S&P affirms Napocor rating at ‘BBB’

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Standard & Poor’s (S&P) Ratings Services on Friday affirmed the ‘BBB’ long-term local and foreign currency ratings and ‘axA’ ASEAN scale rating on state-owned electricity provider National Power Corp. (NPC).

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The outlook on the ratings remains stable.

“The ratings on National Power mirror those on the Philippines (BBB/Stable/A-2; axA/–/axA-2) and are based on our view of an “almost certain” likelihood of timely extraordinary support from the Philippine government for the company in the event of financial distress. We have therefore equalized the ratings on the government-owned electricity provider with those on the sovereign rating,” S&P said.

In accordance with S&P criteria for government-related entities, the assessment of the
likelihood of extraordinary government support is based on the following characteristics of NPC:

“Critical” role as the sole provider of electricity to regions in the Philippines not connected to the main grid, known as missionary areas. “National Power is specifically tasked to undertake missionary electrification, which we view as a key social policy initiative of the government. The private sector is unlikely to fill National Power’s role because of the low returns in the business and the limited market size.

“Integral” link with the Philippine government through 100 percent ownership, government appointments to the board of directors and significant government control over key budgetary and strategic decisions. The government also provides an irrevocable, unconditional, and timely guarantee on all of National Power’s debt obligations.

The stable outlook on National Power reflects the outlook on the sovereign credit rating of the Philippines over the next two years.

“The rating on National Power could face upward pressure if we upgrade the sovereign and see evidence of continued government support,” S&P said.

“The rating on National Power could face downward pressure if we see evidence of a weakening in government support and ownership. In addition, we could lower the rating on National Power if we downgrade the sovereign,” S&P added.

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