Philippine Rating Services Corporation (PhilRatings) announced that Globe Telecom, Inc.’s (Globe) P2.7 billion bonds have been assigned a rating of PRS Aaa. A rating of PRS Aaa is defined as: “…the issue has the smallest degree of investment risk. Interest payments are protected by a large or by an exceptionally stable margin and principal is secured. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.†Globe is currently pursuing SEC registration of the bonds.
In arriving at the rating, PhilRatings considered Globe’s strong position in the fast-growing cellular market. With a subscriber base of about 7.3 million as of June 2003, Globe has a 41% market share in an industry with a strong two-player structure and the growth of which has defied the over-all sluggishness of the Philippine economy. Its management team, backed by strong major shareholders, Ayala Corporation and Singapore Telecom, has demonstrated a sustained capability to compete in the market as reflected in its revenues and earnings performance. For the period January-June 2003, net operating revenues amounted to P24 billion, with net income at P4.4 billion and the positive trend in financial performance is expected to be sustained as Globe expands to other markets outside of Metro Manila and as it continues to introduce new products and services.
Cash flow protection measures are strong. EBITDA interest coverage is almost 6x in the interim while Funds from Operations to total debt is likewise substantial at 43% as of year-end 2002. Globe’s debt level is expected to continue to be at a manageable level going forward particularly as it has already put in place its basic infrastructure. Capex levels as a percentage of service revenues are projected to significantly come down in the next two years. Cash balance and short-term investments as of June 2003 is at P20.7 billion.
Although the cellular market may be more competitive in the medium to long-term with the entry of a new player and the continuing aggressive moves of Globe’s major competitor, this and other issues (e.g. settlement of ownership as Deutsche Telekom is presently selling its shareholdings in Globe, proposed taxation on text messaging, among other proposed changes in regulation) are unlikely to negatively affect the strong credit standing of Globe relative to its P2.7 billion bond issuance.