PSALM fazed with P99-B debt maturities due in next 3 years

by Myrna Velasco August 8, 2016

http://www.mb.com.ph/psalm-fazed-with-p99-b-debt-maturities-due-in-next-3-years/

State-run Power Sector Assets and Liabilities Management Corporation (PSALM) is panic-stricken with its P99 billion worth of debt maturities spread over the next three years, because until now it cannot get its hands on the money that it would need to retire such scale of outstanding obligations.

The Bangko Sentral ng Pilipinas’ (BSP) foreign exchange (FX) swaps increased to $3.14 billion in June, slightly higher than the previous month’s $2.91 billion.

FX swaps, which are short and long positions in forwards and futures in foreign currencies vis-à-vis the peso, only have maturities of up to one month and three months.

Based on BSP data, long positions in June amounted to $2.98 billion with tenors of up to one month, and $160 million of more than one month up to three months.

The FX swaps have been showing some activity since end of the first quarter.

The BSP uses its swap positions to unwind or release foreign currency into the system as a defensive mechanism against speculative flows and as tool to intervene in the exchange market.

However, in terms of size, the swaps have been on a decline for the past three years when the amount was in the $10 billion range back in 2013. This is because the country’s US dollar reserves has been slow at increasing levels compared to previous years.

As of end-July, the BSP-monitored gross international reserves (GIR) was higher at $85.49 billion from June’s $85.28 billion.

The GIR level is adequate to cover 10.5 months’ worth of the country’s imports of goods and payments of services and income. It is also equivalent to six times short-term external debt based on original maturity and 4.3 times based on residual maturity.

For 2016, the BSP is keeping a conservative GIR projection of $82.7 billion which is minus revaluations. Including revaluations, which are changes in a country’s foreign exchange rates or adjustments in the currency value, the projection is $85 billion.

The GIR forecast – which was higher than last year’s $80.7 billion actual GIR – is considered “ample enough” for nine months’ worth of imports of goods and payments of services and income.

According to PSALM Officer-in-Charge Lourdes S. Alzona, the debt maturities will amount to P18 billon for 2017; R31 billion in 2018; and mammoth P50 billion in 2019.

Of these loans falling due, she noted the cumulative R68 billion for 2017 and 2019 maturities are bullet payments; while the P31 billion in 2018 would be combination of regular loan amortizations and other bullet payments.

The biggest chunk of P50 billion, Alzona said, accounted for the global bonds issued by PSALM in 2009 – then used to bankroll the company’s working capital requirements and partly underpinned its liability management initiatives.

For these anticipated debt maturities, she reckoned that they can only count on the collections that they could fetch via the pass-on of universal charges (UC) in the electric bills – on account of their cost recoveries on stranded debts and stranded contract costs.

As of end 2015, the credit score for PSALM proffered by rating agencies had been positive to stable — with Standard & Poor’s bequeathing it BBB stable; Moody’s set it Baa2 stable rating; and Fitch Ratings gave it BBB- positive.

Nevertheless, Alzona emphasized that the directive given to them by Finance Secretary and PSALM Board Chairman Carlos G. Dominguez III is “to avoid refinancing options in settling maturing debts,” because it could just bloat the state firm’s stranded debts.

If there would be further delay in the approvals of its UC filings with the Energy Regulatory Commission (ERC), the other relief being considered to offload PSALM debt woes would be for the national government to tap into the Malampaya fund and re-channel it to the power sector’s liability management program.

For stranded debts recovery, the petitions lodged by PSALM with the ERC had been as follows: P28.4 billion for 2011; P12.7 billion for 2012; P1.35 billion for 2014; and P27.67 billion for 2015.

Aside from stranded debts, PSALM also has pending P35 billion aggregate filing for stranded contract cost recoveries, which may have P0.03 per kilowatt hour (kWh) impact over four-year stretch of pass-on in the electric bills.

The ERC has advanced word that it will prioritize evaluation of PSALM’s UC applications, but regulators also take it on the side of prudence so they would not overburden the consumers with unwarranted adjustments in their monthly bills.

Primarily on the P27.7 billion stranded debts recovery that had been sought for swift action, ERC Chairman Jose Vicente B. Salazar noted that “the ERC is closely scrutinizing the petition which will have to undergo due process before it can finally render its decision on the case.”

The ERC chief stressed the regulatory body “is studying the case meticulously and with a lot of caution since the petition concerns pass-on charges,” asserting further that “the case will have to be evaluated on the basis of reasonableness and affordability.”