Billionaire Enrique Razon Jr. will take control of the embattled Manila Water Co. Inc. from Ayala Corp. in a move touted by both groups as a strategic partnership to grow the water distribution company by leveraging off the port tycoon’s expertise in acquiring concession agreements in foreign markets.
At the same time, the change of ownership is aimed at mollifying President Duterte, who has railed against the water business of the country’s oldest conglomerate and its twin water concession, the Metro Pacific group’s Maynilad Water Services Inc., for allegedly being inimical to the public interest.A tender is set to be announced today where Razon will offer to buy the shares of the company’s other existing stockholders from the secondary market. Once completed, the Ayala group’s stake will fall to that of a “significant minority” position.
“This is not about raising money for Manila Water because the group could have advanced any funds the company would need,” a senior Ayala official told the Inquirer on condition of anonymity. “It’s about growing Manila Water in foreign markets, which is Mr. Razon’s specialty.” The official said Ayala Corp.—which is owned by the billionaire Zobel family—would not be selling their remaining 38.6-percent stake in Manila Water, but explained that Razon would eventually take control of the firm as he acquires more shares from the company’s other existing owners.
According tot the same official, the deal to bring in Razon as a “political white knight” was hatched and executed within two and a half weeks, with the embattled Ayala group approaching the ports tycoon with an invitation to take a stake in Manila Water.
“We approached him with the invitation to enter into a partnership, and he accepted,” the official said.
The official explained that the company’s management would stay in place for now, but was expected to eventually change as the 59-year-old Razon—the country’s fifth wealthiest person with a 2019 net worth estimated by Forbes magazine at $5.1 billion—succeeds in acquiring more shares.
The details of the second phase of the deal were confirmed by parties within Razon’s camp who pointed out that the tycoon has no intention of remaining a passive investor or minority shareholder in Manila Water.
Ayala will initially cede majority voting rights in Manila Water to Razon. As part of the shareholder agreement to be executed among Ayala Corp., Ayala’s wholly owned subsidiary Philwater Holdings Co. and Trident Water—the firm that Razon’s infrastructure arm Prime Metroline Holdings Inc. will incorporate for this transaction—Philwater will grant proxy rights to Trident Water over such number of preferred shares to enable the latter to achieve 51-percent voting interest in Manila Water.
“This arrangement aims to strategically rationalize the economic and voting stakes between Ayala and Trident Water as strategic partners in Manila Water,” Ayala disclosed to the Philippine Stock Exchange (PSE) on Thursday.
Philwater owns four billion preferred shares in Manila Water, representing 65.95 percent of voting shares in the company. Upon the grant of proxy rights to Trident Water, Ayala’s effective voting interest in Manila Water will decline to 31.6 percent, Ayala disclosed to the PSE on Thursday.
This realignment of voting rights follows Razon’s P10.7 billion equity infusion in exchange for about 820 million shares in Manila Water, almost as much as the common shares that the Ayala group now owns. This was to give Razon 25-percent equity control of Manila Water versus Ayala’s 38.6 percent.
The shareholders’ agreement will take effect after the closing of the subscription agreement, which will occur after certain conditions are met, including required lenders’ consent and regulatory approvals.
The entry of Razon is seen to put Manila Water in a better position to deal with current political challenges. This tycoon is an acknowledged expert in navigating regulatory systems in multiple jurisdictions as the chief of port operator International Container Terminal Services Inc., one of the Philippine firms with the most extensive global footprint to date.
Shares of Manila Water surged by 9.84 percent to close at P14.96 a share on Thursday, giving it a market capitalization of P28.1 billion. The company has now recovered much of the valuation that was lost since Mr. Duterte’s rants. From P18.98 a share, the company’s stock price had fallen to as low as P5.01 in recent months.