Maynilad gets debt moratorium pending review of contract

The cash-strapped Maynilad Water Services Inc. of the Lopez Group has been granted a debt service moratorium until government resolves its petition for the re-negotiation of its concession agreement.

Maynilad president Rafael Alunan told reporters yesterday that its petition has been elevated to a Cabinet cluster headed by the Department of Finance and the National Economic and Development Authority (NEDA) to determine if it could be allowed to recover losses due to the depreciation of the peso.

According to Alunan, Maynilad has formally informed the Manila Water and Sewerage System (MWSS) that it is no longer in any position to continue servicing the debt that the company inherited from the government when it was awarded its West Zone water concession.

Alunan said Maynilad invoked force majeure, since its inability to come up with the cash was due to the dramatic plunge of the peso against the dollar, an event that was not contemplated by the concession agreement in the magnitude that it occurred during the financial crisis of 1997.

As a result, Alunan said the company now faces serious cash flow problems with over P4.8 billion in bridge loans due and demandable this month alone from various international banks.

Aside from the maturing bridge loans, Maynilad also has to settle P3.1 billion worth of short-term guaranteed loans and some P2.7 billion worth of maturing debts from March to December 2001, representing the debts it inherited from the MWSS when the service area was privatized.

Alunan said that Maynilad’s P200-million monthly revenues are not even enough to finance its operating costs estimated to reach P250 million every month.

Pending the decision of the Cabinet cluster, Alunan said Maynilad would not be servicing its inherited debts. In the meantime, he said its other maturing obligations would have to be renegotiated while the company tries to secure some $350 million in term loans from various commercial banks.

"We need that $350 million to refinance our loans and bankroll our capital expenditure program. Without the currency adjustment mechanism, no bank will consider us bankable," Alunan said. "We were not given a time period by the government but this decision has to be made as soon as possible."

According to Alunan, a special Cabinet cluster had been created to study Maynilad’s request. The cluster had created a technical working group that would evaluate which option was possible for Maynilad.

"I don’t know whether the cluster will make the decision itself or make a recommendation to the president so that she can decide," Alunan said. "But if this is what will resolve this matter once and for all, we welcome this development."

Alunan said Maynilad planned to spend P6.5 billion this year for its capital expenditure program as well as to settle the payments for the contracts it awarded last year. This excludes some P3 billion more that was needed for debt servicing.

After sustaining huge losses due to the plummeting peso, Maynilad suspended its P5-billion capital expenditure program for 2001 and is now being forced to dip into its operating funds. He said the company had also began drafting a retrenchment program as part of its effort to streamline operations and cut back on overhead expenses.

"We are basically winding down. We have assumed a holding pattern until there is an orderly return of the concession to the MWSS," Alunan said.

Maynilad was already in the process of negotiating a $350-million funding from various bilateral and multilateral funding agencies, including the Asian Development Bank. However, the approval of these funds would depend on whether the project is still viable.

"What most people do not understand is that we are still in pre-operation stage," Alunan pointed out. "We have not completed the project yet and unlike the East Zone, we took over a much older network with water pipes sometimes over 100 years old."