Written by Madelaine B. Miraflor Published on 29 November 2012
While Manila Electric Co. (Meralco) can celebrate its credit rating upgrade to BB- from B+, Standard and Poor’s Ratings Services (S&P), which gave the upgrade, still believes that the company’s re-entry into power generation could weaken its financial standing.
S&P said that Meralco’s re-entry into power generation could weaken its financial risk profile, depending on the scale of its investment and funding profile.
The company is eyeing a 600-megawatt (MW) coal-fired power plant project in the Subic Bay Freeport Zone, Zambales, which could increase the company’s debt-funded capital expenditure and expose the company to execution risks.
In a statement, S&P said that it raised its long-term corporate credit rating for the Philippines-based power utility, citing that the outlook for Meralco is stable.
At the same time, S&P raised the Southeast Asian regional scale rating on the company to axBB+ from axBB.
“We upgraded Meralco because we believe the company’s competitive position and cash flow stability have strengthened, supported by a sustained improvement in the regulatory landscape. We assess the company’s business risk profile as fair,” S&P said.
The credit-rating company added that in their view, Meralco’s business risk profile improved to “fair” from “weak.”
It added that Meralco’s dominant position in power distribution in the Philippines supports the company’s business risk profile.
”The improvement in business risk profile is attributable to two factors,” said S&P Credit Analyst Rajiv Vishwanathan.
”One is healthy volume growth in electricity sales and increasing number of customers across all segments, stemming from a buoyant domestic economy. The other is timely tariff adjustments and recovery of charges approved by the regulator, which reflect improving regulatory track record and reducing industry risk,” the analyst said.
”We forecast Meralco’s EBITDA [earnings before interest, taxes, depreciation and amortization] growth to remain strong in 2012 due to increasing customers and low distribution system losses. We also expect steady electricity sales in 2012 and 2013,” Vishwanathan added. source
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