By Imee Charlee C. Delavin, Senior Reporter

MEGAWIDE Construction Corp. — which had been an active competitor for public-private partnership (PPP) deals in the previous administration — is venturing into railways with its acquisition of a stake in a consortium that aims to build an elevated 9.77-kilometer line between Diliman in Quezon City and Lerma in the City of Manila.

“Megawide has acquired the right to participate in the Philippine National Railways’(PNR) East-West Railway Project (EWRP) from the project consortium composed of East-West Rail Transit Corporation and Alloy MTD,” Megawide said in a regulatory filing on Thursday, confirming an earlier disclosure of A Brown Company Inc., one of the members of the East-West Rail Transit Corp (EWRTC) consortium together with Netcore Dev’t. Ltd. and Venere Holdings Ltd.

“Megawide has the option to buy up to 60% of the equity of the special purpose company that will be incorporated for the project.”

A. Brown had said in its July 12 regulatory filing that the consortium of East-West Rail Transit Corp. has given Megawide the right to participate in the PNR East West Railway Project as an additional consortium member and the project consortium will now be composed of EWRTC, Alloy MTD and Megawide.

The EWRP, which will run along Quezon Avenue and España Boulevard, will have 11 stations and provide interconnecting facilities with neighboring railways, according to the PPP Center’s Web site.

It has yet to bag approval of the Investment Coordination Committee of the National Economic and Development Authority (NEDA) which is the penultimate green light needed before final approval by the NEDA Board that is headed by President Rodrigo R. Duterte.

DIVERSIFYING FURTHER
Sought for details yesterday, Megawide President and Chief Operating Officer Edgar B. Saavedra said the development is part of the company’s move to diversify its portfolio.

“Part of our diversification program is to invest in transportation infrastructure such as airport, transport terminal, roads and rails wherein we can leverage on our engineering expertise in building efficient infrastructures and operating experience in airport,” Mr. Saavedra said.

“We’d like to replicate our success and learnings from operating the MCIA (Mactan-Cebu International Airport) into rails.”

Megawide and Bangalore-based airport operator GMR Infrastructure Ltd., won in April 2014 the contract for the P17.52-billion MCIA project under PPP program of the government of former president Benigno S. C. Aquino III.

“For now, we’re just confirming our participation following A. Brown’s disclosure. It’s still [subject] for NEDA approval and the design also will still be finalized so we can expect numbers like cost and acquisition to keep moving,” Mr Saavedra said.

The Duterte administration has veered away from relying only on PPP, arguing that it took an average of three years from conceptualization for a project to start construction under that framework.

Instead, it is pushing a “hybrid” framework that will rely on national government or official development assistance (ODA)funding for the construction phase and PPP for operation and maintenance. Some businessmen have questioned the wisdom of that shift, arguing that the government lacked competence for such major projects and that state debt could unduly balloon in the ODA route.

In its disclosure to the Philippine Stock Exchange, Megawide said its entry into the project is a “testament to its deep experience” as an engineering, procurement and construction contractor.

“Megawide supports the Duterte administration in its push for reliable, sustainable transport infrastructure,” Mr. Saavedra was quoted as saying.

“A solution is needed for Metro Manila’s worsening traffic congestion and we believe efficient mass transportation is the answer,” he added.

“Engineering and construction are vital components in any infrastructure project; in fact, they are the basis of Megawide’s capability in infrastructure development. This will guide our participation and vision for EWRP.”

Aside from the MCIA contract, Megawide was awarded the PPP for School Infrastructure Project (PSIP) Phases 1 and 2 that entailed the construction of almost 10,000 classrooms across Luzon and costs P9.89 billion and P3.86 billion respectively; and the P2.5-billion Southwest Integrated Transport System, the country’s first integrated transport hub.

Construction of PSIP’s first phase — consisting of 9,296 classrooms in the Ilocos Region, Central Luzon and in the Cavite-Laguna-Batangas-Rizal-Quezon region immediately south of Metro Manila — was completed on Dec. 4, 2015.

Sought for comment, Luis A. Limlingan, business development head at Regina Capital Development Corp., said: “All companies need to diversify their portfolios.”

Summit Securities, Inc. President Harry G. Liu for his part said the move could be a “long-term vision” of Megawide given “increasing number of rail projects” in the government’s pipeline.

“[They] want to participate in infrastructure developments to ease traffic,” he noted.

Megawide saw its consolidated net income dip four percent in the first quarter of the year to P549.01 million from the P573 million it made in 2016’s comparable three months as its construction business slowed, even as returns from its MCIA operations continued to grow.

The listed builder attributed the slight decline to the “cyclicality of the construction industry” in that period, while noting that construction is expected to ramp up this semester and enable the firm to meet its targets.

The construction business contributed 88% to total consolidated earnings in the first quarter, while its MCIA operations accounted for 12%.

Earlier, Megawide expressed its interest to participate in the various airport projects of the government.

Megawide, along with GMR Infrastructure Ltd., said it is open to joining the bidding for the P12.55-billion Clark International Airport Expansion Project which the government will offer to investors.

Megawide shares gained eight centavos or 0.44% to end Thursday’s trading at P18.26 each, outdoing the industrial sectoral index — under which its shares are listed — which fell by 0.12%.

S&P Global Ratings has tempered its gross domestic product (GDP) growth outlook for the Philippines this year, according to a new report published yesterday, even as it continues to see a healthy external position and debt burden for the economy.

The international debt watcher now expects the Philippine economy to expand by 6.4%, slower than the 6.6% forecast given in March, according to its midyear Asia-Pacific Sovereign Rating Trends report.

