Meralco to limit borrowings next year

Publicly-listed Manila Electric Co. (Meralco) is likely to limit its borrowings next year as its petition for a 30-centavo per kilowatthour (kWh) rate increase has not been approved by the government, BNP Paribas Peregrine said in a report.

"Meralco is not likely to borrow substantially without a rate increase," the firm said.

BNP noted that next year (assuming a rate hike is granted), planned capital expenditure is likely to be financed through a combination of internally generated funds and debt.

"Interest cover is forecast to fall to 1.7x this year from 2.8x in 2000 due to exceptionally high operations and maintenance expenses and a higher average debt level forecast for 2001. This however, is still manageable. At this stage, we do not expect the company to gear up further without a rate increase," the firm said.

The Lopez-owned power distribution giant will need P15.46 billion for capital expenditure next year lower than the estimated P6 billion for this year.

In 2003 and 2004, the capital expenditure program is expected to be maintained at P6 billion.

Of these amount P8.75 billion will need to be raised by the company. The funding required for this year, on the other hand, will be at P5.65 billion.

In 2002, the research firm is expecting the company’s funding requirement to drop to P3.79 billion.

The company’s sales growth is also expected to drop from 20.9 percent in 2000 to 13 percent in 2001. A slight recovery is seen in 2002 at 14.7 percent while the growth will eventually decrease again to 11.6 percent in 2003.

Its net profit is seen to drop substantially to P1.69 billion this year from P2.49 billion in 2000. In 2002, the net income is expected to improve to P4.4 billion and to P5.39 billion in 2003.

The improvement in the financial performance of Meralco in the next couple of years basically hinges on the enactment of the RA 9136 otherwise known as Electric Power Industry Reform Act (EIRA).

"The passage of the Omnibus Power Bill provides Meralco with a new avenue to expand its revenue base. Meralco’s lock-on to power from efficient independent power producers (IPPs) and the necessary customer service infrastructure puts it in a strong position to increase its market share," BNP said.