MAYNILAD WATER Services, Inc. risks financial difficulty should its creditors simultaneously demand payment of loans totaling some P42 billion due to a “material change” in its contract with the government, which has revoked extension of the water concession beyond 2022.
Meantime, Metro Manila’s west zone water provider has suspended its capital expenditure program pending resolution of issues involving its concession contract, which the Justice department has ordered reviewed.
These are among the issues faced by one of its shareholders DMCI Holdings, Inc., said its Chairman and President Isidro A. Consunji.
He told reporters that the water company has loans of about P42 billion, which become due and demandable under its covenant with lenders in case of any material change in its contract. “Under our loan covenants, any material change in the contract lahat ng (all the) loans [become] due and demandable,” he said.
In a hearing at the House of Representatives on Wednesday last week, Maynilad President and Chief Executive Officer Ramoncito S. Fernandez said he learned of the Dec. 5 revocation of the 15-year extension of Metro Manila’s water concessions on Dec. 11. “While we were meeting almost [the] whole day, our creditors have already asked us how will this affect [the company]. ‘Will you still be able to pay the loans that you’ve contracted with us long term’?” he told reporters then.
DMCI Holdings has a 25.24% stake in Maynilad, while Metro Pacific Investments Corp. holds 52.8%. Japan’s Marubeni Corp. has a 20% stake, while the balance is held by other shareholders.
Metro Pacific shares partially recovered on Friday with an 11.9% surge to P3.01 apiece after falling further on Thursday to a multi-year-low P2.69, while DMCI shares similarly gained 9.9% to P5.55 each after sinking further to P5.05 on Thursday, also another multi-year low.
Metro Pacific is one of three Philippine units of Hong Kong’s First Pacific Company Ltd., the others being PLDT, Inc. and Philex Mining Corp. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., maintains interest in BusinessWorld through the Philippine Star Group which it controls.
“Sa ngayon lang, lahat ng capex namin suspended (Right now, all our capital expenditures are suspended),” Mr. Consunji said.
He said the suspended spending program means the third water treatment plant in Putatan, Muntinlupa is on hold, along with a similar facility in Dagat-dagatan in Caloocan City. Both plants are supposed to help in responding to Metro Manila’s water shortage as water in Angat Dam, the capital’s main source, remains below ideal elevation.
Mr. Consunji said latest estimates show the suspended projects cost around P30 billion.
He added that the suspension was meant to avoid legal action from contractors should the company fail to secure a loan from banks as payment for construction of water treatment plants.
Asked how long the capex program’s suspension could last, he replied: “Until this thing is resolved — ’yung MWSS contract, kung meron negotiation ng contract. Hanggang matapos ’yun at acceptable sa bangko, call lahat ng loans. (Until this thing is resolved — the contract with the Metropolitan Waterworks and Sewerage System, if there is a re-negotiation of the contract. Until that is over and the outcome is acceptable to the banks, all the loans will be called.)
He said Manila Water probably has the same amount of demandable loans, which if called by the lenders could sink the concessionaires.
“Pag they cancel the extension, bankrupt ang dalawang kompanya.”
Their woes arose after President Rodrigo R. Duterte threatened to sue their top officials, plus government executives responsible for their concession agreements, for “economic sabotage.”
The threat came after Manila Water on Nov. 29 disclosed that it had won P7.39 billion in an arbitration case with the government. The international arbitration came after the Ayala-led company called on the government to honor its pledge to reimburse foregone operating revenues arising from a significant reduction in the rate of return committed in its concession contract.
Separately, Maynilad was granted by a Singapore tribunal on July 24, 2017 an arbitral award of at least P3.42 billion for losses resulting from the refusal of the MWSS to implement the concessionaire’s water tariffs. The water company did not move to enforce the award or compel the government to pay.
Arbitration was a legal remedy provided under the contract crafted by the administration of Fidel V. Ramos when water distribution in Metro Manila was turned over to the private sector in 1997.
Adjustments in water rates as applied for by the companies go through the scrutiny of the MWSS regulatory office. The same goes for capital spending on projects, which the regulator approves only if they are prudent and efficient.
“It appears that if the contract is shortened, ’yung mga capex to provide for supply, waste-water treatment will be suspended dahil ’di kayang bayaran ’yan by 2022. (It appears that if the contract is shortened, the capex to provide for supply, waste-water treatment will be suspended because these can’t be paid by 2022),” Mr. Consunji said.
The original concession contracts between the government on the one hand as well as Maynilad and Manila Water on the other were supposed to end in 2022, but these were separately extended by the government under then President Gloria Macapagal-Arroyo. — Victor V. Saulon