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Stock Commentary

Metro Pacific Investments doesn’t plan Maynilad IPO until it can raise water rates in 2023

Merkado Barkada
Metro Pacific Investments doesnât plan Maynilad IPO until it can raise water rates in 2023

It’s been known for a while now that Maynilad would need to conduct an IPO to satisfy the amended requirements of its “new” water concession contract, but now we have a better idea on a time-frame thanks to statements from Maynilad’s President, Ramoncito Fernandez, who said that there wouldn’t be an IPO in 2022, and that the earliest could only be “after the rate rebasing” or when “the contract and franchise are stable”.

Rate rebasing is the process that Maynilad uses to set its water rates; the next rebasing will start midway through this year and result in potentially higher rates by January 2023.

Mr. Fernandez did not provide any further guidance on his comment about the stability of the contract and franchise. Under the new water concession contract, Maynilad needs to publicly list at least 30% of its outstanding shares before January 2027.  Maynilad is owned by Metro Pacific Investments [MPI 3.90 1.02%] (~53%) and DMCI [DMC 8.50 2.29%(25%).

MB BOTTOM-LINE

It makes sense to me that Maynilad would want to get “credit” for the higher income that would result from the rate rebasing process, as that change in income would have a material impact on its valuation.

There’s nothing pushing MPI and DMC to market with Maynilad, except for this legal requirement to list.

If we assume that Maynilad will raise its rates in early 2023, it’s not super clear what contract/franchise instability could still prevent the company from listing.

Perhaps Mr. Fernandez is talking about the need for it to submit a “revised business plan” to outline its capex and development milestones in order to meet its service level obligations under the new contract. Hard to say.

We’ll also have to wait for more information on the details of the listing, like whether the existing shareholders will sell secondary shares, or whether the sale will be primary with proceeds feeding into that proposed capex plan.

Will MPI and DMC opt to list Maynilad through a series of obfuscating holdcos, like Henry Sy. Jr. and Robert Coyiuto Jr. did to side-step the legal requirement that they faced listing National Grid Corporation of the Philippines?

Will we get the chance to invest directly in Maynilad itself, or will we be stuck holding coupons of ownership in something that owns the thing that owns Maynilad, as we have with Synergy Grid [SGP 13.16 0.46%]? Lots of issues to be resolved here, and I will continue tracking as we learn more.

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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.

METRO PACIFIC INVESTMENT CORP.

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