After PH sovereign upgrade, S&P raises rating on 4 PH issuers: PSALM,Napocor,PLDT,DBP

Statement: S&P: Ratings On Four Philippine Entities Raised Following Sovereign Upgrade

SINGAPORE (Standard & Poor’s) May 9, 2014–Standard & Poor’s Ratings Services today raised its ratings on four Philippine entities: PowerSector Assets & Liabilities Management Corp. (PSALM), National Power Corp. Napocor), Philippine Long Distance Telephone Co. (PLDT), and Development Bank of the Philippines (DBP). The upgrades follow the upgrade of the sovereign credit rating on the Republic of Philippines (BBB/Stable/A-2; axA/axA-2).

To From
Power Sector Assets & Liabilities Management Corp.
National Power Corp.
Issuer credit rating BBB/Stable/– BBB-/Stable/–
ASEAN regional scale axA/– axA-/–
Senior unsecured BBB BBB-

Philippine Long Distance Telephone Co.
Corporate credit rating BBB+/Stable/– BBB/Stable/–
ASEAN regional scale axA+/– axA/–
Senior unsecured BBB+ BBB

Development Bank of the Philippines
Issuer credit rating BBB/Stable/A-2 BBB-/Stable/A-3
ASEAN regional scale axA/axA-2 axA-/axA-2
Senior unsecured BBB BBB-
ASEAN regional scale axA axA-
Subordinated BBB- BB+
Junior subordinated BB+ BB

We consider the stand-alone credit profiles of PSALM and Napocor as weak and heavily dependent on the support of the Philippine government. The rating upgrade reflects our opinion that both utilities are almost certain to receive timely and sufficient extraordinary government support in the event of financial distress. Our view is based on our assessment that PSALM and Napocor: (1) play a critical role in implementing government reforms in the power sector and providing missionary electrification in the country; and (2) benefit from an integral link with the government, which fully owns both utilities and has control over key budgetary and strategic decisions. The Philippine government also provides an irrevocable, unconditional, and timely guarantee on all debt obligations of PSALM and Napocor.

The rating on PLDT remains constrained by our ‘BBB+’ transfer and convertibility assessment on the Philippines. Our stand-alone credit profile for PLDT remains ‘a-‘. We believe PLDT benefits from its leading position in the domestic market, good business diversity, strong cash flows, and modest debt level. The intense competition in the mature domestic cellular market and large dividend payouts of almost 100% temper these strengths.

The ratings on DBP are equalized with the sovereign credit ratings on the Philippines. The bank plays a critical public policy role in supporting the economic and social development of the Philippines and has an integral link to the government. Therefore, we see an “almost certain” likelihood that the government will provide timely and sufficient extraordinary support to DBP in the event of financial distress.


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