Hong Kong, March 31, 2016 -- Moody's Investors Service has affirmed Power Sector Assets and Liabilities
Management Corporation's (PSALM) Baa2 issuer and backed senior unsecured
bond ratings.
The outlooks for the ratings are stable.
At the same time, Moody's has lowered PSALM's Baseline
Credit Assessments (BCA) to b1 from ba3.
RATINGS RATIONALE
"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," says Mic Kang, a Moody's Vice President and
Senior Analyst.
PSALM's policy role is to restructure and reform the power sector
through the privatization of the power assets transferred from National
Power Corporation (NPC, Baa2 stable) and the repayment of the NPC
debt and obligations assumed by PSALM.
In addition, the Philippine government (Baa2 stable) 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.
As such, Moody's believes the government's very high
support for PSALM, if and when needed, will remain intact,
and PSALM's close relationship with the government and governmental
support will remain the company's primary rating driver.
The lower BCA reflects Moody's expectation that PSALM's credit
metrics will weaken over the next 12-18 months.
In this context, Moody's expects funds from operations (FFO)/debt
and FFO/interest coverage to weaken to 3%-5% over
the next 12-18 months from 6%-13% in 2013-14
and 1.5x-2.0x from 2.3x-4.3x,
respectively, mainly due to the expected reduction in cash inflows
from asset sales relating to the power plants transferred from NPC.
Moody's notes that the proceeds from asset sales were minimal in
2015 and will likely remain low over the next 12-18 months,
given volatile capital market conditions and the fact that PSALM has already
privatized the majority of its power assets.
In addition, Moody's estimates that PSALM's cash on
hand of PHP56.5 billion as of 31 December 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.
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.
An upgrade of the sovereign rating could result in an upgrade of PSALM's
ratings, given PSALM's close linkage with the government and
the government's strong commitment.
PSALM's BCA could come under upward trend if FFO/debt or FFO/interest
exceeds 6%-8% or 2.0x-2.5x on
a sustained basis.
Likewise, a downgrade of the sovereign rating could trigger a downgrade
of PSALM's ratings.
In addition, any change in PSALM's policy role or indication of
a weakening of the government's support could pressure its issuer
rating.
PSALM's BCA and the rating could come under downward pressure if FFO/debt
or FFO/interest falls below 2%-3% or 1.5x
on a sustained basis.
The methodologies used in these ratings were Regulated Electric and Gas
Utilities published in December 2013, and Government-Related
Issuers published in October 2014. Please see the Ratings Methodologies
page on www.moodys.com for a copy of these methodologies.
Power Sector Asset & Liabilities Management Corporation (PSALM),
wholly owned and controlled by the Philippine government, was established
in 2001 to take ownership of, and manage, all the 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 ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Mic Kang
Vice President - Senior Analyst
Project & Infrastructure Finance
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Terry Fanous
MD-Public, Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's affirms PSALM's Baa2 ratings; outlook stable