Razon buys 25% stake in Manila Water

The Razon group’s Prime Metroline Holdings Inc. has signed with the Ayala group’s Manila Water Co. Inc. (MWC) a subscription agreement for the acquisition of a 25-percent stake in the water concessionaire.

The P10.7-billion deal, in which Prime Metroline engaged “on behalf of a company to be incorporated,” covers 820 million common shares of Manila Water at P13 a share.

“Our partnership with the Razon group will 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,” Manila Water chair Fernando Zobel de Ayala said in a statement.

The announcement soothes speculations about whether or not the Ayala group would sell out and leave the water business or at least relinquish control of the company after a series of tirades from President Duterte.

Manila Water’s concession covers the eastern part of Metro Manila as well as Rizal province.

Also, the capital infusion from the Razon group is expected to strengthen Manila Water’s balance sheet and allow it to be more agile to pursue its long-term strategic initiatives, the company said.

Before the announcement, Prime and Manila Water have been working together on the Wawa bulk water project in Rizal, which is planned to provide an initial 80 million liters or raw water daily by the end of 2021 and an additional 438 million liters a day by end-2025.

The entry of Razon as a strategic partner in MWC boosted investors’ optimism that the beleaguered Ayala-led utility would gain a new lease on life beyond 2022, during which Metro Manila’s East Zone water concession will expire.

The fresh equity to be brought in by Razon in exchange for a 25-percent stake in MWC’s enlarged capital is also seen to ensure stable funding for the company at a time when creditor-banks are jittery over the term of Metro Manila’s East Zone concession.

MWC’s share price surged by 4.67 percent to close at P12.72 after the announcement of the buy-in deal.

The block to be acquired by Razon is nearly as big as the 844.54 million shares—equivalent to a 40.9-percent stake—held by conglomerate Ayala Corp. as of end-2019. But MWC is now paving the way for an increase in capital that will allow the issuance of new shares to a new investor. Ayala will keep a 38.6-percent stake in MWC.

Local stockbrokerage Papa Securities said the deal was a “positive development for the company given that the investment represents an additional P10.7-billion equity capital for MWC.”

Papa Securities noted that Razon-led companies such as International Container Terminal Services Inc. (ICTSI) and Bloomberry Resorts Corp. have recorded significant positive performance since the beginning of the Duterte administration, growing annually by 24 and 25 percent. Since June 2016, ICTSI and Bloomberry have grown their businesses by a total of 113 percent and 120 percent, respectively, the brokerage said.

Frances Rolfa Nicolas, a research analyst at leading online stockbrokerage COL Financial, said the buy-in deal at a 7-percent market premium “signals optimism from the buyer (Razon) of a more positive outcome on the talks regarding the new water concession contract.”

The fresh capital from Razon will “strengthen MWC’s balance sheet and allow the company to pursue its long-term strategic initiatives,” Nicolas added. INQ