PLDT Inc. (TEL) Earnings Call Transcript & Summary

[Audio Gap] Transaction Kindly note that this briefing is being recorded. A broadcast of this event will be available on our website after the call. For today's presentation, we have with us our Chairman, Manny Pangilinan; Mr. Al Panlilio, President and CEO of PLDT and Smart Communications; Ms. Anabelle Lim Chua, Chief Finance Officer and Chief Risk Officer; Mr. Joachim Horn, Next-Generation Tech Solutions Adviser of Smart; Attorney, Marilyn Aquino, Chief Legal Counsel of PLDT, as well as members of the PLDT management team. At this point, let me turn the floor over to Ms. Anabelle Chua to take us through the presentation.

Hi. Good afternoon, everyone. Thank you for joining our briefing this afternoon at very short notice. We're happy to talk to you today about the pioneering tower sharing transaction that we have been able to sign today for the sale and leaseback of 5,907 towers for PHP 77 billion. Let me run you through some of the key objectives that we had when we embarked on this transaction. At the company, we started the discussion of this sometime third quarter last year. One of our key objectives was to look for a valuation uplift for the PLDT share price as a result of strategic initiatives such as this. We were also looking at monetizing some of our tower assets in an effort to reallocate capital to further invest into other parts of our network. At the same time by partnering with global tower companies with the good practices and global practices, we are hoping to achieve better network quality and efficiency, higher resiliency, faster recovery and overall a better CX for our customers. And lastly, this is in support of the country's digital infrastructure initiatives, in particular, the increase of power density in the country as embodied by the common power policy that the government has espoused. Now we are pleased to talk today that we have indeed been successful in signing the sale and leaseback of the towers for 2 portfolios this morning, portfolio 1 for 2,934 towers. We sold the subsidiary of EdgePoint, which is Comworks Infratech Corp for PHP 35 billion; and in portfolio 2 for 2,973 towers we sold the subsidiary of edotco Group called ISOC edotco Towers, Inc. for PHP 42 billion. Smart and Digitel being the owners of the tower assets and passive infrastructure assets are the sellers in this transaction. At the same time, Smart will lease back space on the towers for a 10-year period. So this will be in addition to leasing back the space, TowerCo will be responsible providing the O&M services as well as power to the sites. We will explain in more detail in terms of the leaseback. And further to that, we have a commitment to build -- for the 2 tower companies to build an additional 1,500 new towers, 750 per portfolio, 500 to be built by 2025 and the other 250 to be built after 5 years subsequent to 2025 as part of our tower requirements in the future. So let me just show by way of illustration on the next slide what assets we're referring to. So this will be a typical tower that you can see. So what we are not selling and which you can see with antennas, the remote radios, the microwave dish which are what we consider the active equipment that PLDT will continue to own and manage as well as the fiber backhaul, which links the towers to the rest of the network that will continue to remain a PLDT asset. What would be the object of the sale transaction will be the tower steel structures, the power equipment, generators, batteries, rectifiers, shelter for the power equipment, the cooling systems, the air conditioning and, at the same time, the land lease contracts, which underpin all of these tower assets will be assigned to the tower companies, with the consent, of course, of the landowners. So that, in a nutshell, is what the passive equipment that we are selling as part of this transaction. Next slide please. Just a bit more flavor to what the portfolio looks like side-by-side. Portfolio 1 is really a Metro Manila, Luzon-based portfolio. Out of the 2,934 sites, 72% are ground-based and 28% are rooftop in nature. For portfolio 2, that really includes the Visayas and Mindanao regions but Luzon as well, so it's roughly 1/3, 1/3, 1/3 across the 3 main regions in the country. In this case, a less (sic) [lower] number of rooftop sites compared to the NCR portfolio and an 11% rooftop and 89% ground-based. Moving on to the next slide. Just to introduce the 2 partners that we are signing up with. edotco for portfolio 2, is present in 9 countries, managing and serving 54,000 towers across these 9 countries. We have over 20 years of experience in tower deployment. They are 63% owned by the Axiata Group, which is a leading telco operator in Asia, and they are also partly owned by Khazanah, which is the sovereign fund of Malaysia. In the other portfolio, we have EdgePoint. EdgePoint also is a telco tower platform that operates 10,000 towers in Indonesia and Malaysia. We'll partner with 2 local entities, namely Comworks and SMSGT who are service providers to PLDT and Smart today. Comworks is a trade partner for PLDT in the NCR region as well as a fiber rollout and fiber install provider. SMSGT as well, service providers, serving some of our passive support requirements as O&M are provided actually in the North Luzon area with respect to our tower assets. They are -- this group