Energy Development : Press Release: “Energy Development Corporation’s Outstanding Retail Bonds, with Aggregate Amount of P19 Billion, Maintain Highest Credit Rating”

Energy Development Corporation

38th Floor, One Corporate Centre Building, Julia Vargas corner Meralco Avenue

Ortigas Center, Pasig 1605, Philippines

Trunklines: +63 (2) 667-7332 (PLDT) / +63 (2) 755-2332 (Globe)

July 17, 2014

HEAD, Disclosures Department

The Philippine Stock Exchange, Inc. Philippine Stock Exchange Plaza

Ayala Triangle, Ayala Avenue, Makati City

Dear Ms. Encarnacion:

In compliance with the disclosure requirements of the PSE, we advise that PhilRatings has maintained its highest credit rating of PRS Aaa for the following outstanding retail bonds of Energy Development Corporation: a) P8.5 Billion Retail Bonds due on June 4,

2015; b) P3.5 Billion Retail Bonds due on December 4, 2016; c) P3.0 Billion Reatil

Bonds due on May 3, 2020 and d) P4.0 Billion Retail Bonds due on May 3, 2023.

Attached is a copy of PhilRatings' press release entitled "Energy Development Corporation's Outstanding Retail Bonds, with Aggregate Amount of P19 Billion, Maintain Highest Credit Rating".

17 July 2014

Philippine Rating Services Corporation (PhilRatings) maintained the Issue Credit Rating of PRS Aaa for the following outstanding retail bonds of Energy Development Corporation (EDC): a) P8.5
Billion Retail Bonds due on June 4, 2015; b) P3.5 Billion Retail Bonds due on December 4, 2016; c) P3.0
Billion Retail Bonds due on May 3, 2020 and d) P4.0 Billion Retail Bonds due on May 3, 2023.
PRS Aaa is the highest credit rating on PhilRatings' long-term issue credit rating scale. 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: a) EDC's core business which continues to generate significant revenues, with profitability expected to improve further within the next two years; b) its ample cash flows and financial flexibility to service debt obligations, particularly its P8.5 Billion Retail Bonds falling due on June 4, 2015; c) EDC's market leadership, with the company having the expertise and scale to withstand competition; and d) its well experienced management team and knowledgeable technical personnel who have demonstrated resiliency even in the midst of calamities and disasters. The rating also considers the Philippine's energy demand situation, as well as EDC's new plants and international expansion which are expected to be drivers for future growth.
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 ratings at any time, should circumstances warrant a change.
EDC is the largest producer of geothermal energy in the Philippines, with a combined geothermal capacity of 1,129.4 Megawatt (MW) as of December 31, 2013. It is the only geothermal energy company in the country to have achieved full vertical integration, from the development of steam fields to the operation of geothermal power plants. With its acquisition of a 60% stake in First Gen Hydro Corporation (FG Hydro), which operates the 132 MW Pantabangan-Masiway Hydroelectric Power Plants (PMHEPP) located in Nueva Ecija, EDC is likewise engaged in hydroelectric power generation. The company also holds four Wind Energy Service Contracts (WESC) covering wind projects in Burgos, Pagudpod, Bayog, and Pagali, all in IlocosNorte. The construction of the Burgos wind project began in 2013 and is expected to be completed by the first quarter of 2015.
EDC's total installed capacity, inclusive of PMHEPP, stood at 1,261.4 MW as of December 31,
2013. EDC, in addition, accounted for 7.5% of the total installed generating capacity of the country as of
December 31, 2012.
The company's consolidated revenues for the period ended December 31, 2013 declined by 9.6% to P25.7 billion, from P28.4 billion. Net income similarly dipped to P5.6 billion (-47.5%) after a record performance in 2012. It should be taken into consideration, however, that such already reflects the effects of Typhoon Yolanda which severely affected EDC's operations in Leyte. EDC's Power plants in Leyte account for 61% (700.9 MW) of EDC's total installed capacity. Adjusting for forex losses and non-recurring expenses (loss on damaged assets due to Yolanda and loss on impairment of exploration and evaluation assets), net income would have been higher (+43.7%) at P8.1 billion. Margins, nonetheless, remained sound in 2013.
With the decrease in revenues recorded in 2013, net cash flows from operations were at P14.4 billion, still significant although 13.7% lower compared with that for 2012. Despite the decrease, net cash flows from operations remained sufficient to cover cash outlay in investing activities. Cash flow coverage of financing charges and maturing obligations likewise remained ample at 2.75x as of end-2013 (2012:
2.74x)1
Last November 8, 2013, the Philippines was left devastated by the world's strongest storm recorded to make landfall based on wind speed measurements from satellites, Typhoon Yolanda (international name: Typhoon Haiyan). It particularly caused catastrophic damage throughout Leyte. With a business unit operating in Leyte, EDC reported damages in relation to its plants and facilities, specifically for Malitbog, Upper Mahiao, Tongonan, and Mahanagdong.
EDC was able to fully resume operations on March 11, 2014. Except for a 60 MW (gross) unit of the Mahanagdong power plant and several units of the Upper Mahiao and Leyte Optimization power plants, which were already non-operational pre-Yolanda, due to steam supply issues, all other units have resumed commercial operations. A significant portion of the company's losses from business interruption was also covered by insurance. The expedited restoration process of the damaged facilities resulting from Typhoon Yolanda in Leyte is a testament to the quality of management and strategies of the company, as well as resilience, that EDC has.
EDC continues to explore opportunities in geothermal energy, as well as in other indigenous renewable energy in order to address the power needs of the country. By 2018, EDC is expected to add about 261 MW in installed geothermal capacity, timely enough to meet the expected energy shortage in the different island grids.
In addition, EDC has partnered with Canada-based Alterra Power Corp. and has acquired Hot Rock Ltd.'s remaining stake in the project companies established for several geothermal projects in Chile and Peru. It has also established a representative office in Jakarta, Indonesia to further explore opportunities in the geothermal space. To date, EDC is still in the exploratory stage in relation to its overseas concessions. Once completed, these projects could eventually translate to higher revenues and further strengthen the company's position in the global markets.

1 DSCR Computation of Philratings is net operating cash divided by the current financial debt and interest expense.

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