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Stock Commentary

Manila Water and Maynilad get shiny 25-year water concessions signed by the President

Merkado Barkada
Manila Water and Maynilad get shiny 25-year water concessions signed by the President
After two years of wrangling, all we can really say is that: (1) the Ayalas are out and the Razons are in, and (2) the non-interference clause was removed and the concessionaires are no longer able to pass corporate income tax down to consumers.
Merkado Barkada

The signed franchise laws end (for now?) the long-running drama between the President and tHe oLiGaRcHs (the Ayalas, Consunjis, and MVP) over the balance of power as outlined by the concession contracts, which split water/sewer/sanitation rights for Metro Manila, Cavite, and Rizal into two regional monopolies.

Manila Water [MWC 24.95 0.81%] gets the “East Zone” of Metro Manila and Rizal, and Maynilad [MPI 3.90 1.30%] gets the “West Zone” and Cavite (nothing new there).

The concession contracts had been unilaterally terminated by the President before the pandemic for being too one-sided in the favor of MWC and Maynilad.

The new contracts establish an expectation of 100% water/sewer/sanitation coverage by 2037, with 5-year check-ins with the Metropolitan Waterworks and Sewerage System (MWSS) to ensure compliance and development in accordance with the 100% goal.

As for Congress’s authority to pull a Tubigserye 2, the language is quite clear: “[the franchise may be] cancelled or revoked by Congress when public interest so requires or when the grantee fails to reasonably comply with regulatory standards.”

One of the interesting bits is that the contract with Maynilad requires it to IPO at least 30% of its outstanding stock within 5 years of the grant of the franchise.

Maynilad is a private company, owned by MPI and DMCI [DMC 7.93 1.98%].

MB BOTTOM-LINE

I’m still not certain why these large infrastructure concessions come with a public listing requirement, but at least we’ll have a monster IPO to look forward to, and some future populist administration will have another attack surface to weaponize by borrowing Duterte’s “Interfering With Public Markets for Profit and Pleasure” playbook.

After two years of wrangling, all we can really say is that: (1) the Ayalas are out and the Razons are in, and (2) the non-interference clause was removed and the concessionaires are no longer able to pass corporate income tax down to consumers.

Mission accomplished? At least for traders, the entire Tubigserye provided an incredible buffet of news-driven price action to play. 

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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.

MANILA WATER COMPANY INC.

MAYNILAD WATER SERVICES INC

PHILIPPINE STOCK EXCHANGE

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