of EdgePoint is principally backed by DigitalBridge. It's a dedicated global scale digital infrastructure firm with over USD 45 billion of assets under management. These assets cut across various elements of the digital ecosystem and started with towers, data centers, fiber, small cells, edge infrastructure. So the towers that the DigitalBridge own approximately, about 30,000 are largely in the Americas. So by partnering with these 2 highly experienced international TowerCo partners, we believe that this will bring to PLDT best-in-class operational expertise, the benefits of the international experience and potential in looking for energy efficient and other sustainable solutions in the future. They will enable us to achieve higher uptime across the network, faster rollout, faster recovery from typhoons and other natural calamities. We have emphasized through these discussions for the tower transactions, that more than anything else, we want to ensure that the quality of service of PLDT and Smart is maintained, if not improved, through this process. Next chart please. So some key terms in terms of the leaseback contracts that we have entered into. This will be good for a 10-year period in local currency at the monthly base lease charge of PHP 100,000 per tower per month. PHP 100,000 is broken up into 2 components: PHP 70,000 for the base lease charge and PHP 30,000 for O&M. The reason why it's PHP 100,000 it's really in line with the running cost of PLDT and Smart today. In terms of inflation escalation, the PHP 70,000, there would be no inflation escalation, whereas for as the PHP 30,000 O&M component, it will be escalated based on inflation but capped at 3% per month. So there is some building protection against future rise in rates in this contract. Colocations, of course, the tower companies that acquire these assets are looking at the potential of colocation for providing space to the second or third telco in the market. So there will be benefits to us as well in that whenever there is second or a third tenant that colocates, we will be given a discount of 20% at the first instance, for the first colocation tenant, and then another 10% should there be a third tenant colocating in this tower. So we will benefit as well from the upside of colocation by way of a lower monthly rate charge going forward. In terms of ground leases, as I mentioned earlier, the lease contracts will be assigned to the 2 tower companies. They would take over the arrangements with the lessors of the land. But as far as any changes in terms of the lease costs that will be absorbed by the tower companies, we will not bear any more risk in terms of how much the lease costs will go up and that we are fixed at PHP 100,000 per annum with the proper escalation. In terms of power, the power companies will be responsible for provisioning the power spending on the CapEx upgrades necessary to be able to deliver the power to us, although we will have to absorb as a direct pass-through the cost for actual electricity and fuel consumption. There are certain service level agreements that are embedded in this contract for both -- what we consider critical versus normal size. At the first instance, we have said that the service level that they provide should be no worse off than what we are doing today, but there are targets for improved uptime and other service levels over -- from 2 years onwards. So that's something that we have negotiated as well in this contract. Next chart please. So there have been questions from certain analysts in advance about to compare the lease terms with that -- those that they see in Indonesia and other markets. So on the base of it, the PHP 100,000 appears to be higher than the PHP 45,000 to PHP 50,000 lease charges that have been -- that are being paid by the Indonesian telcos. But it's actually not a like-for-like comparison. So in our case, the PHP 100,000 will mean that we no longer have to spend for any CapEx and the power upgrades and other maintenance of the towers. Whereas Indonesia's understanding, the tower -- the power CapEx is still borne by the telco rather than by the power company. The other is, of course, there are no colocation discounts, in the case of Indonesia, whereas we will enjoy the benefit of colocation discounts. And then in terms of ground lease charges, I think it's slightly lower in the Indonesian market behaving compared to the Philippines. As another comparative point, the build-to-suit or new towers that are up for sharing in the country, largely, the rates that we have been seeing is in the range of PHP 135,000 to PHP 150,000. So the PHP 100,000 charges we have are still attractive compared to those. Just to us, another footnote, as I mentioned, there is a new power fuel commitment that we have awarded to them. So with respect to the additional towers that they would fuel for us, we will be paying PHP 120,000 instead of PHP 100,000 fees charged principally also because these are going to happen in the future point in time rather than today. So I hope that kind of addresses the question. And largely, the way we looked at the PHP 100,000 is what our running costs to begin with, and that's how we started the PHP 100,000 charge. Next chart, please. So we're also pleased to note that the transaction has been financially rewarding for PLDT Group in that we are able to achieve a significant premium over the book