NG support to spare PSALM from default, outlook ‘stable’ – Moody’s

By Myrna M. Velasco – March 24, 2021, 6:30 AM
from Manila Bulletin

As its loan commitments are generally backed by the national government, Moody’s Investors Service indicated that such sovereign support could spare state-run Power Sector Assets and Liabilities Management Corporation (PSALM) from default on its financial commitments.

That as the ratings agency also affirmed the Baa2 rating or ‘stable’ outlook on the overall financial standing of the government-owned power firm.

According to Spencer Ng, vice president and senior analyst of Moody’s, the rating accorded on PSALM leans heavily on the Baa2 ‘stable’ rating that has been bestowed on the Philippine government.

He explained such will “underpin the very high likelihood of support for PSALM, to prevent a default in times of stress.”

Moody’s further noted “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.”

It added “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.”

Any upgrade or downgrade on PSALM’s credit rating then will also depend heavily on the outlook accorded to the sovereign.

“The company’s ratings could be upgraded if Philippines’ sovereign rating is upgraded. On the other hand, PSALM’s ratings could be downgraded if the Philippines’ sovereign rating is downgraded, or if evidence emerges of a weakening government support for PSALM or any change in PSALM’s policy role,” Moodys stressed.

The ratings agency has cited PSALM’s need for new round of borrowings for the rate subsidy that it will need to enforce under the Murang Kuryente Act (MKA), so the universal charges (UC) on stranded debts and stranded contract costs in the electric bills will no longer be passed on to the consumers.

The MKA or Republic Act 11371 was signed in 2019; and the law mandates the allocation of P208 billion from the Malampaya fund in the next 3-4 years to cover the UC rate components that shall be expunged from the electric bills.

Nevertheless, since the targeted available amount from the Malampaya fund is now just considered a book entry, the national government will need to borrow to cover the MKA financing.

In the MKA’s initial period of implementation this 2021, the national government just earmarked P8.0 billion for the estimated MKA subsidy.

To plug the funding gap, PSALM will need to borrow P38.04 billion this year, according to the firm; and the planned borrowings had likewise been highlighted in the Moody’s report.

“If annual funding allocated under the MKA falls short of the requirement, PSALM might need to raise additional debt to meet its operating requirements,” the ratings firm said.

Moody’s thus sets out expectation on the government “to continue to support the company’s funding requirements.”