Philippine Rating Services Corporation (PhilRatings) maintained the Issue Credit Rating of PRS Aa plus, with a Stable Outlook, for the outstanding P4.0 billion Corporate Notes of Hedcor Sibulan Inc. (HSI), an Aboitiz Power Corporation (AP) subsidiary.
Obligations rated PRS Aa are of high quality and are subject to very low credit risk. The obligor’s capacity to meet its financial commitment on the obligation is very strong. PhilRatings may add either a ‘plus’ or ‘minus’ sign to further qualify its ratings.
Philratings likewise assigned a Rating Outlook of Stable to the assigned Issue Credit Rating. An Outlook is an indication as to the possible direction of any rating change within a one year period and serves as a further refinement to the assigned credit rating for the guidance of investors, regulators, and the general public. A Stable Outlook is defined as: “The rating is likely to be maintained or to remain unchanged in the next twelve months.”
The Issue Credit Rating and Outlook took into account the following key considerations: (1) relatively stable profitability profile due to capacity being fully contracted to Davao Light and Power Company (DLPC), a subsidiary of AP and the third largest privately-owned electric distribution utility in the Philippines , until 2022; (2) margins remain at healthy levels and provide adequate buffer in relation to the servicing the company’s Corporate Notes; (3) maintenance of adequate liquidity, with capital position foreseen to continuously improve with the plowback of earnings to equity; and (4) track record and substantial experience of the company’s shareholders, management and technical personnel.
The rating also considered the operational history of the company; its customer, asset location, the power situation in Mindanao and its growth prospects.
PhilRatings’ ratings are based on available information and projections at the time that the rating review was performed. PhilRatings shall continuously monitor developments relating to HSI and may change the rating at any time, should circumstances warrant a change.
HSI is a special purpose company tasked to develop, construct and operate three run-of-river hydroelectric power plants in Barangay Sibulan, Sta. Cruz, Davao del Sur, harnessing water from the Sibulan River and Baroring Creek which runs through Mt. Apo and other adjacent mountains. The company’s power plants are as follows: Sibulan Hydro A which has a 16.5 megawatt (MW) capacity; Sibulan Hydro B which has a 26 MW capacity; and Tudaya Hydro 1 which has a 6.6 MW capacity. Overall, HSI has a 49.1 MW capacity.
The company is wholly-owned subsidiary of AP. The Aboitiz Group has been involved in the power industry for more than a century and has interests in some of the largest privately-owned distribution utilities in the Philippines. Through the years, the company has accumulated interests in hydroelectric power generation facilities, geothermal plants and coal and oil energy technologies. Its main subsidiary for hydro power projects, Hedcor, Inc., has over 40 years of experience in developing and operating hydro power plants. It directly assists in the operations of HSI. AP has outstanding PRS-Aaa rated bonds worth P13 billion.
HSI has a twelve-year power supply contract with DLPC which will expire in 2022. Through its own transmission lines, HSI is directly connected to DLPC which enables both to save on transmission costs. It accounted for an average of about 12% of DLPC’s power requirements in 2017. Capacity from HSI is also primarily used during peak demand hours in relation to DLPC’s daily operations. DLPC is the third largest privately-owned electric distribution utility in the Philippines and the sole customer of HSI. It is likewise a subsidiary of AP.
In 2017, revenues from the sale of power were at P1.59 billion coming from higher generation resulting from higher rainfall compared to the previous year, as well as an upward adjustment in the selling rate. On the other hand, the company was able to contain the cost of plant operations, increasing at a slower pace and amounting to P446 million.
In the same year, cash flows from operations amounted to P1.28 billion, more than enough to cover maturing debt. Current ratio remained sound at 3.3x. In February 2018, the first tranche of the company’s outstanding Corporate Notes worth around P97.6 million was due and was settled accordingly.
From being relatively debt free in 2015, HSI’s debt to equity stood at 0.7x in 2016 as it issued its Corporate Notes totaling P4.1 billion. In 2017, debt to equity ratio increased to 2.0x as the company used the notes to redeem its preferred shares which effectively lowered the company’s equity level. Nevertheless, the company’s capital structure remains adequate and is seen to improve going forward.