value of the assets that we are disposing, it's PHP 23 billion in our books including some additional CapEx commitments that are ongoing vis-a-vis the PHP 77 billion price. And from a tower perspective, it's about PHP 13 million per tower. So it's much higher than the comparative transaction values achieved in Indonesia, which range from about PHP 5.5 million to PHP 12.6 million per tower. From an EV/EBITDA multiple, this is our estimate as the transaction was done at the 20x EV/EBITDA. And the basis of the PHP 7 billion lease charge that we will pay and infusing our own operating cost and -- as of today. So obviously, the operating cost levels of the TowerCos could be different in that they could achieve some additional operating efficiencies vis-a-vis how we have experienced just simply because they are in this business of running towers and could be more efficient than we are and have other ways to bring down the cost. But -- and our estimation is about 20x EV/EBITDA multiple, and again, we show comparative transactional multiples from the deals in Indonesia ranging from 8 to 14x. Next chart, please. So from an accounting impact, we do expect significant one-off accounting gains from the transaction. As mentioned earlier, there is a premium over the book value of the assets to the extent of about PHP 55 billion gain on sale pretax. But not all of that gain will be recognized upfront in that there is leaseback transaction and that's a straight sale, right? So the proportion by which we estimate is the PHP 37 billion of the PHP 55 billion can be recognized upfront based on the rights that have been transferred, and about PHP 18 billion have to be deferred based on the rights that will be retained. This is our preliminary estimate of the split of the upfront versus the deferred portion of the gain, subject to further review by our auditors. Now all told, we got all the other charges and the taxes involved in this transaction. We estimate a one-off PHP 28 billion gain upfront upon successful closing of the transaction. For purposes of the analysts, this is considered a non-core or non-telco core gain when we provide our guidance to the market. From a running perspective, we estimate that we should be able to see earnings accretion of about 10% versus what our 2021 PHP 30 billion core income was. Some highlight level numbers that we provide here. Presale, we were incurring about PHP 7 billion of expenses, PHP 5.3 billion net of tax. Post-sale, as I mentioned, we pegged our lease charges around PHP 7 billion as well, but against that, we do have the benefit of recognizing the deferred gain that I just showed on the left side. So net of the deferred gain is about PHP 5.7 billion annual expenses that we expect post-sale. In terms of the financing costs, by using most of the proceeds to reduce our debt, we should expect about PHP 2.6 billion savings and financing costs based on 5% of PHP 52 billion. So when you consider the savings and financing costs, the accretion of the deferred gain and the other elements of the transaction, we believe that post-sale and a full year basis, there is a benefit or P&L uplift of about PHP 3 billion average over the 10-year period. Starts off at about PHP 2.5 billion at the year 1 and that increases over time, so PHP 3 billion is an average over the 10-year period. Next slide, please. In terms of the use of proceeds, as I indicated earlier, largely focused on really bringing down our debts. There is PHP 27.5 billion that all debts that we can prepay, these are pertaining to maturities this year and next year. And then, at the same time, we have cash requirements for our cash CapEx, investments and other items brought up to a total of PHP 24.5 billion, which were initially programmed to be part of our borrowing plan for the year. So now with this transaction, we would no longer need to borrow PHP 24.5 billion. So all told, between the PHP 27.5 billion and the PHP 24.5 billion, about PHP 52 billion of debt that we can reduce or avoid, which relate to the savings on financing costs of PHP 2.6 billion that I indicated earlier. And then we do plan to pay some special dividends to our shareholders roughly in the order of about PHP 9 billion. If we are successful in closing the first closing in May, then we should be able to time the special dividends as early as our interim cash dividend declaration. So in terms of the -- my last slide, which relates to the timing of the transaction, we signed the 2 agreements today. There will be a number of conditions that will have to be satisfied in order to close the transaction. This would include consents from the land lease owners putting together all the site contracts and the site documents that we need to turn over. But what we imagine is that there will be staggered closing just because of the sheer number of towers being transferred. But we hope to achieve first closing for about at least 3,000 towers, 1,500 per portfolio by the end of May, and then the balance will be closed over the third and fourth quarter of the year. So we'd like to complete the whole transaction in 2022 can, ergo, the financial benefits I showed earlier to be able to flow through in full by next year. So that, in a nutshell, is the description of the highlights of the transaction we just announced this morning, and we will be happy to take questions from the analysts to get into more detail.

