Moody’s Investors Service has affirmed its “Baa2” credit rating for the Power Sector Assets and Liabilities Management Corp. (Psalm).
At the same time, the rating was given a “stable” outlook, reflecting 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 to 18 months.
“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. 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,” said Spencer Ng, Moody’s vice president and senior analyst.
The debt watcher said Psalm’s financial position and liquidity are heavily influenced by the government, given the presence of government officials on Psalm’s board of directors.
It also noted the state-run firm’s reliance on funding from the Malampaya fund by the government under the Murang Kuryente Act.
Signed in 2019, Republic Act 11371 or the “Murang Kuryente Act” (MKA) allows the government to allocate its P208-billion share in net proceeds from the Malampaya natural gas project in offshore Palawan to settle National Power Corp.’s financial obligations assumed by Psalm.
Hence, Psalm would no longer be able to collect new tariffs to pay for any future stranded contract costs and stranded debts until the above-mentioned amount is fully utilized.
“If annual funding allocated under the MKA falls short of the requirement, Psalm might need to raise additional debt to meet its operating requirements,” Moody’s said.
“Moody’s expects the government to continue to support the company’s funding requirements. The Philippine government has unconditionally and irrevocably guaranteed all of Psalm’s outstanding external debt and provided loans to the company,” it said.
“In Moody’s view, Psalm’s close financial and operational links with the government make its credit profile inseparable from the government’s own credit profile,” it added.
The debt watcher said Psalm’s ratings could be upgraded if the Philippines’ sovereign rating is upgraded.
However, Psalm’s ratings could be downgraded if the country’s sovereign rating is also downgraded, or if evidence emerges of a weakening in government support for Psalm or any change in the entity’s policy role.