S&P upgrades Meralco’s credit rating

MANILA, Philippines —  S&P Global Ratings has upgraded the credit rating of Manuel V. Pangilinan-led Manila Electric Co. (Meralco) due to its robust financials and steady cash flow.

The US-based debt watcher raised its long-term issuer credit rating on the power giant to “BBB” from “BBB-.”

A “BBB” rating means an issuer has adequate capacity to meet financial commitments but is more subject to adverse economic conditions, while a “BBB-” rating is considered the lowest investment grade.

Despite heavy investments in power generation business, S&P expects Meralco to maintain strong financial ratios.

“The improving profitability of the company’s unregulated power generation business and steady cash flow from its regulated power distribution business will support its financial strength,” S&P said.

S&P likewise affirmed its stable outlook on Meralco, which is seen generating steady cash flow from its regulated distribution business while prudently managing its growth spending over the next one to two years.

In the first half, Meralco’s earnings jumped by 21 percent to P23.2 billion from P19.2 billion amid higher sales volume, a strong contribution from the retail electricity business, and increased plant availability for power generation.

According to S&P, income from power generation is expected to continue to surge over the next 24 months.

“Drivers will be the favorable power purchase agreement contract terms for Global Business Power Corp. and additional earnings from the local contingency reserve market,” it said.

Meralco’s capital spending, meanwhile, will likely remain elevated, reaching P120 billion this year and about P30 to P40 billion in 2025, which includes acquisitions.

“On top of sizable distribution-related growth capital expenditure of P23 to P25 billion each year for supporting network strengthening and asset renewal, we expect the company to ramp up its capital expenditures and investments in power generation assets over the next two to three years,” S&P said.

The power distributor recently entered into a joint venture with Aboitiz Power Corp. to invest in two gas plants of San Miguel Corp. with a combined capacity of roughly 2,600 megawatts as well as a liquefied natural gas plant.

S&P also expects Meralco to infuse a capital of up to P40 billion in SP New Energy Corp. for the 3,500-MW Terra Solar development, which is set for completion by 2027.