[Operator Instructions] The first question comes from Cristina Ulang. She had several questions. The first question is what is the scenario that you see on colocation opportunities for the towers, its pros and cons for PLDT competition-wise?

Anticipate much colocation scenarios?

What we anticipate. I think at the onset from a tower sharing perspective, I think the government has encouraged the entry of tower companies into the country and encouraging tower sharing in the process. So we ourselves have, in a way, benefited by that in that we have started to also use the towers for our additional requirements in terms of towers,vis-à-vis, building ourselves, right? So there is an economic case for the operators to colocate rather than to build by themselves. So that's, on one side, the attraction for the telcos, right? For the tower companies, of course, they are looking at the condition of our assets that they believe that are [Audio Gap] starting good conditions will be deployed or could be deployed for colocation. We don't know what kind of assumptions that tower companies have made in respect to tenancy ratios that was not discussed with them. But certainly, there would be an expectation from them that they should be able to allow some colocation in the towers. And as I mentioned earlier, we should then get also by way of colocation discount. I think one of the discussions very early on at the Board and management level was really about the fact that the landscape for towers have changed in the country. The tower companies are here to stay and are part of the landscape already. So it is something that we -- in terms of, I guess, competitive advantage from owning the towers, it's no longer the same competitive advantage to us many years ago in that the whole landscape has changed. So I think from that standpoint, people have become more relaxed about selling and monetizing part of our tower assets. Al, do you want to add?

I just wanted to add -- let me just echo what Anabelle said in terms of -- this is the change in the landscape of common towers or tower business in the Philippines. At the same time, I think we're bringing in 2 global companies that run towers in other countries also. So they have the expertise. And I think Anabelle alluded to it in the presentation where we can even further improve customer experience. So I think the advantage is only there for us to -- for our customers to take advantage of. So it is -- again, it changes the landscape already of towers. At the same time, it supports government's initiative in this space and it creates efficiencies for PLDT, Smart, at the end of the day, improving customer experience.

I think -- also, I think further at the very outset, when the matter of sale of towers by PLDT has very important consideration because obviously the question you raised, the possibility of attracting, strengthening competition against itself. And in the process of considering which towers could be the subject matter for sale, the degree of competition that in sale of towers would offer something that is foremost in the mind of settling which towers could be sold and which towers need to be retained by PLDT itself, right? You already saw -- so slightly less than 15% is included in these 2 portfolios and I think the balance -- the bulk of the balance really are those that really matter from a perspective of PLDT is very important to the network and in its competitive position. So certainly, I think there will be a matter of tenancy potential for these 2 bidders. But of course, we don't know what their own estimates would be. But again, it is that we do not regard these towers as [ vacant ] or potentially risky -- substantially risky to our competitive position. That is a key part of your question. It was very important to us that the purchase consideration is compelling enough for us to be able to engage that kind of risk. And I think, on balance, with this purchase consideration, PHP 77 billion, it does offer significant advantages to the company principally in the form of our ability to reduce that and realize significant benefits of reduced expenses moving forward such that -- as Anabelle indicated it is income-accretive not only in the first year or so but over 10-year life of the sales back. Does anyone want to say something?

There's a raised hand from Hussaini of UBS.

Just a few questions from me. First is on the rental discount. So I just want to confirm whether the rental discount will be on the whole of PHP 100,000 rental per tower, or will that be on the base rental? That's question number one. The second question is on the 750 additional towers, which you are going to rent over the next several years. What is the rental which you are going to pay for that? Will it be market rate? Or will that be the PHP 100,000 which you negotiated for this deal? And the same question is for -- is what will happen once the contract will be over in 10 years' time? Will that be -- that the new rental will be decided based on the market rate? Or is there some indicative number which you have at that rate, it will be renewed?

Okay. Thank you, Hussaini. On the coloc discount, it would be 20% of the full PHP 100,000. And the additional towers, as I indicated, it's PHP 120,000, it's not PHP 100,000, as the starting point for the rental of the additional towers that will be built-to-suit towers. And then a 10-year lease rates have been fixed. There's option, of course, to renew by plus 5 after the 10-year period, but we do not fix the rate for subsequent renewals. And that will be the subject of discussion from that point in time.

This is very clear. Just going back to the previous question of -- that I understand that the towers you are selling are considered less strategic in nature, which you have said, doesn't impact your competitive position that much. I just want to understand how you define that those towers are less risky. Is this defined by the fact that is there a nearby tower and the -- is there a nearby tower and how that is defined -- how you define that the towers are less risky?

