Rising rates, weak peso making business tougher for PLDT

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SAYS EXEC
Posted: 2:10 AM | Jun. 15, 2006
Daxim L. Lucas
Inquirer

RISING interest rates around the world, and eventually locally, will adversely affect revenues of the country's largest telecommunications firm as people adjust their spending patterns.

In an interview with reporters, Philippine Long Distance Telephone Co. (PLDT) chair Manuel V. Pangilinan said local interest rates had yet to keep pace with the upward trend in borrowing costs globally -- a phenomenon that had pushed local prices of goods and services higher.

Because policymakers have resisted the market's push toward higher interest rates, fund managers are now shifting their assets to currencies that offer greater returns.

"We are seeing negative interest rates where inflation is higher than the annual interest rates," he said. "That has led to some degree of capital flight which has weakened the peso."

Pangilinan explained that a weak peso against the US dollar would feed inflation which, in turn, erodes the purchasing power of the Filipino consumer.

PLDT's revenues will also suffer, he warned.

During the company's stockholders' meeting the other day, Pangilinan raised his forecast for PLDT's "core earnings" -- net income less one-time gains from foreign exchange rate fluctuations -- to P32 billion from the previous estimate of P31 billion by yearend.

He said the business environment had become more challenging, especially for the telecommunications sector which was seeing traditional sources of growth plateau in recent months.

Pangilinan said the confluence of rising global interest rates and rising competition and flattening demand in the telecommunications industry might mute PLDT's 2006 earnings growth.

"Because of this, we are cautious for the rest of the year on the country's economic prospects," he said. "We also have to see how the economy will affect business prospects."

The PLDT chief added that higher cost of money, which is a fairly recent phenomenon, has not yet filtered its way into the telecommunications sector, although he expects this to happen eventually.

"Higher interest rates will dampen spending in coming months," he said. "This means less demand for goods and services. This will affect food prices and fuel prices, among others."

Last year, PLDT made almost P5 billion in incremental income due to the strength of the peso against the US dollar, which translated to lower interest payment costs on its dollar-denominated loans as well as bigger receipts from the dollar-denominated portion of its revenues.

Pangilinan said the company would likely report "zero" foreign exchange income if the peso would remain weak for the rest of the year.