Power Sector Assets Liabilities Management Corp. Rating Affirmed At #BBB#; Outlook Remains Stable

Stocks and Financial Services Press Releases Tuesday January 31, 2017 16:55
SINGAPORE--31 Jan--S&P Global Ratings

SINGAPORE (S&P Global Ratings) Jan. 31, 2017--S&P Global Ratings said today that it had affirmed its 'BBB' long-term issuer credit rating on Power Sector Assets & Liabilities Management Corp. (PSALM). The outlook remains stable. We also affirmed our 'axA' long-term ASEAN regional scale rating on the Philippines-based electricity generation and transmission asset management company.

The ratings on PSALM reflect those on the Republic of the Philippines (BBB/Stable/A-2; axA/axA-2), and are based on our view of an almost certain likelihood of timely extraordinary support from the Philippine government to meet the company's debt obligations in the case of financial stress. We have therefore equalized the ratings on PSALM with those on the sovereign.

We base our view of an almost certain likelihood of extraordinary government support on our assessment of the following PSALM characteristics: Critical role in implementing government reforms to restructure and liberalize the power sector in the Philippines.

Besides owning some generation assets, PSALM has the task of privatizing government-owned generation assets, implementing an open access system (where users can chose their power supplier), and increasing retail competition in Philippines' power sector.

Integral link with its owner, the Philippine government, which provides an irrevocable, unconditional, and timely guarantee on all of the company's debts. The government wholly owns and controls PSALM, appointing all members of the board of directors.

The government has also committed to assume all remaining assets and liabilities of PSALM after 25 years from its creation.
There are also cross-default triggers on the government's external indebtedness.We do not assign a stand-alone credit profile to PSALM because the likelihood of government support is almost certain.
In addition, we do not believe government support is subject to transition risk.

"We believe PSALM executes strategic government policies for power sector reforms and it is difficult to differentiate PSALM from the Philippine government," said S&P Global Ratings credit analyst Rebecca Hrvatin.

The Philippine government is encouraging small scale private sector companies to participate in the electricity sector by providing subsidies and introducing support in the form of universal charge. Ongoing government support and the sovereign guarantee on PSALM's liabilities offset the entity's poor aptitude to generate timely cash flows. The continuity of the sovereign guarantee remains an important support for our rating on PSALM.

The stable outlook on PSALM reflects the outlook on the sovereign rating on the Philippines over the next two years. It reflects our assessment of an almost certain likelihood of extraordinary government support and continued guarantee on all of the company's obligations.

We will lower the ratings on PSALM if we downgrade the sovereign. We will also lower the ratings by one or more notches if we believe that government support is waning, though we believe this is highly unlikely.

We will raise the ratings on PSALM if we upgrade the sovereign, provided we believe that the timely and unconditional government support to the company continues.

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