After MCIA, Aboitiz Group sets sights on more regional airports

Megawide eyes data centers, transport terminals from sale of shares

By Arjay L. Balinbin, Senior Reporter

ABOITIZ InfraCapital, Inc. (AIC) continues to work towards its goal to enter the airport business, with its eventual takeover of the Mactan-Cebu International Airport (MCIA) seen strengthening its proposals for other provinces.

“We continue to discuss our remaining unsolicited proposals with the government for other regional airports and hope to move forward with them soon,” AIC said in a statement to BusinessWorld on Saturday.

“We are still waiting for the approval of the National Economic and Development Authority (NEDA),” AIC said.

The company has proposed to develop and operate the New Bohol International Airport in Panglao, Bohol, as well as upgrade and operate the Laguindingan International Airport in Laguindingan, Misamis Oriental.

Civil Aviation Authority of the Philippines (CAAP) Deputy Director-General for Administration Danjun G. Lucas said AIC’s submissions, including the Laguindingan proposal, were “returned by NEDA due to some findings.”

“All unsolicited proposals are under further evaluation,” he said in a phone message.

He noted that CAAP is awaiting the revised implementing rules and regulations (IRR) of the Build-Operate-Transfer (BOT) Law from the NEDA.

Groups have questioned the BOT Law’s new IRR, as private proponents would shoulder more risks while the government is relieved of responsibility for delayed deliverables. The NEDA is reviewing the provisions of the IRR and is expected to release the revised rules this month.

AIC recently entered into a landmark deal with Megawide Construction Corp. and GMR Airports International, B.V. (GAIBV) for Aboitiz company to acquire all their shares in GMR Megawide Cebu Airport Corp. (GMCAC), the developer and operator of MCIA, for P25 billion.

AIC will pay P9.5 billion to own 33.3% minus one share in GMCAC. Closing of the transaction is expected in November or December, according to Megawide.

Megawide and GAIBV will then issue exchangeable notes that mature in October 2024 to AIC for P15.5 billion. These notes will be exchanged by the Aboitiz company for the remaining shares in the MCIA operator.

“The more logical justification for AIC’s [investment in MCIA] is to bolster its entry into other regional airports,” Rene S. Santiago, former president of the Transportation Science Society of the Philippines, said in a phone message on Friday.

“The bragging rights over MCIA should strengthen [AIC’s] cards versus potential challengers,” he added.

Terry L. Ridon, a public investment analyst and convenor of think tank InfraWatch PH, said in a phone message that the deal “should prove beneficial in developing other airports as well, particularly the scuttled rehabilitation of the Ninoy Aquino International Airport (NAIA), and the other bundled airports around the country.”

“It should nonetheless be noted that airports remain a public service, and airport operators should ensure that airport fees and services should remain competitive and affordable to the public,” Mr. Ridon noted.

He added that AIC’s investment in MCIA “should strengthen its stake” in other airport project proposals.

Aboitiz, through a consortium, and Megawide both proposed to rehabilitate NAIA during the previous administration.

“They (Aboitiz Group) don’t have any experience yet, but they have always wanted to get into the airport business, and that’s why this is also a good strategy — like an alliance where they come in as the owner of one-third of the shares, and then we can still partner for other airport projects, whether it’s NAIA or another,” Megawide Chairman and Chief Executive Edgar B. Saavedra said in a briefing on Friday.

“By having this kind of business, it will really help in AIC’s portfolio if they want to get the Bohol and Laguindingan airports,” Mr. Saavedra noted.

Megawide is confident that AIC will already have the technical know-how to run MCIA when it assumes full control of the airport by 2024.

“We were able to build a strong Filipino workforce for the airport and we have a two-year transition period, which means that AIC will get to learn from us how to run the airport,” said Manuel Louie B. Ferrer, GMCAC president and Megawide’s executive director for infrastructure development.

CONFIDENCE IN TRAVEL SECTOR
AIC said its investment in MCIA is a “vote of confidence for the travel sector, which has been steadily improving in the past few months.”

Citing MCIA statistics, the company said the airport welcomed more than two million passengers in the first half of 2022, a 350% increase versus the 470,000 passengers in the same period last year.

Mr. Saavedra said the Cebu airport, which accounts for 30% of Megawide’s revenues, “dragged us in terms of our financials in the last two years due to the pandemic.”

“But right now, we are already operating above the water,” he added.

For his part, Megawide Chief Financial Officer Ramon H. Diaz said: “If you look at the situation now, we are not generating any dividends from the airport because of the pandemic; we will not be generating in the next two years, at least.”

“So, we’re getting the solution already today, which opens up a lot of opportunities to replace the airport dividends,” he added.

On the transaction’s impact on Megawide’s balance sheet, Jez G. Dela Cruz, the company’s vice-president for corporate finance and financial planning, said: “It will have a deconsolidated impact.”

“That means the full debt of GMCAC right now which is around P25 billion will be taken out from the balance sheet of Megawide, so it will be reported as an investment in equity,” he noted.

“On the profit and loss, instead of line-by-line consolidation, it would just be the net operating profit or loss for the period that would be recognized based on the remaining share of Megawide, which should be closed this coming November or December,” Mr. Dela Cruz added.

Proceeds from the transaction will be used to fund Megawide’s “pandemic-resilient” projects.

“It’s going to be a mix of that. At the same time, liability management is something that we are also looking at to further strengthen the balance sheet of Megawide, so that we can be opportunistic. In case there are big projects that will be coming up, then we can aggressively bid for those projects and participate,” Mr. Dela Cruz said.

The projects that Megawide will be focusing on in the next three to five years include public markets, transportation infrastructure such as land transport terminals, affordable housing, hospitals, and digital infrastructure, specifically a data center.

“We’re trying an investment [in a data center] this year,” said Jaime Raphael C. Feliciano, Megawide’s chief business development officer.

“We have a partner already in place. In fact, we have signed preliminary documents. It’s just that we can’t really disclose at this point,” he added.

According to Mr. Dela Cruz, part of Megawide’s business model is “about capital deployment and efficiency.”

“Now, we’re able to have this opportunity to crystalize the value,” he said. “It’s not that we’re letting go of the future earnings of the airport. In fact, we have projected those future cashflows and were able to upfront the value for this transaction.”