MANILA - Credit ratings agency Fitch Ratings on Tuesday raised its outlook on Philippine Long Distance Telephone Co.'s (PLDT) local debt grade, signifying "diminished risk" related to the company's entry in power retailer Manila Electric Co. (Meralco).

Fitch upgraded its outlook on PLDT's local currency rating of BBB (above sovereign rating) to "stable" from "negative". At the same time, Fitch affirmed PLDT's long-term issuer default rating and outstanding global bonds and senior notes at BB+ or two notches below investment grade (same as sovereign rating).

"The outlook revision reflects diminished risk related to potential financial support for associate Meralco at least over the near term. Under the aegis of new major shareholders PLDT and San Miguel Corp., Meralco's operating prospects appear to have improved somewhat," Fitch said.

PLDT, through unit Pilipino Telephone Corp., has acquired a 20% stake in Meralco from the Lopez Group, for P20 billion in cash. This prompted Fitch to cut its outlook on PLDT's local debt grade earlier in March since synergies between the companies would take time to deliver value, and Meralco was struggling with its finances.

However, shortly after the entry of new shareholders, Meralco was allowed to raise distribution charges under the performance-based regulation.

PLDT and San Miguel are both eyeing to offer broadband services over Meralco power lines.

PLDT is the country's leading telecommunications firm, with growing operations in call centers and business process outsourcing.

San Miguel only recently forayed into the telecom industry through its investment in another player, Liberty Telecom.

Fitch said PLDT's ratings already take into account rising industry risks, "with potential for increased competition from new entrant, San Miguel, over the medium-term, as well as heightened regulatory risks in light of recent directives on prepaid-cellular load extension and on the change in the unit of billing for cellular services."