Regulatory uncertainty seen as biggest risk to market

MANILA, Philippines — The regulatory risks faced by the country’s water concessionaires as a result of President Duterte’s tirades are considered the biggest threats to the Philippine stock market this year.

During the company’s market briefing for 2020, Philstocks Financials head of research Justino Calaycay said the risk could spread to other regulated utilities such as power.

“The biggest risk for the market now is the regulatory uncertainty. That is driving sentiment and investors fear it could become a contagion that could spill over to the whole utility sector,” Calaycay said in a press briefing yesterday.

Since last year, President Duterte has been criticizing Ayala-led Manila Water and Pangilinan-led Maynilad Water Services Inc. for the alleged onerous provisions in their contracts with the Metropolitan Waterworks and Sewerage System (MWSS).

In a speech before quake victims in Digos City last Dec. 30, Duterte renewed his attack on the two utility firms and their owners, saying their contracts violated Philippine anti-corruption laws.

He said there would be no compromise and that the concerned parties would be slapped with  cases of economic sabotage.

MWSS canceled the extension of the 1997 water privatization contracts, which were approved during the time of former president Fidel Ramos while the extension to 2037 was approved during the time of then president Gloria Macapagal-Arroyo.

Calaycay said what is happening now is similar to what happened to Philweb in 2016 when Duterte did not renew the license of the listed gaming firm. Ongpin later sold Philweb to Gregorio Araneta III, the son-in-law of the late strongman Ferdinand Marcos.

He said the same could also happen to beleaguered broadcast giant ABS-CBN of the Lopez Group. Duterte said ABS-CBN’s franchise to operate would not be renewed.

Calaycay said the “risks are heavier to bear this year.”

“This hits at the core of doing business in the country,” Calaycay said.

However, he said every administration has the right to review contracts entered into by previous administrations but cautioned that there should be due process.

Despite the risks, Philstocks sees the Philippine Stock Exchange index hitting 8,700 to 8,800 this year on rosy prospects for corporate earnings.

Former finance undersecretary Romeo Bernardo argued that the 1997 water privatization contracts with the water concessionaires and the extension have been thoroughly reviewed by government and are deemed legal.