At the same time, S&P retained its 6.4% growth forecast for the Philippines for 2018, to be followed by a pickup to 6.6% in 2019 and 6.7% in 2020, according to its latest estimates.

It did not give any explanation for the revision.

S&P maintained its “BBB” rating with a “stable” outlook on the Philippines in April, with the view that domestic conditions “remain conducive for sustained economic growth.”

A stable outlook means that the country’s ratings are unlikely to change over the next year or so.

The credit rater likewise expects price increases to remain manageable over the next four years, with estimates for annual inflation forecast falling within the central bank’s 2-4% target band. For 2017, S&P expects inflation to average 3.4%, slightly higher than the BSP’s latest 3.1% forecast.

Prices of basic goods and services inched up by 3.1% from a year ago in the first semester, according to latest data from the Philippine Statistics Authority.

In its latest assessment for the country’s credit rating, S&P counted the Philippines’ external position and fiscal and debt burden as “strengths,” largely due to the hefty dollar reserves held by the central bank and the declining share of debt to gross domestic product (GDP).

Gross international reserves totalled $81.413 billion as of end-June, enough to settle 8.7 months’ worth of import payments and is well above the three-month international standard.

The country’s debt-to-GDP ratio also slid to 41.87% in the first quarter from 43.56% the previous year, according to the Finance department.

The debt watcher stood “neutral” on its institutional and monetary assessments, as well as on budget performance.

It is now watching if the government can stay the reform course.

“We may raise the ratings if the newly calibrated fiscal program under this administration significantly boosts investment and economic growth prospects, or if improvements in the policy environment lead us to a better assessment of institutional and governance effectiveness,” S&P’s mid-year report read.

The country’s “stable” outlook means ratings will likely steady over the next 12-18 months.

“We may lower the ratings if the reform agenda stalls or if the recalibrated fiscal program leads to higher-than-expected deficits sufficient to reverse the progress made under the previous administration.”

The Finance department hopes to implement its first of up to five tax reform proposals by January 2018. The first package now awaits Senate approval after the House of Representatives passed it on May 31. The additional revenues are expected to help fund the Duterte government’s P8.4-trillion infrastructure spending plan over the next six years. — Melissa Luz T. Lopez

WASHINGTON — The US economy is healthy enough for the Fed to raise rates and begin winding down its massive bond portfolio, though low inflation and a low neutral rate may leave the central bank with diminished leeway, Fed Chair Janet Yellen said on Wednesday.

In what may be one of her last appearances before Congress, Ms. Yellen depicted an economy that, while growing slowly, continued to add jobs, benefited from steady household consumption and a recent jump in business investment, and was now being supported by stronger economic conditions abroad.

The Fed “continues to expect that the evolution of the economy will warrant gradual increases in the federal funds rate over time,” Ms. Yellen said in her prepared testimony.

Reductions in the Fed’s portfolio of more than $4 trillion in securities are likely to begin “this year,” she said.

But she also noted that given current estimates, the federal funds rate “would not have to rise all that much further” to reach a neutral level that neither encourages nor discourages economic activity.

The Fed still feels the economy needs loose, or accommodative, monetary policy, so a lower neutral rate means the Fed may feel compelled to slow the pace of rate hikes down the road.

But for now, Ms. Yellen told members of the House Committee on Financial Services, the economy remains strong enough for the Fed to continue to gradually tighten policy.

In response to questions from lawmakers, she said she expects the gradual run down of the balance sheet will “play out smoothly” in markets.

The reduction in the balance sheet, which will begin slowly as the Fed reinvests only a portion of the holdings that mature each month, will mark the final exit from crisis-related policies.

ECONOMY ON EVEN KEEL
Ms. Yellen’s past appearances before the House panel have sometimes involved sharp exchanges with lawmakers who think the Fed’s influence over the economy has grown too strong.

Such lawmakers want policymakers to be guided more closely by a mathematical rule for setting interest rates.

This session was a more sedate meeting, with Committee Chair Jeb Hensarling, an advocate “rules-based” monetary policy, complimenting the Fed for including comparisons of its monetary policy with some of the more common formulas.

Her appearance, coming as the Trump administration mulls whether to replace her when her term ends in February, broke little new ground in terms of policy or regulatory changes.

“We have a relatively light regulatory agenda at this point,” Ms. Yellen said.

She confirmed the Fed was reviewing some of the requirements imposed on bank boards of directors following the financial crisis, with any eye towards possibly easing some of them.

She also repeated the Fed’s strong opposition to proposals that policymakers worry could give elected officials influence over what are supposed to be independent Fed interest rate decisions.

According to her testimony the economy is on an even keel, near or beyond full employment.

US stocks rose, while yields on Treasury bonds fell and the dollar was little changed against a basket of currencies.

In a separate release, the Fed’s latest beige book of reports from regional Fed banks showed “slight to moderate” economic growth across the country.

A recent dip in inflation has been of concern among Fed officials who want to see surer progress toward the central bank’s two percent inflation goal.

Ms. Yellen, however, ascribed it to “a few unusual reductions in certain categories of prices” that would eventually drop out of the calculation.

The current situation “raises the stakes” for upcoming inflation data, said Jim Vogel, interest rate strategist for FTN Financial in Memphis, Tennessee. “People are going to be very anxious if that was just a statistical glitch… or if it is going to continue.”

Otherwise, Ms. Yellen said, the economy appeared to be in a virtuous loop of hiring, spending and investment that “should increase resource utilization somewhat further, thereby fostering a stronger pace of wage and price increases.” — Reuters