PSALM launches debt swap plan

MANILA, Philippines - State-owned Power Sector Assets and Liabilities Management Corp. (PSALM) has launched a $600-million debt exchange program aimed at stretching the maturity of its debt profile.

PSALM will open 2019 dollar denominated bonds and issue new 2024 bonds in exchange for bonds due 2010 and 2011 starting today until Nov. 24.

Bonds that could be swapped include the $500-million guaranteed notes with a coupon of 9.875 due March 2010, zero-coupon guaranteed bonds amounting to $700 million and due July 2010, and guaranteed floating rate notes worth $400 million and due 2011.

PSALM has tapped Development Bank of the Philippines (DBP), Morgan Stanley & Co. International Plc, and UBS AG as joint deal managers and joint bookrunners.

The Monetary Board has given PSALM the greenlight to undertake a $600-million debt exchange program and at the same time float $600 million in global bonds to bankroll the operations of state-run National Power Corp. (Napocor).

This will be the second fund raising activity of PSALM this year after it successfully sold $1 billion in 10-year foreign-denominated bonds last May to pay the maturing financial obligations of Napocor.

Latest data show that Napocor has $4.2 billion worth of debt scheduled to mature over the next three years. About $1.4 billion worth of debt is scheduled to mature this year, another $1.8 billion next year, and $1 billion in 2011.

PSALM is mandated by Republic Act 9136 or the Electric Power Industry Reform Act of 2001 to transform the power industry into a competitive and market-driven sector. It is tasked to own, manage, privatize, and dispose of all existing generation assets, liabilities, real estate, and other disposable assets of Napocor.

It has assumed all the outstanding obligations of Napocor and owns all the transmission assets and facilities as well as sub-transmission functions and resources of National Transmission Corp. (TransCo).

Meanwhile, New York-based Moody’s Investors Services has assigned a Ba3 senior unsecured rating to the dollar bonds maturing in 2024 to be issued by PSALM. Ba rating has a speculative grade due to substantial risk particularly as a result of adverse economic change over time.

At the same time, Moody’s has affirmed PSALM’s Ba3 corporate family rating and senior unsecured rating on the existing $1-billion bonds due 2019. The ratings outlook is stable, in line with the sovereign outlook.

“A successful completion of such an exchange offer will extend the debt maturity profile of PSALM and remove imminent refinancing risks in 2010 and 2011. Furthermore, the new money component will improve the company’s liquidity,” Moody’s analyst Jennifer Wong said.

Wong said Moody’s considers PSALM’s credit profile to be closely linked to the government’s credit quality in light of its distinct policy role — as mandated by law to restructure and reform the Philippine power sector into a competitive and market-driven sector — its 100-percent ownership by the Philippine government.

She also cited the government’s intention to assume any remaining assets and liabilities at the end of its 25-year corporate life.