Credit rating for state-run PSALM upgraded by Moody’s

MANILA, Philippines—Moody’s Investors Service has upgraded the corporate family and senior unsecured bond ratings of the state-run Power Sector Assets and Liabilities Management Corp. (PSALM) by a notch to Ba2 from Ba3.

“The rating outlook is stable, in line with the sovereign outlook,” the international debt watcher said in a report, further noting that this rating upgrade would affect approximately $2.2 billion worth of debt securities.

According to Moody’s, the rating action for PSALM followed Moody’s decision to similarly upgrade the Philippine government’s long-term foreign-currency and local-currency ratings to Ba2 from Ba3.

“In light of PSALM’s 100 percent ownership by the Philippine government, its distinct policy role—as mandated by law to restructure and reform the Philippine power sector—as well as the government’s intention to assume any remaining assets and liabilities at the end of its corporate life, Moody’s views PSALM as an extension of the government,” explained Jennifer Wong, a Moody’s AVP/analyst.

“All debt issued by PSALM is unconditionally and irrevocably guaranteed by the government. As such, PSALM’s rating is closely integrated with, and strongly linked to, the government’s credit quality,” Wong further added.

PSALM was created in 2001 to sell government-owned power generation assets and contracted capacities and to clean up the debts of another state power firm, the National Power Corp. (Napocor).

As of the end of 2010, Napocor’s total liabilities stood at a staggering $15.8 billion, down slightly from the previous year’s $16.5 billion.

In terms of privatization, PSALM has so far auctioned off a total of 30 assets, representing 91.73 percent of government-owned capacities in the Luzon and Visayas grids.

The corporation also managed to assign the contracted capacities of five independent power producers to the so-called IPP administrators (IPPAs), covering 67.59 percent of PSALM’s contracted capacities in the Luzon and Visayas grids.

The total winning bid prices of these sold assets as of 2010 amounted to $10.65 billion, inclusive of the bid for the 246-megawatt Angat hydroelectric power plant, the bidding for which is being contested by cause oriented and civil groups.

As of end-December 2010, an estimated $4.85 billion was collected out of the generated proceeds, of which $4.84 billion was used to pay off Napocor’s obligations.

The total expected privatization proceeds from 2011 to 2026, including those to be collected from the sale of the concession of National Transmission Corp. (Transco), amount to $15.08 billion. The maturing financial obligations for the same period are expected to reach $18.86 billion.