Debt-watcher S&P gives Meralco dollar issuance 'BB' rating

Debt-watcher Standard & Poor's Ratings Services (S&P) gave Manila Electric Co.'s (Meralco) proposed US dollar-denominated debt paper — to bankroll capital expenditure — a “BB” rating or two notches below investment grade.

In an e-mailed statement Monday afternoon, S&P said

it “assigned its 'BB' rating to a proposed issue of US dollar senior unsecured notes” by Meralco. “The rating on the proposed notes is subject to our review of the final issuance documentation,” it added.

S&P said Meralco plans to use the proceeds from the proposed notes to fund capital expenditure.

In July, the debt-watcher upgraded Meralco by one notch to “BB” with a stable outlook.

A higher credit rating lessens borrowing costs as it reflects healthier finances and improved capacity to pay-off debts.

Its rating on Meralco reflects the power utility's “dominant position in power distribution, improving cash flows supported by our forecast of robust sales, and a stable regulatory framework in the Philippines,” according to S&P.

It noted Meralco's re-entry into power generation is seen as weakening “... its financial risk profile if it pursues an aggressive strategy coupled with high dividend payouts...” given anticipated hike in debt-funded capital expenditure.

Planned capital spending and risks to expansion to the generation business limit the likelihood of another upgrade in the next year or two, the debt-watcher noted.

“Prospects for an upgrade appear limited over the next 12-24 months, given Meralco's significant planned capital spending and the execution risks associated with expansion into the generation business,” S&P said.

In a disclosure to the Philippine Stock Exchange Monday afternoon, Meralco said it “may consider”a regular dollar bond issuance “should market conditions become favorable” after its roadshow starting Tuesday.

Financial services giant Citigroup was tapped to arrange a series of fixed-income investor meetings in Singapore and Hong Kong, the listed company said in another disclosure Monday morning. —

Sieg Alegado/VS, GMA News

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