Meralco plans foreign bond sale to finance expansion

To boost power generation portfolio to 2,700 MW.

Manila Electric Company, the Philippines' largest power distribution company, plans to borrow abroad to finance its capital expenditures, particularly its continuing expansion into power generation.

Meralco said it has tapped Citigroup to arrange a roadshow with investors in Singapore and Hong Kong. It said that after going the roadshow, it might consider a US Reg S transaction with the amount and tenor to be determined at that time.

A Regulation S transaction refers to an overseas stock or bond sale by a company, whether or not based in the US, that need not file the usual documents that the US Securities and Exchange Commission normally requires for selling such securities.

Merlco’s investments in power generation are expected to take up bulk of its capital expenditures. Under Philippine rules, distributors cannot source no more than half of their supply from their own power plants.

Standard and Poor's Ratings Services, however, said Meralco's venture into power generation alongside its high dividend payout represents a downside risk for the Philippine utility, which maintains a payout ratio of 50%.

It anticipates that the projects will increase Meralco's debt-funded capital expenditure because it expects the company to hold a large share in each of the generation projects. These generation-related projects will also expose Meralco to execution risks.