Moody’s Investors Service has affirmed the Power Sector Assets and Liabilities Management Corp.’s (PSALM) Baa2 credit rating for senior unsecured notes.
The outlook is stable.
The stable ratings outlook is in line with the stable outlook for the Philippine sovereign rating, and reflects Moody’s expectation that PSALM’s strategic importance to and strong support from the government, if and when needed, will remain intact over at least the next 12-18 months.
At the same time, Moody’s has lowered PSALM’s Baseline Credit Assessments (BCA) to b1 from ba3. The lower BCA reflects Moody’s expectation that PSALM’s credit metrics will weaken over the next 12-18 months.
“The rating affirmation reflects PSALM’s strategic importance as a state-owned entity which carries out a mandated policy role for the Philippine power sector and the government’s strong commitment to the company,” Moody’s Vice President and Senior Analyst Mic Kang said.
PSALM’s policy role is to restructure and reform the power sector through the privatization of the power assets transferred from National Power Corp. and National Transmission Corp., including the repayment of NPC debt and obligations assumed by PSALM.
In addition, the Philippine government unconditionally and irrevocably guarantees most of PSALM’s debt and obligations and is obligated to assume any remaining assets and liabilities at the end of PSALM’s 25-year corporate life, according to the Electric Power Industry Reform Act (EPIRA).
Given the volatile capital market conditions and the fact that PSALM has already privatized the majority of its power assets, Moody’s noted that the proceeds from asset sales were minimal in 2015 and will likely remain low over the next 12-18 months.
Moody’s estimated that PSALM’s cash on hand of P56.5 billion as of December 31, 2014 had largely decreased in 2015 and will fall further in 2016 and thereafter.
“The likely reduction in cash on hand will weaken PSALM’s buffer against its high level of debt leverage. Having said that, we expect PSALM to maintain solid access to credit markets given its strategic importance and high linkage with the government,” according to the debt-watcher.