Energy Development Corp gets PRS Aaa rating

PhilRatings has assigned its highest credit rating of PRS Aaa to Energy Development (EDC) Corporation’s proposed bond issue. While EDC has applied for registration with the Securities and Exchange Commission (SEC) for bonds of up to Php10.0 billion, the PRS Aaa credit rating for EDC’s proposed bond issue applies up to a principal amount of Php 12.0 billion. The bonds will be issued with a term of 5-1/2 years and 7 years. 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.

A corporate credit rating measures a company’s over-all creditworthiness and is renewed on a yearly basis. PRS Aaa (corp.) is likewise the highest corporate credit rating assigned by PhilRatings. A company rated PRS Aaa (corp.) has a very strong capacity to meet its financial commitments relative to that of other Philippine corporates. The ratings were arrived at after considering: 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.

EDC is the Philippines’ largest producer of geothermal power, providing steam to power plants, with total installed capacity of 1,199 MW. In addition, EDC has a 60% equity interest in a 112 MW hydroelectric power plant, bringing its total installed capacity to 1,266 MW or 8.1% 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.

Historical net income of EDC has been robust. Though its net income for 2008 significantly dropped to Php1.3 billion, this was not due to deterioration in operating performance but was the result of significant unrealized foreign exchange losses of Php9.4 billion from the translation of its foreign currency-denominated loans. In view of the global financial crisis, the Japanese Yen appreciated 20% against the US Dollar and the Peso depreciated 14% against the US Dollar as of December 31, 2008. This adversely affected EDC since 79% of its loans were denominated in Japanese Yen. 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 is an associate of First Gen Corporation (FGen). FGen is part of the Lopez Group of Companies, a diversified conglomerate established in the Philippines. The Lopez Group is knowledgeable about the Philippine power industry, given its years of experience in the sector. In addition, the presence of “cornerstone investors” like the Government of Singapore Investment Corporation, as well as the International Finance Corporation, is also seen as a positive credit rating factor.

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