PhilRatings upgrades First Holdings' P5-billion notes issue

MANILA, Philippines – First Philippine Holdings Corp. (FPHC) has received a credit rating upgrade from Philippine Rating Services Corp. for its outstanding P5 billion fixed-rate corporate notes.

The new rating of PRS Aa was two notches higher than the PRS A plus FPHC secured earlier. Obligations rated PRS Aa are of high quality and are subject to very low credit risk. The obligor’s capacity to meet its financial commitment on the obligation is very strong, PhilRatings said.

The outstanding notes were issued in three tranches, maturing in 2012, 2014 and 2017.

In changing the rating, PhilRatings took into account the strengthened liquidity position of FPHC and its major subsidiary, First Gen Corp. (First Gen); lower debt level; improving profitability outlook; assured stable and steady cash flow over the long term given its investments in First Gen and Manila Electric Co. (Meralco); and reduced debt at the level of its parent company, Benpres Holdings Corp. (BHC). 

FPHC’s sale of a portion of its interest in Meralco has improved the company’s liquidity position and offsets the significant drop in historical cash dividends from its subsidiaries and associates. 

According to PhilRatings, FPHC was also able to prepay a substantial amount of debt as a result of the sale. From P21.2 billion in end-2008, the company’s debt was trimmed to P12.9 billion at end-September 2009, resulting in an improvement in debt-to-equity ratio to 0.3x at end-September 2009.

PhilRatings said while FPHC took on an additional short-term loan of P11.2 billion from Metro Pacific Investments Corp. in the last quarter of 2009, this loan will be paid down from the additional sale of shares in Meralco in 2010. 

On the profitability side, FPHC’s share in equity in net earnings of its subsidiaries and associates has been on the decline from P5.4 billion in 2007 to P2.2 billion in 2008, and from P3.3 billion for the first nine months of 2008 to P2.1 billion for nine months of 2009. This was due mainly to the challenged profitability of its subsidiary, First Gen.

“Profitability outlook for First Gen has since improved given its lower debt level and better performance of its associate Energy Development Corp. This translates to an enhanced profitability outlook for FPHC likewise. In addition, lower debt level of FPHC will also positively impact its bottom line,” PhilRatings said.

“FPHC has an assured and steady cash flow over the long term. FPHC derives its operating cash flow from dividends received from subsidiaries and associates, particularly First Gen and Meralco. Most of First Gen’s power assets benefit from long term contracts. Meralco, on the other hand, has a captive market under its 25-year franchise until 2028,” PhilRatings noted.

PhilRatings said Benpres has pared down its debt to a more manageable level of P3.1 billion (includes guaranteed liabilities and commitments) as of end-September 2009 compared with P15.6 billion at end-2008. 

PhilRatings said it shall continuously monitor developments relating to FPHC and may change the rating at any time, should circumstances warrant a change.