and foreign-currency denominated debts of Philippine Long Distance Telephone Co. (PLDT).

The upgrade affects “approximately $234 million of debt securities,” PLDT said in a disclosure Wednesday to the Securities and Exchange Commission and the Philippine Stock Exchange.

The Philippines’ largest telecommunications network was citing a May 29, 2012 statement from Moody’s issued in Hong Kong.

“Moody’s believes that since PLDT is predominantly a domestic entity with substantially all of its revenues coming from assets based in the Philippines, its fundamental creditworthiness needs to closely reflect the potential risks that it shares with the sovereign,” the New York-based global credit rating agency said.

The shift in PLDT outlook follows Moody’s decision to change the outlook for the Ba2 long-term foreign-currency rating and Baa3 foreign-currency country rating of the Republic of the Philippines to positive from stable, according to the credit rating agency.
“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,” Moody’s noted.

“But, for the moment at least, its ratings can move in tandem with the sovereign rating,” it added.

Investment-grade characteristics

For PLDT to receive a rating significantly higher than the sovereign borrower, “it 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,” according to Moody’s.

As things stand now, “it is unlikely that PLDT will experience any upward rating pressure unless the sovereign rating of the Philippines is upgraded," Moody’s added.

Alternatively, PLDT could generate more revenues from abroad, a situation that isn’t likely to happen over the near to medium term.

“On a fundamental level, PLDT would also need to continue exhibiting strong investment-grade characteristics,” said Yoshio Takahashi, a Moody’s assistant vice president and analyst.

“In particular, it will need to maintain its existing sound financial and operating profile on a sustainable basis,” Takahashi added.

At this point, Moody’s would like PLDT to ensure that returns for shareholders and asset investment policies do not lead to a material deterioration of the company’s financial profile. (GMA News)