IEEFA cautions Global Power of potensial risks

MANILA, Philippines — The Institute for Energy Economics and Financial Analysis (IEEFA) has cautioned San Miguel Global Power Holdings Corp. (SMGPH), the energy arm of conglomerate San Miguel Corp., of potential financial risks due to its fossil fuel expansion and shift to liquefied natural gas (LNG).

In a report, IEEFA said SMGPH’s exposure to global fossil fuel prices has weighed negatively on its financial position in recent years.

Further, the global think tank said the company’s shift from coal to more expensive LNG could hinder its ability to meet growing financial obligations.

“As the largest power generation company in the Philippines, SMGPH should be well positioned to benefit from the country’s accelerating shift to renewable energy. But without an immediate, material pivot to renewables, IEEFA believes the company is at risk of locking in financial instability caused by overexposure to volatile fossil fuel prices,” said Sam Reynolds, the report’s co-author and IEEFA LNG/gas research lead.

According to IEEFA, SMGPH targets to complete 1,900 megawatts (MW) of new coal capacity and 1,313 MW of new gas-fired capacity by 2025, with more than 10,000 MW of proposed gas-fired capacity.

It said the company also plans to complete 800 MW of solar capacity and 1,000 MW of battery storage capacity in three years.

“As a result of its ambitious expansion plans, SMGPH has increased its capital expenditures dramatically, funded largely by increased loans, bonds, and issuances of perpetual securities,” said co-author and IEEFA energy finance analyst Hazel James Ilango said.

The report indicated that more than P232 billion worth of perpetual securities and over P56 billion in bonds have been issued by the company since 2019.

However, according to IEEFA’s analysis, only 0.1 percent of funds from its most recent bond issuance in July 2022 went to renewable projects, compared with 76 percent for fossil fuel projects.

“While many of the company’s borrowings continue to go to new fossil fuel capacity, overexposure to fossil fuels is one of the root causes of the company’s recent financial troubles,” Reynolds said.

IEEFA said SMGPH is also expected to take almost twice as long to service its current debt based on current earnings, which is from four years to nine years.

The think tank said this signals that the company’s ability to service debt may be under pressure.

Ilango said “while SMGPH’s earnings have shown improvement in the first half of 2023, ongoing challenges in meeting its financial obligations persist.”

IEEFA noted that SMGPH’s liquidity crunch could evolve into a longer-term funding shortfall, with $3.4 billion of dollar-denominated perpetual securities callable through 2026.

Moreover, the think tank said the company’s access to low-cost capital could be constrained as global financial institutions increasingly recognize climate-related investment risks.