They have been the -- sorry, sorry. There have been various criteria. One is if we are the only tower in an area, that is obviously strategic because if there are already all the other competitors there, then there is no risk because they're already there. Number two was the question of ownership of the site. If it's our building, we will not consider this. And then there are some technical considerations, for example, if it's a critical hub side when we would not be interested to share, then those towers, we would not have included. And then, of course, revenue drivers play the role. So there's a list of criteria. And the selection of the 6,000 was pretty safe bet here, and the criteria may change in the future as the whole tower environment develops. But I think we have a very good selection.

The second question is from Arthur Pineda.

Just one question for me, please. Just to clarify on the power deal. This does mean that PLDT will still be absorbing the utilities payment going forward and the TowerCo is responsible for the CapEx or is the TowerCo now bearing responsibility for providing you the power?

The latter.

The tower -- the latter, Arthur, the latter.

So does that mean then that you do not -- that you can actually then save on your normal utility payments per tower? Is that how we should view this?

It does not affect our usage, effectively. We will -- it's a pass-through to us, right, in terms of actual electricity consumption and fuel consumption. But the responsibility for upgrading the power equipment and maintaining them in good condition, that will be the responsibility of the tower companies.

[ The story, this is by power ].

That's actually probably the most critical part of this deal because power is 1/3 of our -- the problems we have on site, occasionally it's power, for example, after typhoon, brownouts and so on and so forth. And to give this into the hand of a company who specialized to really provide more resilient and better uptimes on our site will be a big benefit to us. Now the consumption itself, we will have to pay. But we also believe that, over time, and we have discussed this with them, it's not part of the contract. We will work on more efficient and more greener power generation and power consumption than we have today. So there is a number of additional benefits outside of the contract we have already we see coming very shortly.

We have a hand raised from Rachelleen.

I have 2 questions. Just first one is clarification on the timing of cash flows. So you mentioned there are 3 closing dates, one in May, another in the third quarter and then another in the fourth quarter. So just curious if this means that the PHP 77 billion will be staggered in these 3 closing dates.

Yes, yes. So it will -- yes, payment would change hands when we have closed, right? So the first dosing, hopefully, end of May for about roughly half the portfolio. Yes. So that's a minimum 1,500 sites per portfolio. Then we will do staggered closing based on the batches of at least 400 to 500 sites. So once we have placed an order for another batch, we will continue to do the next closing so until we finish the whole 5,907 towers.

All right. But are you expecting to get the entire amount by the end of this year?

That's the goal.

That's the goal. Okay. Just on the second question, another clarification on the colocation discount. You said it was 20%. I mean, given that this is quite a huge discount, have you been seeing -- hearing demand already from the 2 other players to lease from this tower company?

I think it's still too early to talk about that. We are focused on completing the transaction. I think the tower companies will have to, I guess, look at where -- what are the candidates for colocation at the first instance versus some instances where they may have to do some kind of additional upgrades or work to be able to accommodate another tenant. So it will be in the hands of the tower companies, the 2 tower companies in terms of how they want that to process.

So just a clarification, 20% it's one telco is going through lease and then another 10% if another company will be leasing. Is that correct?

Yes, right. On a running basis, please.

Next question come from Ranjan Sharma.

And congrats on the deal. A bunch of questions from my side. I'll take them one by one. Firstly, the 10% EPS accretion that you've discussed, can you just elaborate how you have calculated that?

Okay. So Ranjan, the starting point is that, today, when we own the towers, we -- our running cost is about PHP 7 billion OpEx and depreciation on this co-, right? So when we turn around and pay the lease charges of PHP 100,000, that's also PHP 7 billion because that's how we arrive at the lease charges, right? But if you remember, we received PHP 77 billion upfront, right? So that is the big difference between what -- today and tomorrow, right, because on the running costs sustained PHP 7 billion, but we received PHP 77 billion. So out of that PHP 77 billion, the PHP 52 billion of that will be used to pay down debt and reduce our debt. So ergo, it reduces our funding cost to the extent of PHP 2.6 billion. And then in terms of the gain on the sale and leaseback, the one-off is recognized to the extent of PHP 37 billion, but the PHP 18 billion, which will be deferred, that will also run through the P&L. So when we calculate the earnings accretion, it's a PHP 7 billion less savings in financing costs, less the recognition of the deferred gain portion.

