EDC PhP10.5B Retail Bond Gets PRS Aaa Rating

Pasig—(PHStocks)—Philippine Rating Services Corp. (PhilRatings) maintained the Issue Credit Rating of PRS Aaa for the following outstanding retail bonds of Energy Development Corp. (PSE: EDC): a) PhP3.5 Billion Retail Bonds due on December 4, 2016; b) PhP3.0 Billion Retail Bonds due on May 3, 2020; and c) PhP4.0 Billion Retail Bonds due on May 3, 2023.

PRS Aaa is the highest credit rating assigned by PhilRatings. Obligations rated PRS Aaa are of the highest quality with minimal credit risk. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.

The rating reflects the following key considerations: (1) EDC’s ample cash flows; (2) Its position as the leading vertically-integrated geothermal power producer in the country, with its enhanced standing likewise as the world leader in terms of geothermal power plant capacity; (3) Its growing portfolio of renewable energy projects, as well as its international expansion efforts that are expected to spark revenue growth; (4) Strong revenue generation and sustained profitability; (5) Financial flexibility and manageable debt profile, thereby mitigating various operational and financial risks; and (6) Its proactive stance in addressing emerging trends in the local power industry.

PhilRatings based its assessment on available information and projections at the time that the rating review was performed. PhilRatings shall continuously monitor developments relating to EDC and may change the rating at any time, should circumstances warrant a change.

Accounting for 60.9% of the country’s 1,918MW installed geothermal capacity in 2014, EDC is the leading producer of geothermal power in the country, with total geothermal capacity of 1,169MW in installed capacity and is the largest vertically integrated geothermal company in the world.

To sustain and further enhance its growth prospects, EDC is venturing into other indigenous renewable energy projects involving hydropower, wind and solar energy. In 2008, the Company ventured into hydroelectric power generation after acquiring a 60% equity in the 132MW Pantabangan-Masiway Hydroelectric Power Plants (PMHEPP). During the last quarter of 2014, the Company also commenced the commercial operation of the 150MW Burgos Wind Energy Project (BWEP), the largest wind farm in the country. Likewise, the 4.1MW Burgos Solar Energy Project (BSEP) completed its first phase and commenced commercial operations in March 2015. As a result, EDC’s total installed generating capacity, inclusive of PMHEPP, BWEP and BSEP, stood at 1,455MW, accounting for 24.7% of the country’s 5,898MW installed renewable energy capacity as of end-2014.

In line with the Department of Energy’s (DOE) target to more than triple the country’s installed capacity for renewable energy by 2030, EDC is also in various stages of developing additional growth areas for local renewable energy projects which are expected to add to the company’s portfolio in the coming years. With the Feed-in Tariff scheme already in effect, EDC expects to develop additional wind and solar projects in the next three to five years, subject to the projects’ feasibility based on the next rounds of FiT rates and installation targets.

In addition, EDC has expanded overseas by establishing offices in Chile, Peru and Indonesia. It signed a Joint Venture Agreement with Alterra Power Corporation, a TSX-listed renewable energy company, for the exploration and potential development of the Mariposa Project in Chile, and acquired the local subsidiaries of Australian geothermal firm Hot Rock Ltd in Chile and Peru. EDC has built an early-stage portfolio consisting of stakes in 5 geothermal concessions and up to 19 applications rights in Latin America.

Consolidated revenues for the period ended December 31, 2014 increased by 20.3% from PhP25.7 billion to PhP30.9 billion. EDC also generated other income for 2014, amounting to PhP2.8 billion, primarily from the recovery of impairment provisions and proceeds from insurance claims. Net income soared to PhP11.8 billion (+111%), significantly higher than the PhP5.6 billion recorded in 2013. Adjusting for non-recurring income, net income for 2014 would have been lower by PhP2.5 billion, down to PhP9.3 billion. Nonetheless, recurring net income would still be higher by 25.2% year-on-year.

With the increase in revenues recorded in 2014, net cash flows from operations were at PhP16.1 billion, 9.8% higher compared to that in 2013. EDC’s debt to equity ratio improved from 1.62x as of end-2013 to 1.59x as of end-2014. Given the robust cash generating ability, coupled with incremental borrowings, EDC appears to have adequate debt servicing capacity in relation to its maturing obligations in the coming years.

As of September 2015, consolidated revenues of PhP25.3 billion reflected an increase of PhP2.3 billion or 10.2% compared to the previous period. Net income, however, decreased from PhP10.5 billion to PhP6.1 billion. Such was mainly due to the absence of recovery of impairment provisions and proceeds from insurance claims in 2014; foreign exchange loss of PhP1.2 billion in 2015; higher interest expense of PhP0.6 billion stemming from the BWEP’s project financing, and; higher operating expenses in 2015 mainly due to typhoon-proofing, repairs and maintenance expenses. Removing the non- recurring items, recurring net income still decreased by PhP0.8 billion, from PhP8.0 billion in September 2014 to PhP7.2 billion in September 2015.

PhilRatings has likewise assigned a Rating Outlook of Stable to EDC’s 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 12 months.” EDC’s solid operating and financial performance in 2014, its proven resilience in the face of calamities and disasters, as well as the upside provided by its on-going and planned projects, all contribute to the assignment of a Stable Outlook.

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