PLDT says it will cut capex starting 2023

PLDT INC. on Thursday said it will cut its capital expenditure budget starting next year, as it grapples with the fallout from the P48-billion budget overrun that  sparked a sell-off and a probe by regulators.

PLDT Chief Executive Officer and President Alfredo S. Panlilio said in a disclosure that a confluence of factors, such as years of underinvestment, heightened competition, and the strong demand for fiber connections during the coronavirus pandemic, led to the overspending.

Other factors were “the threat from former President Rodrigo R. Duterte for telcos to shape up; intense competition in the telco sector with the then anticipated entry of DITO Telecommunity Corp. funded by China Telecom Corp., Ltd., as well as the emergence of a competitor in the fiber space, Converge ICT Solutions, Inc,” he added.

He noted the pandemic and lockdowns “pushed network teams to fast-track rollouts.”

“However, to the extent of the capex (capital expenditures) ordered, we plan to reduce fresh capex starting in 2023. Thereafter, we expect capex to reduce steadily. 2023 will be a year of consolidation as we continue to strengthen and grow the business. We strive to be better,” Mr. Panlilio said.

Last week, the company said capex will continue to be elevated in 2023.

Mr. Panlilio made the remarks during PLDT’s special investors’ briefing on Wednesday, which was attended by top management including PLDT Chairman Manuel V. Pangilinan.

“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,” Mr. Pangilinan said during the same briefing.

The PLDT chairman said the company’s ongoing review has uncovered “no fraud, no anomalies, no evidence of overpricing, and no unrecorded transactions in relation to the overrun.”

PLDT expects to exceed its P85-billion capex guidance for 2022, as the company hopes to keep its projects, including the hyperscale data center in Sta. Rosa, Laguna, on track.

Company executives also assured investors that its business remains “healthy and robust” even as it continues to address its capex overrun.

Mr. Pangilinan said PLDT’s earnings before interest, taxes, depreciation, and amortization (EBITDA) for this year will not be affected by the budget overspend and is on track to hit P100 billion.

He said PLDT’s telco core net income is expected to reach the P32.6 billion-P33 billion guidance this year.

At the same time, the company hopes to pay the balance of the regular dividend for the year estimated at P45 per share, and the remaining special dividend of P42 per share.

“This would bring total dividends for 2022 to P134 per share or 88% of 2022 expected earnings,” PLDT said.

Mr. Pangilinan was supposed to attend on Thursday the groundbreaking ceremony for the Laguna dairy farm facility of Metro Pacific Investments Corp., which he also chairs.

An official said Mr. Pangilinan had an “emergency meeting” with his group’s MediaQuest Holdings, Inc., a media conglomerate that provides radio and television broadcasting, as well as direct-to-home satellite services and print media.

GOVERNANCE RISKS
Meanwhile, S&P Global Ratings said the budget overrun “could stretch (PLDT’s) balance sheet and weigh on its credit profile,” and cited governance risks.

“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 (BBB+/Stable/—),” S&P said.

It noted PLDT’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 P75 billion-P80 billion in 2023. After this, its debt-to-EBITDA ratio could deteriorate to beyond the downgrade trigger of 2.5x,” the credit watcher said.

S&P said the budget overspending “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. This is given that the overrun stems from capex dating as far back as 2019,” the credit watcher said.

However, S&P noted that PLDT’s own investigation has not uncovered any fraudulent transactions or procurement anomalies.

“All that said, PLDT has some levers that could mitigate the hit to its credit standing, in our view,” S&P said, citing the company’s plan to sell more towers and the management reorganization.

PLDT shares closed 0.08% lower at P1,249 apiece on Thursday.

Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls. — Arjay L. Balinbin