Globe Telecom to borrow $590M for 'modernization'

(Updated 6:09 p.m.) Globe Telecom Inc. said Wednesday it will seek $590 million in external financing for its $790 million modernization programs in the next two years and that $200 million to $250 million would be dollar denominated, syndicated financing. The bulk of the upgrade will take place in the first two years and will require $640 million, according to Globe Telecom chief financial officer Albert de Larrazabal. He explained that they will consider a mix of financing options, including “retail bonds, export credit agency types of funds, and peso denominated debt." Once complete, the upgrade will result in the decommissioning of over $300 million worth of non-usable equipment, Larrazabal said. Globe will still be able to derive value from the decommissioned assets. "The net book values of these non-useable assets will impact Globe’s profitability through an acceleration of depreciation over its remaining useful life until such time when the new, replacement capex is ready for service," Globe Telecom noted in a statement." "Owing to its exceptional and non-recurring nature, this accelerated depreciation will not be considered in the determination of core net income. It will likewise not compromise cash flows nor the Company’s ability to declare dividends," it also said. Larrazabal said they “have been in touch with various international organizations" that specialize in the accumulation, storage and management of decommissioned assets, which in the accounting books will go through “accelerated depreciation over the remaining useful life of the assets." 'Decline in profitability' The upgrade – designed to enable the systems to handle increased voice and data capacity – will have a significant “near-term decline in profitability" over the next two to three years and require a change in its dividend payout policy, Globe executives noted. Globe president Ernest Cu said the upgrade will replace current systems built over 12 years and make the firm “ready for the traffic of the future." The new dividend policy will set the payout “at 75 percent to 90 percent of prior year’s core net income instead of reported net income." The policy “will ensure that dividends will remain sustainable and yields competitive. The dividend policy change will take effect with the 2012 dividends, based on 2011 core net income," according to the Globe executives. “Cash flows will remain strong" and the firm is “not envisioning a loss in dividends but a reduction," Larrazabal said. He noted the savings alone from the modernization will “exceed the value of the assets" that will be put in place. — VS, GMA News