S&P upgrades Meralco credit rating to ‘BBB’

S&P Global Ratings upgraded by a notch the credit rating of power utility giant Manila Electric Co. (Meralco) amid confidence in the company’s financial status coupled with the growth of its energy generation business.

In a report released on Tuesday, the credit watcher raised Meralco’s rating to ‘BBB’ from the minimum investment grade of “BBB-”. The new rating is one notch below the Philippine government’s credit rating of BBB+.

According to S&P Global Ratings, a company with a BBB rating shows enough capacity to settle financial commitments “but [is] more subject to adverse economic conditions.”

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It expects Meralco to “maintain strong financial ratios despite heavy in its power generation business.”

“The improving profitability of the company’s unregulated power generation business and steady cash flow from its regulated power distribution business will support its financial strength,” it said.

“The company’s power generation earnings will continue to improve over the next two years. Drivers will be favorable power purchase agreement contract terms for Global Business Power Corp. and additional earnings from the local contingency reserve market,” the report added.

Meralco’s cash flow as measured by earnings before interest, taxes, depreciation and amortization is seen to jump by P62 billion to P68 billion from this year to next year, higher than P54 billion in 2023.

The Manuel Pangilinan-led firm’s net income increased by 26 percent to P22.4 billion in the first semester on the back of stronger power sales and higher plant availability in its power generation business.