S&P upgrades Meralco outlook to ‘positive’

MANILA, Philippines — S&P Global Ratings has upgraded its outlook for Manila Electric Co. (Meralco) to positive from stable, citing the power giant’s franchise renewal and continued growth momentum.

The debt watcher also maintained its long-term credit rating of “BBB” for Meralco, reflecting the company’s adequate capacity to meet financial commitments while highlighting vulnerability to adverse economic conditions.

The outlook revision to positive on the power utility led by tycoon Manuel V. Pangilinan indicates that its credit rating may be raised.

S&P said the revised outlook reflects expectations that Meralco’s power generation projects, if delivered on time and within budget, would improve its business integration, scale and diversification.

The company, through Meralco PowerGen Corp. (MGen), sealed a $3.3-billion landmark deal with Aboitiz Power Corp. and Ang-led San Miguel Global Power (SMGP) in January.

The deal involved MGen and AboitizPower jointly investing — through Chromite Gas Holdings — in gas-fired power plants under SMGP. MGen holds an effective stake of 40.2 percent in the power venture.

On top of this, MGen is also on track to complete the P200-billion MTerra Solar in Nueva Ecija and Bulacan, which is poised to become the world’s largest integrated solar facility.

The project, targeted for full completion in 2027, comprises a 3,500-megawatt solar farm and a 4,500-MW-hour battery storage component.

The overall project progress for MTerra Solar’s first phase stood at 54 percent at the end of June.

These investments, S&P said, are expected to expand Meralco’s gross generating capacity to 8.8 gigawatts by 2027 from 2.6 GW last year.

“The company will also likely maintain strong operating cash flow from its core distribution business on the back of the recent renewal of its distribution franchise,” S&P said.

In April, President Marcos extended Meralco’s franchise for another 25 years, allowing it to continue operating power distribution systems in Metro Manila and nearby provinces until 2053.

The renewal was secured three years ahead of the expiration of the company’s original franchise in 2028.

“Backed by this exclusive franchise, the company will likely maintain its natural monopoly within its franchise area, including Metropolitan Manila, the Philippines’ national capital and economic center,” S&P said.

The output from Meralco’s franchise area makes up about 50 percent of the country’s gross domestic product, the credit rating agency said.

Meralco is the country’s largest power utility, providing electric service to over eight million customers within its franchise area.