S&P Global Ratings raised the long-term credit trading of Manila Electric Co. (Meralco) amid its continued financial strength.
S&P said it expects Meralco to maintain strong financial ratios despite heavy investments in its power generation business.
It said the improving profitability of Meralco’s unregulated power generation business and steady cash flow from its regulated power distribution business would support its financial strength.
“Reflecting this, we raised our long-term issuer credit rating on Meralco to ‘BBB’ from ‘BBB-‘,” S&P Global said.
“The stable outlook reflects our expectation that the company will generate steady cash flow from its regulated distribution business, while prudently managing its leverage and growth spending,” it said.
S&P said Meralco would likely maintain a strong ratio of funds from operations (FFO) to debt of 39 percent to 45 percent over the next two years.
It said support would come from improving profitability in power generation and steady cash flow from distribution.
“We forecast reported EBITDA [earnings before interest, taxes, depreciation and amortization] will increase to P62 billion to P68 billion in 2024 to 2025, from P54 billion in 2023 and P39 billion in 2022,” S&P said.
It said Meralco power generation earnings would continue to improve over the next two years, driven by the favorable power purchase agreement (PPA) contract terms for Global Business Power Corp. (GBPC) and additional earnings from the local contingency reserve market.
The ratings agency said robust dividends from equity-accounted affiliates such as PacificLight Energy Pte. Ltd. and San Buenaventura Power Ltd. Co. would also support stronger cash flow.
“Full-fledged contributions from Meralco’s three renewable plants will add to earnings over the next two years. Meralco commissioned these mostly solar projects in 2021 to 2023,” it said.
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