Meralco gets upgrade amid strong finances
Improving profitability of the company’s unregulated power generation business and steady cash flow from its regulated power distribution business will support financial strength
Daily TribuneImproving profitability of the company’s unregulated power generation business and steady cash flow from its regulated power distribution business will support financial strength
Projections of robust finances prompted credit watchdog S&P Global Ratings to upgrade dominant power distributor Manila Electric Co. (Meralco) to a “BBB” from “BBB-” or one step higher than investment grade.
“We expect Meralco to maintain strong financial ratios despite heavy investments in its power generation business,” according to S&P.
Improving profitability of the company’s unregulated power generation business and steady cash flow from its regulated power distribution business will support financial strength.
The stable outlook reflects our expectation that the company will generate steady cash flow from its regulated distribution business, while prudently managing its leverage and growth spending over the next 12-24 months, according to S&P.
“We expect financial ratios to remain strong, despite heavy capital spending on the power generation business,” S&P assessed.
Meralco will maintain a strong ratio of funds from operations (FFO) to debt of 39 percent to 45 percent over the next two years, which is above S&P’s upside trigger of 30 percent.
Support will come from improving profitability in power generation and steady cash flow from distribution. We forecast reported earnings before interest, tax, depreciation and amortization will increase to P62 billion to P68 billion until 2025, from P54 billion in 2023 and P39 billion in 2022.
We expect visible cash flow from Meralco’s unregulated power generation businesses.
The company’s power generation earnings will continue to improve over the next two years.
