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Rating Action:

Moody's affirms PSALM's Baa2 ratings; outlook remains stable

22 Mar 2021

Singapore, March 22, 2021 -- Moody's Investors Service has affirmed Power Sector Assets and Liabilities Management Corp.'s (PSALM) Baa2 issuer and backed senior unsecured bond ratings.

The outlook on the ratings remains stable.

RATINGS RATIONALE

"PSALM's credit profile is underpinned by its strategic importance as a state-owned enterprise that carries out a mandated policy role for the Philippine power sector. Also supporting the ratings is the Government of Philippines' (Baa2 stable) strong commitment to the company, which underpins the very high likelihood of support for PSALM, to prevent a default in times of stress," says Spencer Ng, a Moody's Vice President and Senior Analyst.

Established in 2001 under the Electric Power Industry Reform Act (EPIRA), PSALM plays a key role in facilitating the government's plan to reform Philippines' power sector, including the orderly privatization of the country's power assets and liquidation of the liabilities transferred from the National Power Corporation (NPC, Baa2 stable).

Moreover, the government is obligated to assume any remaining assets and liabilities at the end of PSALM's 25-year corporate life under the EPIRA, which aligns PSALM's long-term interest with that of the government.

PSALM's financial position and liquidity are heavily influenced by the government, given the presence of government officials on the company's board of directors and, going forward, PSALM's reliance on funding allocated from the Malampaya fund by the government under the Murang Kuryente Act (MKA).

The MKA, signed in August 2019, allows the government to allocate PHP208 billion available in the Malampaya fund to PSALM over the next three to four years to meet the company's stranded costs associated with the assets and liabilities inherited from NPC. In return, PSALM will no longer be able to collect new tariffs to pay for any future stranded contract costs and stranded debts until the full exhaustion of the PHP208 billion from the Malampaya fund.

The MKA provides greater clarity on how PSALM will be reimbursed for the stranded costs over time. However, the arrangement will also increase PSALM's exposure and dependence on the government's own fiscal and economic position, given that annual allocation under the MKA will need to be approved as part of the annual government budget.

If annual funding allocated under the MKA falls short of the requirement, PSALM might need to raise additional debt to meet its operating requirements. Moody's expects the government to continue to support the company's funding requirements. The Philippine government has unconditionally and irrevocably guaranteed all of PSALM's outstanding external debt and provided loans to the company.

Under Moody's Joint Default Analysis (JDA) approach for government-related issuers (GRIs), Moody's assessment of government support for the company is "Very High", which is demonstrated by the above factors. In Moody's view, PSALM's close financial and operational links with the government make its credit profile inseparable from the government's own credit profile. As such, PSALM's rating is derived solely based on support and is assigned without a baseline credit assessment.

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.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The company's ratings could be upgraded if Philippines' sovereign rating is upgraded.

On the other hand, PSALM's ratings could be downgraded if Philippines' sovereign rating is downgraded, or if evidence emerges of a weakening in government support for PSALM or any change in PSALM's policy role.

The principal methodology used in these ratings was Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Power Sector Assets & Liabilities Management Corporation, wholly owned and controlled by the Philippine government, was established in 2001 to take ownership of, and manage, all generation-related assets, liabilities, contracts with independent power producers, real estate and other disposable assets of NPC, including National Transmission Corporation, and to privatize and sell these assets to liquidate NPC's financial obligations.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

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The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Spencer Ng
Vice President - Senior Analyst
Project & Infrastructure Finance
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: 61 2 9270 8141
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
© 2023 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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