San Miguel Corp. (SMC) said Monday its power business remains “financially sound” and fully compliant with all regulatory requirements, dismissing a report that its “worsening financial profile” could trigger a cross-default on the conglomerate.
“We advise that the business of San Miguel Global Power Holdings Corp. (SMGP) and subsidiaries remain viable and meet its financial obligations,” SMC said.
SMGP’s combined installed capacity is approximately 19 percent of the national grid, 25 percent of the Luzon grid and 7 percent of the Mindanao grid, as of June 30, 2023.
Since it started operations in 2011, SMGP said it remained profitable even as coal and fuel prices skyrocketed to unprecedented levels in 2022. During the period, SMGP’s consolidated revenues stood at P221.4 billion and EBITDA reached P42.32 billion which were both on a par with results in prior years, as it implemented various cost- optimization strategies combined with viable commercial arrangements with its existing bilateral customers.
More importantly, SMGP said it continues to have access to financial institutions for its funding requirements.
While certain loan maturities this year have been refinanced, SMGP added that it is about to financially close a project financing arrangement for its battery energy storage systems (BESS) project that will allow the safe integration of renewal energy to the grid. When completed, SMGP expects the BESS business to contribute meaningfully to its revenues.
“SMGP remains confident of its ability to tap the local market as proven by its successful issuance of the P40-billion retail bonds.”
The bond offering was initially targeted to raise P30 billion. However, the strong demand from investors and confidence on the company’s ability to continue providing reliable power nationwide prompted the company to exercise its oversubscription option of up to P10 billion.
The power firm said it is committed to pursue business and expansion strategies that are aligned with the national and regional energy policies and needs.
“SMGP is committed to the diversification of its power generation portfolio as it continues to undertake the development of solar-based power generation projects. SMGP remains fully compliant with existing local and international environmental requirements, laws, and regulations, protects the biodiversity surrounding its project sites, and actively reduces emissions in the supply chain and in its operations.”
Recently, the Energy Economics and Financial Analysis (IEEFA) released a report saying SMGP’s heavy reliance on fossil fuels in its portfolio has negatively impacted its financial metrics in recent years.
“Without a change in strategy away from dependence on volatile fossil fuels, the company may increasingly find itself locked into financial instability,” IEEFA said.
The same report said that given the company’s “worsening financial profile,” any concerns over its “hypothetical default raise fears of triggering a cross-default on SMC,” the group added.
Sustainability think-tank Center for Energy, Ecology, and Development (CEED) also commented that IEEFA’s report is a “reality check” for companies that are heavily reliant on fossil fuel.
“As long as its business model is pinned on massive plans for fossil gas and liquefied natural gas [LNG], it can expect its investment to be risky,” said CEED Executive Director Gerry Arances.
CEED earlier released a report that also raised concerns about SMC’s expansion plan.
“SMC’s ambitious expansion plan is its bane and we’ve seen how SMC tried to pass on its losses to the public when it moved to charge Meralco consumers with even higher power rates.
The IEEFA report states that it could take SMC around 4 to 9 years to service its current debt based on its current earnings. We wonder if SMC has a backup plan to recover instead of treating energy consumers as its main fallback, especially with the ongoing review of the competitive selection process that will hinder SMC from passing on costs to end users,” added Arances.
Arances also called on other corporations and investors to rethink its role in enabling coal and gas expansion plans in the country.
“SMC has a clear location as a major actor in the energy transition in the Philippines–one that is free from the clutches of expensive and dirty energy. May this serve as a wakeup call to SMC that a fortune built on fossil fuels results in poor fiscal performance and subjects host communities to health issues and leave them vulnerable to the worsening impact of climate change,” commented Bishop Gerry Alminaza of the Diocese of San Carlos.