So the PHP 18 billion, you're amortizing that over 10 years as well. Is that the way to think of it?

Yes, effectively, right? Because the reason why you have a deferred gain is because of the leaseback over 10 years, right? So over time, that gain effectively reduces your lease costs, right, because what you got upfront effectively helps, we choose the running cost over time.

Got it. So in terms of the savings and cash costs, it will be more like -- the savings on the OpEx and depreciation and funding costs and excluding any gains on -- any deferred gains, that would be the savings and cash costs. Is that a fair understanding?

Yes, the deferred gain effect seen the cash already upfront. So that's not the running cash benefit in terms of it.

Can you just take like also how have you calculated the EBIT to EBITDA multiple for this transaction of 20x?

Well, that's, as I said, PHP 7 billion lease revenues effectively to the TowerCo, right? That's what we paid as the revenue. Then we have assumed that they will have the sort of the same OpEx costs that we have today. So it's an assumption, right? From their perspective, they may have savings versus that, right? But that's under assumption that our cost structure [ likes ] to them.

Yes, because if I understood you correctly, you said your running costs of PHP 7 billion as well, OpEx plus depreciation and that is the lease rate.

Yes, but that's EBITDA, right? But it's an EBITDA calculation. So of course, our PHP 7 billion cost is partly cash OpEx versus depreciation.

Okay. Just I think if you're saying that your lease rate is also your OpEx less depreciation, that means the EBITDA would be 0. When you said your lease rate would be the revenues and your OpEx less depreciation will be their OpEx. So unless they're able to increase the tenancy ratio there, they won't have an EBITDA.

No, no. The -- well, there are 2 kinds of costs, right, pre-EBITDA and post-EBITDA cost, right? So yes, you're right, the PHP 7 billion, effectively, when you combine the cash and noncash OpEx is PHP 7 billion. So I'm just saying that of that amount, PHP 3 billion -- PHP 3.2 billion, basically is the cost of our running OpEx and the lease charges that we paid for our -- to our landlords, right, and then the balance of PHP 3.8 billion close to our depreciation expense, more or less. That's on our P&L basis, right? So the P&L of the TowerCo company would be quite different.

The next question from Varun.

I've got 2 questions. First, just a cross check. When you talk about EBIT (sic) [net debt] to EBITDA multiple for your debt, do you factor in the lease liabilities because this will also lead to a lease liability on the balance sheet? So just wanted to check the 2x EBIT (sic) [net debt] to EBITDA? And does that include that? Secondly, now that you're kind of more open to third-party tower companies, in your future rollouts, are you factoring in more rollouts by yourself or you are open to giving a lot more to the tower companies? Looks like the commitment of 1,500 over 3 to 4, 5 years is still low as in you will still be rolling out a lot of towers yourself. So I just wanted to understand the thought process, why are not you a lot more open to rolling that giving to the third-party tower companies?

So I'll answer the first question. Right now, when we sort of present our net debt-to-EBITDA ratios, those are interest-bearing debt that excludes these liabilities that have been capitalized under PFRS 16. So that's a convention that we have adopted. So the net debt-to-EBITDA falling below 2x is also under the same basis. But for reference, I think we have included in the slides for the analysts, the balance sheet impact also of the transaction. So our estimate is that we will have to book about PHP 35 billion of lease liability against the right-of-use assets of about PHP 17.6 billion. So net-net about -- roughly about PHP 17 billion net lease liabilities that would have to be recognized on the balance sheet for this transaction. Now in my mind, while that's the accounting impact, it's really the fact that today, when we price ourselves, we don't carry any balance sheet liability for operating this by ourselves. The PHP 7 billion doesn't yet include the balance sheet, right? When you turn around and pay the PHP 7 billion by way of lease charges to the TowerCo, part of that -- 70% of that will now be capitalized in the lease liability. But from a real cash perspective, it's really no different from a non-accountant type of approach.

With regard to rollout of further towers, of course, the 1,500 is only a small part of what we make in the next years to come. And the rest of our need, we will cover either with other tower companies. What we are doing today already is about 1,000 towers with other tower companies. Or if it's a very strategic location, we think we should build on our own. We will continue also to build on our own. So we will have a mix. And the fact that we have now a much bigger portfolio available is a big benefit to us because whenever we go with tower company, the upfront CapEx is very low in terms of tower builds. So it's also beneficial for our CapEx portfolio. But it doesn't mean we will stop investing in 2 towers where we feel we should own strategically the tower and we may not want to share in that location.

