For a country like the Philippines striving to enter a golden age of infrastructure, financing is not a tough hurdle for proponents due to a very liquid capital market.
But the bigger concern for investors was the lack of well-structured projects with predictable cash flow and shielded from the potential changing of the rules in the middle of the game, investment bankers from JP Morgan Chase said.
In an interview with Inquirer, JP Morgan executive director and head of banking Philippines Carlos Ma. Mendoza said: “It’s really [about] the projects being structured well and being taken to market in a timely fashion and with rules that don’t change in the middle of the game.”
The Securities and Exchange Commission recently approved a pioneering framework for the listing of any company engaged in an infrastructure project under the public-private partnership (PPP) program. The new framework waives the usual requirement of a three-year track record and operating history for PPP companies, provided they are able to comply with the rest of the requirements for listing on the Philippine Stock Exchange’s (PSE) main board.
“We have to be thoughtful about investor appropriateness,” Mendoza added. He cited, for instance, it wouldn’t help when there are noises surrounding the implementation of tariff increases, such as in the water sector.
The water concessionaires in the metro have been forced to resort to arbitration abroad to seek tariff increases needed to ensure their viability.
Rohit Chatterji, JP Morgan head of investment banking for South and Southeast Asia, said in a separate interview that infrastructure projects across the region had already attracted yield-seeking investors.
“Domestic yield here is low so there’s a case to be made for infrastructure to be listed as yield play or business trust in the Philippine stock exchange and permitting, therefore, the sponsoring of those projects is directionally good,” he said.
“The question is: How do you get projects to a level where there’s predictability of cash flows and predictability of the regimes where they are operating?” he added.
Based on the rules approved by the SEC, to qualify for stock market listing, the PPP project bagged by the company going public should not be less than P5 billion as indicated in the financial bid. Existing shareholders of the PPP company are prohibited from offering their shares during the initial public offering period, which means that only primary shares will be allowed for sale.
Given that concessions under the PPP projects expire at some point, the PSE was tasked to ensure investors would know what would happen to the assets of the PPP company. As part of the additional disclosure requirements under the framework, a listed PPP company must submit to the exchange a business plan which may include its plans for liquidation and winding up, or a proposal for a new business, at least three years before the scheduled expiration of the PPP contract.