S&P hints at credit rating upgrade for Meralco
S&P Global Ratings has raised Manila Electric Co.’s credit rating outlook from “stable” to “positive,” citing the power firm’s 25-year franchise renewal and its strong electricity generation business.
In a report on Tuesday, the credit watcher kept the “BBB” rating on the Pangilinan-led company. But the change in rating outlook to “positive” indicated a potential rating upgrade in the next 12 to 24 months.
A creditor with a BBB rating shows enough capacity “to meet financial commitments, but more subject to adverse economic conditions.”
If upgraded by at least one notch to BBB+, Meralco’s credit rating will be in line with that of the Philippine government.
Some of the recent developments contributing to S&P Global’s enhanced expectations on Meralco include the extension of its legislative franchise for another 25 years, or until 2053.
“Backed by this exclusive franchise, the company will likely maintain its natural monopoly within its franchise area, including Metropolitan Manila, the Philippines’ national capital and economic center,” it said.
The power company’s franchise area covers Metro Manila, Bulacan, Cavite, Rizal and select areas in Pampanga, Laguna, Batangas and Quezon.
“The economic weight and importance of this franchise area supports demand for power and the company’s continued growth,” S&P Global said.
S&P Global also noted Meralco’s increasing presence in the power generation market, including its interests in natural gas power plants through Chromite Gas Holdings Inc. (CGHI) as well as its ambitious Luzon solar project, dubbed MTerra Solar, with UK-based investment firm Actis.
“We forecast the Terra solar project and CGHI will contribute to 24 percent and 7 percent of Meralco’s adjusted Ebitda (earnings before interest, taxes, depreciation and amortization) by 2027. We assume predictable cash flow from the projects, given their long-term power supply agreements with favorable tariffs,” it said.
“These upstream investments will also help Meralco better secure power supply and evolve as an integrated power utility from a stand-alone distribution company,” the group added.
Meralco is set to disclose its first-half financial performance results next week. But in the first quarter alone, the group’s consolidated core profit grew by 11 percent to P11.17 billion.
Its distribution unit continued to provide the highest contribution, accounting for 60 percent of the core earnings.