Sure, Joachim, but what I was trying to un -- trying to miss -- like, will you be more open like if you're rolling out 100 towers will 60%, 70% will be done by tower companies? Or you'll still be like 20% and 80% you, because now that you have kind of opened the gates and you're kind of more comfortable with the tower companies, right, how is this? Is this an issue for them to roll out faster rolling out is an issue for them, building new towers rather?

Previously, we just sell 6,000 towers. We already committed an additional 1,500. Plus, we have about 1,000 towers with third parties. So I would say, yes, we are definitely more open but we decide side by side whether it's important for us to keep it or if it's more beneficial for us to do it with a partner.

We will go back to the questions from Cristina Ulang, First Metro. What is the situation on company leverage relative to loan covenants? And this sale and leaseback deal viewed as the most cost-efficient way to raise funds and repay loans having pricing interest savings?

We have no problem with meeting our debt covenants at all. So in fact, the guidance that we typically give to the market in terms of our own policy in the target that is higher sort of less debt or less leverage than the covenants are to be done.

And her last question, can you compare the gains and savings you realized from the sale and leaseback option versus the traditional tower [ internal ], shouldered by [ this ]?

Maybe we should answer that question about is this the most efficient way of raising money for the team. It's been pointed out by Anabelle that the recurring lease expense -- recurring expenses related to us owning -- continuing to owning towers is about PHP 7 billion. The gain that flows from this transaction reduces the cost on an accounting basis by about PHP 1.1 billion pre-tax, isn't it? And at the same time, you raised a significant amount of cash, which you can use substantially to reduce your debt, right, by at least about 5% of the amount that is budgeted for reduction. So the answer must be yes because, at the end of the day, the -- it's earnings accretive pretax of PHP 4 billion on average year and post-tax about PHP 3 billion incremental [ post ] tax. From a purely financial transaction perspective, it is a very compelling reason. Now if -- when this transaction was originally considered way back in August last year when the original number indicated to us was something quite different or much smaller, much smaller than where we landed finally, it wasn't compelling enough. And so that question was very relevant at that time. And we said, no, we're not prepared to attract the risk of further competition for that kind of a price. But as the consideration progressed, and it became quite clear that we can get a much higher number of what was originally indicated to us at a time when we said go, it was around PHP 41 billion, right? And now look at where we landed, PHP 77 billion, and that becomes a bit more compelling, really more compelling from a financial perspective. Does the answer the question, Melissa?

Next set of questions from German de la Paz of Abacus Securities. May I please ask how to compete for the gain on sale and leaseback for PHP 37 billion as well as the deferred portion of gain worth PHP 18 billion. Will management consider selling its remaining towers in the future?

Can I take on the last question first, Anabelle?

Yes.

I guess, as we indicated, this is such a big deal, big not only from a financial point of view, but from an operational point of view that we are in the process of moving 6,000 towers out to partners, right? So I think we'll focus on that one first. And we'll have to see in the future whether we will consider even more. But at this point, I think there's a lot of work to be done just to complete the transaction.

Sorry, to add to what Al just said, it's a new partnership that we're entering into, right, with edotco, DigitalBridge. They seem to be, from all indications, good partners, but until we get to really know them and be able to work with partners in terms of the tower relationship, I think we need a bit of seasoning before we start to have many markets.

Anabelle, first part.

We have provided some guidance on the sale and leaseback accounting impact to the analysts. We can get into more detail. But in essence, the -- you start first what is your gain on sale, which is the simple purchase price versus the book value. But then you have to make a determination the fact that you entered into a lease transaction, how much of the rights have been effectively retained versus how much of the rights have you transferred. And it's not a very straightforward calculation, but the rights you retained basically is the present value of the lease payments versus the selling price. But there are other -- the accounting guidance here is getting a little more complex because there are many transactions where they engineer it in such a way that, effectively, what the accounting guidance is saying, you have to look at the fair value curves at which the sale should be done or the lease should be done, right, and also consider any off-market terms that you may have. So I just gave you the shortcut in terms of the resulting number without the whole calculation. That is something that we will review in more detail with SGV, our external accountants, but that is our best estimate of how much we are able to recognize upfront versus how we [ will ].

The next set of questions comes from [ Ken Wadriansu ] of [ Adram ]. How much of your debts would be paid down? And is there a target gearing ratio?

