Banks suspending loans to Maynilad
MANILA, Philippines — Uncertainties over the concession contracts of Maynilad Water Services Inc. and Manila Water Co. — water distributors in Metro Manila and nearby areas — have jeopardized their big-ticket loan arrangements with banks.
“While Maynilad can finance its current projects, the shortening of the concession term prevents it from commencing new projects to improve the system, as the banks have suspended lending money to Maynilad to finance its new capex (capital expenditure) program,” Maynilad’s controlling shareholder Metro Pacific Investments Corp. (MPIC) said in a disclosure to the Philippine Stock Exchange on Monday.
Maynilad has about P42 billion in liabilities, while Manila Water has around P17 billion in outstanding loans to seven local banks.
“Under our loan covenant, any material change in the contract would mean that loans become due and demandable,” Isidro A. Consunji, chair of DMCI Holdings Inc., one of two minority partners in Maynilad, said on Friday. “That is a standard provision for a long-term loan.”
Also on Monday, Manila Water claimed that the resolution adopted by the board of the regulator Metropolitan Waterworks and Sewerage System (MWSS) revoking the extension of its concession agreement to 2037 was invalid, saying the renewal of the contract was approved in 2009 by none other than then President Gloria Macapagal-Arroyo.
The MWSS revoked on Dec. 5 the extension of the concession agreements with Maynilad and Manila Water by 15 years to 2037 even before the expiration of the original contracts in 2022. The Manila Water position runs counter to the Department of Justice (DOJ) stand that the 15-year extension of the concession agreements had “no legal basis.”
Only resolution revoked
But on Friday, MWSS Administrator Emmanuel Salamat clarified that the concession deals with Manila Water and Maynilad had not been revoked, but only the board resolution spelling out the terms of the extension.
Justice Secretary Menardo Guevarra said on Thursday that the MWSS board canceled the extension of the concession agreements upon President Duterte’s directive, which was based on a recommendation of the DOJ.
The justice department has said it found 12 onerous provisions in the concession agreements, including barring the government from interfering in the setting of water rates and allowing the concessionaires to seek compensation in an arbitral court should the government prevent them from raising tariffs.
Since 2007 when the Metro Pacific-DMCI Holdings consortium took over the west zone, about P190 billion had been invested in combined capital expenditures, operating expenses and concession fees. Counting only the water and wastewater outlays, Maynilad had spent P97 billion from 2007 to 2019.
When the term of the concession was extended in 2009 during the Arroyo administration, Maynilad committed to spend an additional P274 billion in water and wastewater capital expenditure from 2020 to 2037.
Talking to creditors
As banks turn jittery over the controversial water concessionaires, Maynilad and Manila Water strive to mitigate the situation by talking to their creditors.
An official of one of the country’s top investment houses said there would likely be “no new disbursements until things become clear on the contract and concession.”
As for the existing loan exposure of banks, the investment banker said that in general, “banks will be patient and wait for things to settle.” “I doubt any bank will call any delays or missed payments. It’s likely that cooler heads will prevail.”
“We are just being invited to meet with them one by one,” said a high-ranking official of another bank with exposure to the water sector.
“Definitely, it will not be as profitable as before, if there’s a renegotiation of terms,” said a stock market veteran. “But the way the share prices have dropped, it seems that the market is pricing in a complete termination of the contracts. To me, it’s a little overdone.”
In a statement, Manila Water said it had received a letter from the MWSS dated Dec. 10 on the “revocation of board resolutions pertaining to the renewal/extension of concession period of Manila Water and Maynilad from 2022-2037.”
Manila Water said the letter was about MWSS Resolution No. 2019-201-CO revoking Resolution No. 2009-072-CO, which the board of the regulator had approved on April 16, 2009.
“The [recent resolution] does not revoke the extension of our Concession Agreement with MWSS from 2022 to 2037,” said the listed company that distributes water in the east zone of Metro Manila and parts of Rizal province.
“MWSS and our company executed on Oct. 23, 2009 a Memorandum of Agreement and Confirmation implementing the extension of our concession agreement from 2022 to 2037,” Manila Water said.
In 2009, or 13 years before the contract was to expire in 2022, the MWSS trustees resolved that “in the interest of public service and pursuant to the concession agreement [with Manila Water],” the contract needed to be renewed or extended by an additional 15 years.
This resolution was based in part on the legal opinion of the Government Corporate Counsel, which noted among other things that the concession agreement does not prohibit an extension; the extension of contracts imbued with public interest, like the MWSS concession agreement, is not unprecedented; and that the National Water Crisis Act and the terms and conditions of the concession agreement allow for an extension without the need for public bidding.
“As we have said, we are more than willing to discuss with government on the issues they have raised,” Manila Water said.
MPIC said Maynilad remained “hopeful” that the renegotiation of the concession agreements would result in “a satisfactory resolution of the various issues for all the stakeholders.”
Guevarra said the government would sit down with the concessionaires after the next Cabinet meeting in January. “[It’s] renegotiation,” Guevarra said in a text message to reporters on Monday.
He said the DOJ-led legal team drafting the revised agreement “will surely consider the issue of passing on the corporate income tax to the consumers.”
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