DBP, Psalm credit ratings up to ‘BBB+’
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Thu, 02 May 2019 16:20:35 +0000
S&P Global Ratings has raised its credit ratings on the Development Bank of the Philippines (DBP) and the Power Sector Assets and Liabilities Management Corp. (Psalm).
Both DBP and Psalm improved their scores to “BBB+” from “BBB.” The rating firm also gave the two state-run firms a stable outlook.
The higher ratings of the two agencies are reflective of the recent upgrade of the country’s investment grade status.
The credit rater also affirmed the state-run bank’s short-term rating at “A-2” and raised the bank’s senior unsecured notes to “BBB+” from “BBB.”
It said the upgraded DBP rating followed a similar upgrade in the sovereign credit rating of the Philippines as it sees “an almost certain likelihood that the government of the Philippines will provide timely and sufficient extraordinary support to the bank if needed.”
S&P recognized the lender’s critical public policy role in supporting the economic and social development of the country.
It added that DBP has an integral link to the government as it assists critical industries and finances the government’s infrastructure programs by lending primarily to local governments, water districts, electricity cooperatives, other corporates, as well as micro, small, and midsize enterprises.
“Our assessment of government support reflects the government’s history of capital support and sovereign guarantees for DBP’s external borrowing,” the debt watcher also said.
Likewise, the credit rating agency said it raised Psalm’s long-term issuer credit rating on the “almost certain likelihood” that the government will provide timely extraordinary support to Psalm in the event of financial distress.
“Therefore, the rating on the government-owned Psalm is equalized with that on the sovereign,” it added.
S&P based its assessment on the premise that Psalm plays a vital role in restructuring and liberalizing the country’s power sector. Psalm is tasked to privatize government-owned generation assets; implement an open access system, where users can choose their power supplier; and increase retail competition in the Philippines’ power sector.
The company noted that Psalm also has an “integral link” with the government, which provides an irrevocable, unconditional and timely guarantee on all of the company’s debts.
Meanwhile, S&P explained that the stable outlook on DBP will move in tandem with the sovereign credit ratings on the Philippines.
It expects the bank to remain an important instrument for the government’s medium-term development strategy. It also believes the bank will sustain its public policy role over the next two years.
“Any significant change in government policy that affects DBP’s critical role or integral link will affect the ratings on the bank, which we view as unlikely over the next two years,” it added.
Earlier, DBP reported that its full-year income for 2018 reached P5.72-billion reflecting a 4.19 percent increase from the P5.49-billion it earned in 2017.
On Psalm’s rating, S&P explained that, “the government has also committed to assume all remaining assets and liabilities of Psalm after 25 years from its creation in 2001.
There are also cross-default triggers on the government’s external indebtedness,” it added.
S&P does not assign a stand-alone credit profile to Psalm because the likelihood of government support is almost certain.
“We do not believe that this support is subject to transition risk. Psalm implements and executes a strategic reform program on behalf of the government, from which it is difficult to distinguish,” it added.
If a country’s sovereign rating is changed, so will the firm’s, according to S&P.
“The outlook on Psalm also reflects our assessment that, given the company’s strategic importance to the Philippine government, extraordinary government support for the company, guarantees or Psalm’s operational framework will not change significantly,” the agency said.
“We will revise the outlook or lower the rating if we take the same rating action on the sovereign, or if we believe government support for Psalm is weakening,” it added.
S&P’s outlook may be revised or the rating may be change if the sovereign is upgraded, provided they believe the timely and unconditional government support for the state-run corporation remains.
“A change in law, privatization plans or the refusal of future guarantees could lead us to reassess the company’s role to the government. However, we believe these developments are highly unlikely,” it added.
With a reports from JORDEENE B. LAGARE
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