MANILA, PHilippines - Geothermal power producer Energy Development Corp.’s proposed issuance of up to P10 billion worth of bonds was assigned a credit rating of PRS Aaa — the highest on the ratings scale of domestic rating agency Philippine Rating Services (PhilRatings).
Obligations rated PRS Aaa are of the highest quality with minimal credit risk. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.
While EDC’s application with the Securities and Exchange Commission covers only up to P10 billion in bonds, the PRS Aaa credit rating for the geothermal firm’s bond issue applies up to a principal amount of P12 billion.
The bonds will be issued with a term of 5-1/2 years and seven years. The offering is slated to begin at the end of this month.
A corporate or issuer credit rating of PRS Aaa was likewise assigned to EDC. A corporate credit rating measures a company’s overall creditworthiness and is renewed on a yearly basis.
In assigning the rating, PhilRatings took into consideration EDC’s strong cash flow generation, as well as ample liquidity and sources of financing to cover maturing debt and operating requirements; its reduced exposure to foreign currency risk with its projected change in debt mix; improving profitability; its strong position as the Philippines’ largest producer of geothermal energy; and its experienced management team.
The credit rating assigned to the proposed issue, as well as the corporate credit rating assigned to EDC, can be changed at any time should circumstances warrant such a change, PhilRatings said.
EDC has historically generated strong cash flow from operations and is expected to continue to do so in the future. Cash from operations for 2007 and 2008 was at P5.1 billion and P8.9 billion, respectively.
“Cash flow from operations during the projected period will comfortably cover debt maturing on an annual basis,” PhilRatings said.
In the short-term, EDC’s funding requirements are substantial due to sizeable debt maturity in 2010, as well as given the initial $96 million payment to Power Sector Assets and Liabilities Management (PSALM) Corp. for the Tongonan I, Palinpinon I and Palinpinon II power plants.
The company, however, has already started to put in place needed funding for its requirements as evidenced by the P9 billion fixed rate corporate notes issued in the third quarter of 2009 and its planned bond issuance of up to P10 billion.
PhilRatings said while EDC’s net earnings declined to P1.3 billion, the drop was not due to a deterioration in operating performance but was the result of significant unrealized foreign exchange losses of P9.4 billion from the translation of its foreign currency-denominated loans.
In view of the global financial crisis, the Japanese yen appreciated 20 percent against the dollar and the peso depreciated 14 percent against the dollar as of Dec. 31, 2008. This adversely affected EDC since 79 percent of its loans were yen-denominated.
Significant payments for bullet maturities (Miyazawa I & II) in 2009 and in 2010 will reduce the negative impact of movements in foreign exchange on future net income.
EDC, however, has started to recover in the first half this year, posting a net profit of P2.7 billion, driven by long-term contracts with National Power Corp. In addition, net income will be further boosted by the addition of Tongonan I, Palinpinon I and Palinpinon II power plants, as well as by other renewable energy projects. The Renewable Energy Act will also improve EDC’s forecast bottom line, particularly with its provision of lower corporate income tax of 10 percent for power generated from renewable resources.
EDC is the Philippines’ largest producer of geothermal power, providing steam to power plants, with total installed capacity of 1,199 megawatts. In addition, EDC has a 60 percent interest in a 112 MW hydroelectric power plant, bringing its total installed capacity to 1,266 MW or 8.1 percent of the country’s total installed capacity.
“As one of the country’s leading players in the power sector, EDC is well positioned to benefit from the expected tight power supply situation in the country, particularly in the short-term,” PhilRatings said.
EDC is an associate of First Gen Corp., a member of the Lopez Group of Companies.