Moody’s affirms PSALM credit rating, “stable” outlook

moody’s

Global credit rating firm Moody’s Investors Service has affirmed the Power Sector Assets and Liabilities Management Corporation’s (PSALM) credit profile with a “stable” outlook due to its “strategic importance to and strong support from the government.”

“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,” Moody’s Vice President and Senior Analyst Spencer Ng said in its ratings action dated March 22.

“Also supporting the ratings is the Government of Philippines’ (Baa2 stable) strong commitment to the company, which underpins the very high likelihood of support for PSALM, to prevent a default in times of stress,” Ng added.

A “Baa2” rating means that a company’s obligations are “medium-grade, subject to moderate credit risk, and may possess certain speculative characteristics.” A stable outlook, meanwhile, indicates low likelihood that a rating would change in 12-18 months.

Moody’s also noted that the financial position and liquidity of PSALM are heavily influenced by the government and its reliance on the funding allocated from the Malampaya fund by the government under Republic Act 11371 or the Murang Kuryente Act (MKA).

Signed in 2019, the MKA allows the government to allocate Php208 billion in the Malampaya fund to PSALM over the next three to four years to meet the company’s stranded costs in relations with the assets and liabilities inherited from the National Power Corporation (NAPOCOR).

Moody’s noted that the MKA will increase PSALM’s exposure and dependence on the government’s fiscal and economic position, as long as the annual allocation under the law is approved as part of the annual government budget.

The rating’s firm also expects the government’s continuous support for PSALM’s funding requirements because it has “unconditionally and irrevocably guaranteed all of PSALM’s outstanding external debt and provided loans to the company.”

According to Moody’s Joint Default Analysis for government-relation issuers, Moody’s rating for the government support for the company is “Very High,” following its previous assessments. It also found that the state-run company’s “close financial and operational links with the government make its credit profile inseparable from the government’s own credit profile.”

Moody’s added that PSALM’s rating could be upgraded if the country’s sovereign rating is also upgraded, because the stable ratings outlook reflects the stable outlook for the Philippine sovereign rating.

PSALM was established as mandated by Republic Act 9136 or the Electric Power Industry Reform Act of 2001 (EPIRA) to process the government’s plan to reform the country’s power sector, which includes the privatization of NAPOCOR’s assets and liquidation of its liabilities.

Last January, PSALM reported that it reduced its principal financial obligations by Php40.1 billion to Php381.9 billion at the end of 2020 from Php422 billion at the start of the year.

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