Fitch raises Philippine Long Distance outlook

Fitch Ratings raised its outlook on Philippine Long Distance Telephone Co. to stable from negative confirmed its ratings including its senior unsecured notes and global bonds at BB- and convertible preferred stock at B.

Fitch said the outlook change reflects Philippine Long Distance's successful execution of a funding strategy that has both termed out debt obligations and reduced liquidity pressures surrounding debt maturing in 2003 and in 2004.

Liquidity pressures have been further eased due to rising operating cash flow and falling capex, Fitch added. Both the company and the group are now generating positive free cash flow, which has resulted in a modest debt reduction that is expected to continue in the near to medium term.

The new outlook also reflects the fact that Philippine Long Distance's wholly owned subsidiary Smart Communications has recently gained permission from its lenders to lift its dividend to Philippine Long Distance to 70% of fiscal 2002 profits, up from 40% last year. Fitch expects dividends to continue being paid by Smart at a payout ratio of 70%.

At the end of fiscal 2002, Philippine Long Distance's net debt to EBITDA (excluding dividends from Smart) and EBITDA to net interest cover was 5.3x and 2.4x respectively a marginal improvement on the 5.4x and 2.2x of fiscal 2001, Fitch said. Including Smart dividends these key metrics further improve to 5.0x and 2.5x respectively. Consolidated leverage (includes Smart but excludes Piltel financial obligations) and EBITDA to net interest cover improved to 3.5x and 3.4x respectively at fiscal 2002 from 4.5x and 2.4x respectively at fiscal2001.

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