Ayalas, Razon seal deal for Manila Water
Credit to Author: Jordeene B. Lagare| Date: Mon, 03 Feb 2020 16:15:29 +0000
MANILA Water Co. Inc. (MWC) clinched a P10.7-billion investment deal with Prime Metroline Holdings Inc., the infrastructure company of tycoon Enrique Razon Jr., a move that analysts said would enable the Ayala Group to concentrate on their other core businesses.
In a disclosure, Manila Water announced that both parties signed a subscription agreement to acquire 820 million common shares of the embattled Ayala-led utility.
The accord represents a 25-percent stake in the listed firm valued at P13 apiece.
According to the listed firm, the latest transaction having the Razon Group as a “strategic investor” is expected to bolster their ability to provide reliable, efficient and sustainable water and wastewater services in the East Zone, and at the same time pursue growth initiatives both domestically and globally.
“The Razon group brings with it its expansive global reach and business expertise with operations in Asia Pacific, Latin America, Middle East and Africa, to Manila Water,” it added.
Manila Water Chairman Fernando Zobel de Ayala said the partnership with the Razon group would “result in clear synergies to achieve Manila Water’s long-term goal of providing sustainable water and wastewater services to our customers in the East Zone of Metro Manila and in the other markets we serve.”
The additional equity capital infused by the Razon Group shall be utilized to improve water and wastewater distribution system within the East Zone concession area.
Prime Metroline will incorporate the new entity to be called Trident Water for forging its partnership with the Ayalas. But Ayala Corp., Manila Water’s parent firm, remains a shareholder with a 38.6-percent stake.
“We expect this partnership to likewise help accelerate Manila Water’s regional aspirations given Mr. Razon’s solid experience in penetrating overseas markets,” said de Ayala, who is also Ayala president and chief operating officer.
“Across all our partnerships, Ayala values the complementary strengths and expertise that we can leverage off a team-based approach, which has been a hallmark of our many joint undertakings with both local and international groups. Both Ayala and Mr. Razon share a deep commitment to contributing to the country’s water infrastructure development,” Ayala Chairman and Chief Executive Officer Jaime Augusto Zobel de Ayala said.
For his part, Razon said his company “will dedicate our efforts to further develop this unique business both here in the Philippines and abroad. We are confident that our collective experience, technical capabilities, and corporate synergies will be of great benefit to Manila Water, the people it serves, and its other stakeholders.”
Analysts said the latest development paves the way for the Ayalas to focus their attention on its other core businesses but also creates uncertainties.
“The move signals the Ayala are slowly divesting in the utility firm to concentrate in their other core businesses,” Regina Capital Development Corp. head of research and Sales Luis Limlingan said in a message.
These core businesses, he said, are Ayala Land Inc., Globe Telecom Inc., and Bank of the Philippine Islands.
Opportunities for both groups
For AAA Equities head of research Christopher Mangun, the Ayala-Razon deal is a “win-win” situation for the two entities.
In a message, Mangun said “Razon has been keen on developing water assets (like Wawa dam) and this will be a good addition to their portfolio.”
“It also allows the Ayala Group to divest from this business as profits may not be as good as it used to be once the government comes out with a new contract,” he added.
Although the move is welcomed by investors, Philstocks Financial Inc. senior research analyst Japhet Louis Tantiangco said uncertainties remain on the table until there is a closure on the discussions between the government and Manila Water.
“The Razon group entering the picture gives investors hope. The entry of the new shareholder could tilt the contract renegotiation to the upside,” Tantiangco said. “At the same time, Mr. Enrique Razon is known for his experience in global operations through ICTSI. This could open opportunities for MWC outside the country.”
“In summary, while there is still uncertainty amid the renegotiation with the government, the deal between MWC and Prime Metroline Holdings, Inc. spurs optimism,” he added.
Earlier on Friday, Manila Water sought a voluntary trading suspension prior to the announcement that its board approved raising its capital stock to P4.4 billion from P3.5 billion.
The board also agreed to increase the carved-out shares to 900 million from 300 million unissued common shares, and issue these “for cash, properties or assets to carry out” the corporate purposes of the company, it added.
It also approved a minimum selling price of P10 for each share.
The proposed amendments will be presented to stockholders for approval during their annual meeting on April 17, 2020.
This is not the first time that the Ayalas and Razon sealed a deal. To recall, in August last year, Manila Water inked a raw water supply agreement with the Metropolitan Waterworks and Sewerage System (MWSS) and WawaJVCo, Inc., a joint venture of Prime Metroline and Violago-led San Lorenzo Ruiz Builders and Developers Corp.
The 30-year deal involves the supply of raw water from the Wawa and Tayabasan rivers.
The recent deal came amid ongoing negotiations between the government and water service providers in Metro Manila after the MWSS revoked a board resolution extending the contracts with two companies from 2022 to 2037.
President Rodrigo Duterte ordered a review of the concession agreements signed by the government with Manila Water and Maynilad Water Services Inc. in 1997, saying these contracts have “onerous” provisions.
Manila Water shares surged by 60 centavos or 4.93 percent to end at P12.76 each on Monday.