S&P downgrades Meralco forex rating

Global ratings agency Standard & Poor’s (S&P) has downgraded Manila Electric Co.’s (Meralco) foreign currency rating for the second time in only two months.

S&P said it downgraded Meralco’s "B-" rating to "CCC" and its outlook was negative, reflecting the rating agency’s concerns that the company would not be able to meet financial obligations amounting to P12 billion this year.

The rating agency has already downgraded Meralco’s currency rating in March, shortly after the Supreme Court ordered the company to refund up to P28 billion to its subscribers.

In a report, S&P said Meralco’s cash balance is currently estimated at about P5 billion while its cash outflows are expected to reach P12 billion this year.

"The company expects to refinance short-term debt due and to secure a rate increase to offset rising financial obligations," said, Mary Ellen Olson, director of Corporate and Infrastructure ratings for S&P. "We cannot be sure that these favorable developments will occur."

Meralco has a pending application for a rate hike before the Energy Regulatory Commission (ERC) and according to S&P, if the ERC decides not to allow Meralco to increase its rates, the company would sustain operating deficits of P4 billion in 2003 and P8.5 billion in 2004.

S&P said its primary and immediate concern about Meralco’s liquidity position was the question of whether the company would be able to roll over its short-term debt due in July 2003.

Earlier this month, lenders extended the maturity on Meralco’s short-term debt for 90 days and agreed to term out the debt if Meralco is successful in securing a rate increase and if the company provided security for the refinancing under the company’s mortgage trust indenture (MTI).

However, Meralco still hasn’t obtained authorization to secure the loans under the MTI and the ERC has not made any decision on its application for a rate increase.

"Although it is unlikely that short-term creditors will refuse to extend short-term debt obligations falling due, they may do so if a rate increase is not granted in a timely fashion," said Olson.