CreditSights, a unit of Fitch Group, said the closure order of Smart Communications Inc.’s headquarters in Makati City would have a limited impact on PLDT Inc.’s operations.
“We maintain our market perform recommendation on PLDT (Baa2/BBB+/NR). We believe the company’s potential corporate governance flaws are counterbalanced by its solid credit fundamentals that are bolstered by a P86 billion tower sale,” CreditSights said in a report.
CreditSights said the P48-billion capex overrun, the unpaid taxes and the lack of a valid business permit of Smart in Makati office would likely “cloud investor” perceptions of PLDT although “we anticipate a limited impact on PLDT’s actual operations and financials from the closure order.”
“There has been little precedence of large corporates being shut down due to unpaid franchise taxes, and we believe PLDT will prioritize resolving the issue promptly,” it said.
CreditSights said it expected PLDT services to remain operational despite of the physical padlocking of Smart headquarters.
“We believe the quantum of unpaid taxes [P3.2 billion] is manageable considering PLDT’s stable credit fundamentals,” it said.
It said while PLDT is exposed to recent negative headlines, it did not anticipate any long-lasting material operational and financial impact.
“Although we acknowledge PLDT has hit its rating downgrade triggers, we believe the impending receipt of tower sale proceeds and potential trimming of discretionary capex/dividend payouts could allow for gross and net leverage to improve to below or near the downgrade triggers in the next 6-9 months,” it said.
CreditSights said, ” we see PLDT as one of the strongest corporate $ bond issuers in the Philippines based on credit fundamentals, and think its credit profile should remain stable ahead.”
“We believe the recent P48-billion capex overrun was largely due to management missteps and weak internal controls that point to poor governance but not fraud, so we don’t assign an overly large risk premium to the PLDT $ bond complex. We believe the impending closure of its P86 billion tower sale adequately buffers the higher capex for 2023 and could allow for mild deleveraging,” it said.
PLDT said officials of Smart submitted to the Makati City Office of the City Treasurer the documents requested by the local government unit pertaining to outstanding local taxation issues.
“The submission of the documents is part of ongoing discussions between the company and the Makati City LGU who both aim to arrive at a resolution to the matter at hand,” PLDT said.
“Smart remains committed to complying with Makati City’s local tax ordinances, and with relevant national laws, applicable in respect of local taxation,” it said.
PLDT assured the public and its customers that services remain available and accessible.