So what we showed is PHP 52 billion of the proceeds would be used to reduce debt. And that if you kind of remember, our EBITDA guidance of about PHP 100 billion for this year, so that was roughly equivalent to 0.5 of our EBITDA, right? So this gives us the chance to bring down our net debt-to-EBITDA ratio from the 2.3x that we had as of year-end to something below 2, subject to, of course, other operating considerations for CapEx and the like. So the management guidance has always been that we would like to see our gearing at 1x perimeter and that this transaction gives us a good onetime opportunity to achieve that.

And his follow-up to that, should we assume all funds not used for debt will go to a special dividend?

There are some expenses we have to pay, some fees for bankers. And some we have to incur in the process of doing the whole transaction. So we have to reserve some money for that. And then of course, we have to pay for that.

But the answer, Anabelle, is yes.

Yes, so about PHP 9 billion for special dividends as we provided.

Last from [ Ken ]. How much in CapEx savings is realized because of this transaction?

Yes, unused debt incurs.

Yes. Yes.

Of course, you don't have to spend any more for your power CapEx in future.

Maintenance of batteries, generators, et cetera.

Typically 5-year life in terms of the power-related assets..

We have a follow-up question from Ranjan.

Yes, just one quick follow-up. So the towers that you're selling, what is the average remaining useful life of these towers now?

I would say 5 to 6 and -- yes, but it's a mix. There are some that have been upgraded recently to the mix.

And actually, the question is not easy to answer because you always upgrade and maintain your towers in order to extend the life. It's not that we build a tower, and after 10 years, you will rip it down and build a new one. Actually, as you put up more equipment, you strengthen the tower. You renovate it, sometimes you replace it. Our towers are actually in a very well-maintained situation because, in the last 3 to 4 years, remember, you pushed the [Audio Gap] rollout and the 5G rollout. And therefore, we had to strengthen and replace quite a number of towers. That's the reason why our assets were very attractive to the customers.

Okay. The next follow-up question is, like I see that of the portfolio, so, like between 11 to 20 -- on average, roughly 19% of the sites are rooftop sites. So can you add more equipment to these sites? Or does this only like a single tenancy basis?

Yes, it depends, of course, on the location. Not all rooftop sites can be colocated. But typically, if the tower is on the rooftop, then there is typically also the opportunity to come -- also additional tenants. So it's not easy to say. I would say easily a part of them probably, you can colocate.

And the last question is like for adding additional equipment on existing sites, can you just share like what would be the additional expense that should be incurred by PLDT? So I'm asking for sites where you are an existing tenant because if you're adding more equipment, will it be like incremental cost of an existing tenancy? Or would it be like 1 full tenancy cost?

If the second tenant comes in counties we operate, that's cost of the tower company, not for us.

Sir, my question is like if PLDT decides to add more equipment on existing side, the tenant...

Yes, got it. So then we have an agreed price list. It's basically an increase in rent. There is no CapEx expenditure required. So let's say, you add an antenna, that's typically what you do. And you need more space on the ground. That would lead to incremental lease per site.

But Ranjan, we started off by reserving a certain space, right, where our equipment is, where we anticipate some additional equipment that we already need to put. So that's a starting point. We reserve an area. And then what Joachim said is we need more in addition to that reserved space, then we will have to pay additional charges.

Same is true for more power, for example, which is the typical first need which comes from [Audio Gap] CapEx outlay for us.

There's a follow-up question from Arthur.

Just to clarify with regard to the expense savings of PHP 1.4 billion, what part is D&A versus actual cash OpEx in terms of the savings?

That's -- well, I deliberately didn't break it up, but I will give you the breakdown subsequently. But anyway, because it's an accounting result, right, of how you account for leases these days, which flow through depreciation and financing costs rather than OpEx, right? So but anyway, we'll provide that to you offline.

[Operator Instructions] If there are no further questions, we will now turn the floor over to Mr. Pangilinan for his closing remarks.

Thank you, Melissa. Thank you to everybody for joining us on short notice for this briefing. And we look forward to seeing you again on May 5 when we announce our first quarter results. It's about 2 weeks or so from now, so after a very busy period with respect to this -- devoted to this tower sales. And see you again May 5, 4 days exactly before the elections. That's where I think Ranjan's advice about good luck is [ relevant ]. Thank you.

Thank you. On that note, that concludes today's briefing as always. Should you have any further questions or clarifications, please reach out to PLDT Investor Relations at [email protected]. Thank you. Good afternoon.