National Power Corp. Ratings Affirmed At #BBB#; Outlook Remains Stable

Stocks and Financial Services Press Releases Tuesday January 31, 2017 16:48
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 National Power Corp. (National Power). The outlook remains stable. We also affirmed our 'axA' long-term ASEAN regional scale rating on the electricity provider.

The ratings on National Power reflect the company's position as a key electricity provider of 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 its debt obligations in the case of financial distress. We have therefore equalized the ratings on government-owned National Power with those on the sovereign.

We base our view of an almost certain likelihood of extraordinary government support on our assessment of the following National Power characteristics:
Critical role as the only provider of electricity to Philippine "missionary" regions--that is, areas not connected to the central transmission grid.

National Power's explicit mandate is to undertake missionary electrification, which we view as a key social policy initiative of the government. The private sector is unlikely to fill National Power's electricity provider role because of low profitability of the sector and the narrow market size.

Integral link with the Philippine government via 100% sovereign ownership, government appointments to the board of directors, and significant control over key budgetary and strategic decisions.
The government also provides an irrevocable, unconditional, and timely guarantee on all of National Power's debt obligations.

We do not assign a stand-alone credit profile to National Power because the likelihood of government support is almost certain. In addition, we do not believe government support is subject to transition risk. "We believe National Power executes strategic government policies for power sector reforms and it is difficult to differentiate National Power from the Philippine government," said S&P Global Ratings credit analyst Rebecca Hrvatin.

We believe National Power's overall profitability is likely to remain weak due to the company's limited directive.

The company has little flexibility around rate increases, as these are subject to regulatory approval from the Energy Regulatory Commission. National Power's poor ability to generate cash flow is offset by the Philippine government's ongoing support and guarantees.

The continuity of this sovereign guarantee remains the primary consideration for our ratings on National Power.
The stable outlook on National Power mirrors the outlook on our sovereign ratings 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 National Power's obligations.

We will lower the ratings on National Power 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 the company if we upgrade the sovereign, provided we believe timely and unconditional government support for National Power will continue.

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