MERALCO’s Debt Surge Powers Strategic Growth, Not a Red Flag

Manila Electric Company (MERALCO) reported a sharp increase in its consolidated debt to ₱213.4 billion as of September 30, 2025, more than double its year-end 2024 level of ₱94.8 billion. While the spike raised eyebrows among market watchers, the company emphasized that the borrowing spree is part of a deliberate strategy to fund income-generating assets and future-proof its energy portfolio.

The surge stems primarily from a ₱75-billion term loan drawn in January 2025 and additional project financing at subsidiaries, including ₱25.2 billion for MTerra Solar’s 3.5-GWp solar and battery storage project. MERALCO also deployed significant capital for its ₱85.4-billion investment in Chromite Holdings, a joint venture that acquired stakes in the Ilijan and EERI gas-fired plants and the Linseed LNG terminal.

“These are not idle investments,” the company noted. “They are already contributing to earnings and strengthening our generation footprint.” Indeed, equity income from associates surged 70% to ₱13.1 billion, driven by the newly acquired gas assets, while consolidated net income rose 10% to ₱38.1 billion despite flat electricity volumes and regulatory refunds.

MERALCO’s core EBITDA climbed 14% to ₱67.2 billion, underscoring the accretive nature of these projects. The LNG terminal and EERI units achieved commercial operation earlier this year, providing stable returns and enhancing supply security. Meanwhile, renewable projects under MTerra Solar are expected to start contributing from 2026 onward, aligning with the country’s clean energy transition.

Although leverage ratios have increased — debt-to-equity now stands at 1.29x — management assured investors that the balance sheet remains healthy, with strong operating cash flows and compliance with all loan covenants. “This is strategic debt, not distress,” the company stressed. “We are investing in assets that deliver long-term value.”

Analysts agree that the debt build-up is not a concern given MERALCO’s regulated distribution business, predictable cash flows, and growing generation portfolio. The company’s dividend policy remains intact, with ₱25.1 billion in cash dividends declared in 2025, signaling confidence in sustained earnings.

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