CREDIT WATCHER S&P Global Ratings has upgraded Manila Electric Co.’s (Meralco) credit rating to “BBB,” noting the company’s strong financial position and steady cash flow.
“We raised our long-term issuer credit rating on Meralco to ‘BBB’ from ‘BBB-’,” S&P said in its report on Meralco’s credit upgrade e-mailed to journalists on Wednesday.
A “BBB” rating indicates that Meralco has an adequate capacity to meet its financial commitments but remains more vulnerable to adverse economic conditions.
S&P affirmed a stable outlook for Meralco, reflecting expectations of steady cash flow from its regulated distribution business and prudent management of leverage and growth spending over the next 12-24 months.
“We expect financial ratios to remain strong, despite heavy capital spending on the power generation businesses,” S&P said.
The agency anticipates Meralco will maintain a strong ratio of funds from operations (FFO) to debt of 39% to 45% over the next two years, surpassing the previous 30%.
S&P said that Meralco’s support will come from improving profitability in power generation and steady cash flow from distribution.
The agency also noted favorable power purchase agreement contract terms for Global Business Power Corp. (GBPC) and additional earnings from the local contingency reserve market.
Meralco is expected to undertake capital spending of approximately P120 billion in 2024 and P30 billion to P40 billion in 2025, including acquisitions. This includes sizable distribution-related growth capital expenditure of P23 billion to P25 billion annually for network strengthening and asset renewal.
Additionally, Meralco plans to ramp up investments in power generation assets, including renewables, over the next two to three years.
The company has announced a proposed joint venture with Aboitiz Power Corp. to invest in two gas plants of San Miguel Corp. and a liquefied natural gas import terminal, with an expected cost of P70 billion to P75 billion for its effective 40.2% stake.
Meralco will likely provide capital injections of up to P40 billion to SP New Energy Corp. for a 3.5-gigawatt Terra Solar Project over the next two to three years. The actual capital spending will depend on the project’s final financing and ownership structure.
S&P cautioned that it could lower Meralco’s rating if the company’s ratio of FFO to debt declines sustainably below 30% or if its financial policy becomes more aggressive.
POWER SUPPLY DEALSMeralco expects a “swift” approval of its power supply agreements (PSAs) from the Energy Regulatory Commission (ERC) so that customers can enjoy lower rates, a company official said on Wednesday.
The power distributor recently announced that it had secured the best bids from two generation companies, San Miguel Global Power Holdings Corp. and Aboitiz Power Corp., following a competitive selection process (CSP) for 600 MW of baseload capacity.
“We are happy that the main objective of the CSP, which is to secure the least cost supply for our customers, has been achieved. We hope that there will be no further delays as we work towards immediate signing of the PSAs resulting from the 600-MW CSP,” Meralco Senior Vice-President and Regulatory Management Head Jose Ronald Valles said in a statement.
“We trust that ERC evaluation and approval will also be swift so customers can enjoy these very low rates upon scheduled delivery date in August 2025,” he added.
Meralco’s controlling stakeholder, Beacon Electric Asset Holdings, Inc., is partly owned by PLDT, Inc.
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