Moody’s upgrades ratings of Napocor, PSALM

MANILA, Philippines - Moody’s Investors Service has upgraded the credit rating of two state-run  power firms to just a notch below investment grade.

Higher ratings for the National Power Corp. (Napocor) and its subsidiary Power Sector Assets and Liabilities Management Corp. (PSALM) resulted from the upgrade in the Philippines’ sovereign credit score.

In a statement, the New York-based credit watcher said it upgraded the rating for the debt papers of Napocor and PSALM to Ba1 from Ba2. It also changed the outlook for the debt papers to stable from positive.

“The rating action follows Moody’s decision to upgrade the Philippine government’s long-term foreign-currency and local-currency ratings,” Moody’s said.

On Monday, Moody’s raised the Philippines’ sovereign credit rating to one notch below investment grade, citing the country’s strong economic prospects and stable financial system.

The international ratings service also said a recent breakthrough in peace talks, aimed at ending a decades-long Muslim separatist rebellion in the south of the country, had improved the country’s long-term economic potential.

“The senior unsecured bond rating reflects the Philippine government’s unconditional and irrevocable guarantee on Napocor’s rated long-term bonds,” said Mic Kang, Moody’s vice president and senior analyst.

For PSALM, Kang said the firm’s rating is “underpinned by its distinct policy role and its close integration with the government.”

PSALM is mandated by the Electric Power Industry Reform Act of 2001 to reform the power sector.

It also assumed the task of privatizing government power assets and restructuring liabilities of Napocor.

“Also, the government has provided unconditional and irrevocable guarantees on debt issued by PSALM and transferred from Napocor,” Kang said.

Moody’s upgrade put it in line with two other major credit rating agencies – Standard & Poor’s Ratings Services and Fitch Ratings – in terms of their evaluation of the Philippines.

To date, Napocor has transferred more than 99 percent of its rated dollar bonds, including $300 million due in 2028 and $160 million due in 2016, to PSALM.

Outstanding debts of Napocor, for its part, amount to $452,000 due in 2028 and $133,000 due in 2016.

After the privatization of its power facilities, Napocor would be left with the function of operating the power generation in off-grid areas and those power plants that will not be sold by PSALM.