Government eyes ADB loan to raise funds for Napocor

Following the cancellation of a $600-million power project loan from the Asian Development Bank (ADB), the government is now planning to tap the international debt market to finance the $1.65-billion funding requirement of the National Power Corp.

Government had been considering a plan to borrow up to $750 million for the uncovered portion of Napocor’s financing requirements of about $1 billion this year.

Sources revealed that aside from the $750 million that government was originally planning to borrow for Napocor, another $750 million is needed to make up for the cancellation of the ADB loan as well as the settlement of the power company’s other obligations.

The ADB loan is for the Leyte-Mindanao power transmission project. According to sources, Napocor had already calculated its funding requirements before it realized that the ADB fund would be available for the transmission project.

Moreover, sources said Napocor had take-or-pay obligations from various independent power producers. This assured power producers of income even if the electricity generated went beyond the demand or use of the area serviced by them.

Earlier, the Department of Finance said government had already received a number of proposals from various foreign financing companies to arrange the loan for Napocor.

In February this year, Napocor withdrew plans to float $500 million worth of global bonds after it turned out there were questions about the structure of the bond offering and pricing for the seven-year bonds were unfavorable.

This was supposed to be the second time the National Government would be borrowing for Napocor, considered an unattractive issue because it is up for privatization with huge debts to be borne largely by government.

The seven-year bonds were being arranged by sole bookrunner Bear, Stearns & Co. in conjunction with JP Morgan and primarily targeted US investors.

The withdrawal of the bond issue was done despite the recent investment grading ratings heaped on Napocor by three major rating agencies, Moody’s Investor Service, Standard & Poor’s and Fitch.

It was the first time a state-owned agency was able to pierce through the Philippines’ foreign currency sovereign ratings ceiling of BA1/BB+/BB+ by each of the three credit rating firms.

This should have allowed Napocor to access a significantly broader base than that which traditionally purchases debt issues from the country.