Recto bats for Maharlika investment in NGCP

Finance Secretary Ralph Recto wants the Philippine sovereign wealth fund under fledgling Maharlika Investment Corp. to kick off its investing activities by getting one board seat in National Grid Corp. of the Philippines (NGCP)—estimating that around P12 billion is needed to gain such foothold in the country’s sole electricity superhighway operator.

“The first investment will be important,” Recto said in a recent roundtable discussion with Inquirer. “I would prefer that the first investment be with NGCP.”

“I reminded the CEO (Rafael Consing Jr.) just recently that one of the purposes why we created this [fund] is for that.”

READ: Recto: Maharlika ‘taking time’ to identify investments

Citing the government’s initial analysis of the financial performance of NGCP, Recto said it would cost around P12 billion to get a board seat in NGCP by subscribing to new shares. “Of course, I want to get it at a lower price,” he added.

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The concession to operate the power transmission backbone is held by Synergy Grid & Development Corp., led by tycoons Henry Sy Jr. and Robert Coyiuto Jr., together with their technical partner State Grid Corporation of China.

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Synergy owns 60 percent of NGCP, its sole operating asset with effective equity interest of 45.726 percent, while the rest is owned by the Chinese partner. Recto cited four key reasons why NGCP should be the first asset that Maharlika should take on.

“There’s security issue to it. It will give us visibility,” he said.

Even before tension in the West Philippine Sea heated up between the Philippines and China, some lawmakers and other parties had already raised concerns about a state-owned Chinese company having an interest in local infrastructure as crucial as power transmission.

The second reason cited by Recto is that NGCP is a profitable business that would be suitable for Maharlika, whose creation had been initially met with public apprehension against the backdrop of a national government that is still in a fiscal deficit.

In 2023, Synergy booked P23.4 billion in net income, of which P10.64 billion was attributable to equity holders of the parent company.

READ: BIZ BUZZ: How much is too much? Recto on Maharlika execs’ salary

As a third reason, Recto said NCGP is “development-oriented”. As cited in its website, Maharlika Investment Fund is mandated to “advance the Philippines’ long-term development goals through the effective intergenerational management of government financial assets.”

“You can entice foreign investments in Maharlika if you invest in NGCP, which already has a track record. There will be interest,” Recto added, citing the fourth season.

While Maharlika is currently funded by the state-owned financial institutions, the government intends to bring in new investors to the fund similar to how Indonesia has grown its sovereign wealth fund, INA.

Other sources familiar with the proposal said the Marcos administration has no intention of booting out the State Grid of China as it is bound by contractual obligations to the consortium that in 2009 had been awarded the right to operate the transmission assets for 25 years. Instead, it wants NGCP to issue new shares to make way for Maharlika owning 8 to 10 percent, diluting the rest of the existing shareholders.

Asked about this, Recto said all franchises were anyway required by law to bring their company to public hands.

It remains to be seen, however, whether the NGCP will agree to give Maharlika a seat at the table.

Industry sources said the NGCP leadership was worried that if the concessionaire gives in, the government won’t stop at one board seat. “If there’s a buyer, there should be a willing seller,” one source earlier said.

From the point of view of NGCP, the company has already complied with the requirement to go public when its controlling stockholder Synergy took the backdoor listing option in 2021.

Synergy afterwards subscribed to preferred shares issued by NGCP.

At that time that this equity deal was completed during the past administration, no less than the Energy Regulatory Commission had deemed the company compliant, according to NGCP sources.

“They never appealed nor filed a motion for reconsideration,” one source said.

The source added that they had gone through all the requirements of the Securities and Exchange Commission and the Philippine Stock Exchange in the offering of securities.

Another NGCP source noted that having four out of 10 Chinese directors at NGCP board was hardly a threat to national security.

“How could four people ruin a company? They are just in the office; they don’t even go out in the field. They are just directors or advisers; they are not controlling the company. it’s unthinkable!” the source said.

When the Philippines soft-launched the Maharlika fund on the sidelines of the World Economic Forum meetings in Davos, Switzerland last year, the economic team, when queried about which assets would be put into the sovereign wealth fund, already pointed to the dividend-yielding NGCP. INQ

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