S&P upgrades Meralco's long-term credit rating to investment grade

Global debt watcher S&P Global Ratings on Thursday raised the long-term corporate credit rating on Manila Electric Co. (Meralco) in light of expectations that the company is capable of maintaining financial discipline in the long-term.

It upgraded Meralco's long-term corporate credit rating to 'BBB-' from 'BB+' with a stable outlook.

'BBB-' is an investment investment grade rating under the S&P ratings scale. The rating indicates that the company has "adequate capacity" to meet its financial commitments, but adverse economic conditions or changing circumstances may lead to a "weakened capacity" to meet financial commitments.

Meanwhile, a 'BB+' rating indicates that the firm is likely to have some quality and protective characteristics, but these are seen to be outweighed by large uncertainties or major exposures to adverse conditions.

Fitch also raised Meralco's ASEAN regional scale rating to 'axA-' from 'axBBB+.'

An 'axA' rating reflects a "strong" capacity to meet its financial commitments, but is somewhat more susceptible to adverse effects of changes in circumstance.

This compares with the 'axBBB' rating which denotes that economic conditions or changing circumstances are "more likely" to lead to a weakened capacity on the part of the borrower to meet financial commitments.

"We upgraded Meralco because we expect the company to show financial discipline and maintain moderate leverage with a ratio of funds from operations (FFO)-to-debt at above 30 percent," Fitch said.

"We anticipate that Meralco will invest about Philippines peso (PHP) 120 billion over 2017-2021, principally in its distribution network, to improve its operational resilience and reliability at a time of customer and load growth," it added.

Meralco posted P4.598 billion in core net income in the first three months of the year, broadly unchanged from P4.590 billion a year earlier.— VDS, GMA News