S&P Global Ratings on Thursday raised its long-term corporate credit rating on power distributor Manila Electric Co. to ‘BBB-’ from ‘BB+’.
S&P said in a statement the outlook for Meralco’s credit rating remained stable.
“At the same time, we raised our Asean regional scale rating on the Philippines-based power distributor to ‘axA-’ from ‘axBBB+,’” the debt watcher said.
S&P upgraded Meralco as it expected the company to show financial discipline and maintain moderate leverage with a ratio of funds from operations to debt at above 30 percent.
S&P upgraded Meralco’s rating despite the utility’s sizable investments by 2021 of about P120 billion, principally in its distribution network, to improve operational resilience and reliability at a time of customer and load growth.
“In parallel, the company is likely to infuse meaningful equity into its portfolio of power generation projects, and distribute sustained amounts to its shareholder,” it said.
S&P said it expected an increase in Meralco’s net debt to about P70 billion by end-2021, from negative P6.3 billion on Dec. 31, 2016.
“Furthermore, we consider existing power purchase agreements as debt-like liabilities, and therefore add some P71 billion to the company’s reported debt. This number looks high for the rating, as it would theoretically translate into a FFO [fund from operations]-to-debt ratio of close to 25 percent in 2021,” it said.
S&P said it believed the company had options to manage its leverage in the five years to come, and would take necessary steps to ensure its FFO-to-debt ratio was above 30 percent.