MANILA, December 26, 2005
 (STAR) By Marianne V. Go - The Philippine Export Zone Authority (PEZA) reported yesterday that locator investments in the special economic zones surged by 21.56 percent to P49.87 billion in the first 11 months of the year from P41.025 billion in the same period last year.

PEZA Director General Lilia B. de Lima said that investors continue to be attracted to the special economic zones because of the perks they enjoy, including duty-free importation of capital equipment and raw materials.

De Lima, in a report to Trade and Industry Secretary Peter B. Favila, further said that 355 locator and developer/operator projects were approved, up 13.78 percent from last year’s 313 projects.

The capital inflow is expected to generate direct employment for 65,376 workers, increasing by 30.13 percent from last year’s 50,240.

Information technology (IT) investments, De Lima said, significantly increased this year with a total P6.932 billion or an increase of 12.82 percent from last year’s total investments of P6.144 billion.

Expected direct employment generation rose by 78.33 percent this year at 28,745 compared to last year’s 16,119.

For the month of November alone, the PEZA approved P3.201 billion, showing an increase of 9.39 percent over the P2.296-billion approved investments in November last year.

The new locator investments in November are expected to generate annual average export sales of $622.306 billion and direct employment for 3,570 workers.

Moody’s upgrades PLDT’s long-term ratings By Mary Ann Ll. Reyes The Star 12/26/2005

Moody’s Investors Service has upgraded the long-term ratings of Philippine Long Distance Telephone Co. (PLDT) to reflect the ongoing improvements in PLDT’s financial profile as it continues to enjoy healthy free cash generation and reduces its debt load.

At the same time Moody’s withdrew PLDT’s preferred stock ratings following conversion of rated stock recently. The outlook on the local currency rating is positive, while the foreign currency rating is negative, reflecting the sovereign outlook.

The ratings upgraded are local currency corporate family rating to Ba1, from Ba2, and foreign currency senior unsecured rating to Ba2, from Ba3, while the ratings withdrawn are foreign currency preferred stock rating of B1 and foreign currency preferred stock shelf rating of (P)B1.

Moody’s noted that the Ba1 local currency rating is principally driven by PLDT’s position as the largest telecommunications operator in the Philippines, its strengthening financial profile and its free cash flow generative status.

The rating, it said, also considers the effective industry duopoly prevailing in the country and the rise in barriers against competitors, given the network and marketing strengths of the incumbents.

On the other hand, the rating factors in the risks associated with the political and economic uncertainty evident in the Philippines, the report said. Notably, any deterioration in the political environment or changes in the regulatory regime could impact PLDT’s operating profile and/or tax base that could impair prospects for continued growth and, at the margin, impact PLDT’s financial profile.

It said PLDT continues to be exposed to the challenges of servicing foreign currency debt obligations with cash flow primarily denominated in pesos, although this risk has diminished with lower levels of debt and higher effective hedging with over 50 percent of debt now covered.

Moody’s warned that should wireless subsidiary Smart Communication’s debt increase from its current level of 26 percent of PLDT’s total consolidated debt, there is a possibility that structural subordination could become an issue for the ratings, although this would be a function of debt and cash flows at various entities at any given time.

The ratings agency also noted that with up to five 3G (third generation mobile communications technology) licences likely to be awarded in the Philippines in the next six months, it is likely that the current players will be awarded licences and continue to dominate the market.

PLDT expects its capex to rise to around P20 to 25 billion per annum. This would encompass both 3G buildout and upgrading of fixed line networks to an all IP networks. Moody’s expects that PLDT will continue to generate strong free cash flows notwithstanding the increases in capex and dividends.

Meanwhile, Moody’s noted that PLDT’s current foreign currency senior unsecured debt rating of Ba2 is above the Philippines’ foreign currency country ceiling of B1.

"The foreign currency senior unsecured debt rating incorporates convertibility risk, which is the likelihood of the government declaring a debt moratorium to counter a foreign currency crisis. Moody’s views foreign currency bonds subject to international law as less likely to be subject to a debt moratorium than foreign currency obligations subject to local law," it explained.

It added that the ratings outlook for the local currency corporate family rating is positive as a result of PLDT’s strong and stable free cash flow and reducing debt. PLDT, it noted, currently enjoys a healthy financial and operating risk profile, and downward pressure on the rating is not expected.

Event risk is, however, apparent due to sovereign-related issues that could manifest in changes in either tax or regulatory environments. Moody’s notes the rating could experience upward pressure if there are no adverse developments with the issuance of 3G licences and the regulatory environment remains stable.

It said there could also be upward pressure should PLDT continue to strengthen its profile through increasing profitability and decreasing debt.

Moody’s added that the foreign currency ratings have a negative outlook and would be downgraded should the Philippines’ foreign currency country ceiling of B1 be downgraded.

Chief News Editor: Sol Jose Vanzi

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