MPIC going into ‘less risky’ ventures

As water concessionaire Maynilad Water Services Inc. grapples with hostile regulators, Manuel V. Pangilinan-led infrastructure firm Metro Pacific Investments Corp. (MPIC) plans to divert discretionary funds to “less risky” businesses like warehousing, real estate and tourism.

“As a practical matter, Maynilad is currently unable to pay dividends, thereby forcing MPIC to recast its investment program in light of lower inbound cash flow, higher regulatory risk and the resulting and self-evident lack of investor enthusiasm for this asset class. Ironically, even though there is huge demand for the services we provide, our discretionary investment spending beyond committed infrastructure projects will divert to less risky businesses like warehousing, real estate and tourism,” MPIC president Jose Ma. Lim said in a disclosure to the Philippine Stock Exchange. MPIC’s core net profit last year rose by 4 percent to P15.6 billion, driven mainly by the power, toll road and hospital businesses.

“We will endeavor to at least match our 2019 core income in the year ahead, despite the challenges,” Pa­ngilinan said.

MPIC’s attributable net income surged 69 percent to P23.9 billion last year. There was a nonrecurring income of P8.3 billion primarily due to the deconsolidation of the group’s investment in hospitals. Late last year, the group consummated a P35.3-billion deal to bring in a consortium led by American private equity firm KKR as strategic investor in the hospital business, diluting MPIC’s economic interest to 20 percent from 60 percent.

The one-off items from the hospital buy-in deal was partly offset by restructuring costs for its logistics business and a reduction in the carrying values of some of its water investments. The 2018 figure included nonrecurring expenses of P930 million from the net effect of peso weakening, project write-downs, loan refinancing and provisions for asset impairment.

The power business accounted for P11.6 billion or 55 percent of net operating income while tollroads contributed P5.2 billion or 25 percent. Water contributed P3.6 billion or 17 percent and hospitals provided P867 million or 4 percent. The rail, logistics and other businesses combined for a net loss of P352 million.

“The continued expansion in our overall service coverage and attempted constructive engagement on tariffs has not endeared us to the government, which now deems various long-established and operationalized contracts as having onerous provisions. Meanwhile, the fall in our share price, along with the prices of other listed companies with government concessions, shows that despite our growth investors now attach sharply higher risk premiums for government adherence to contract,” Lim said.

Recently, the government nullified the extension of Maynilad’s franchise as one of the two Metro Manila concessionaires beyond 2022. Pres. Rodrigo Duterte wants the water utility firms to sign a new contract without the so-called onerous provisions.

To cushion against market sell-offs, MPIC’s board approved a P5-billion stock buyback program for the next three months.

“In these circumstances, questions have been raised regarding investment in Philippine-regulated infrastructure and the sources of capital to support this. There are no quick or easy answers to these questions but the current model of a listed infrastructure business with a wide pool of dedicated Philippine and foreign shareholders putting their faith in these long-term contracts needs serious review. Meanwhile, as Joey (Jose Ma. Lim) said, we are committed to completing our current projects while directing discretionary investment to warehousing, real estate and tourism.”

For the first time since relinquishing control of the massive Fort Bonifacio estate in 2002, Pangilinan has regained appetite on the property development business. MPIC recently signed a P1.6-billion investment agreement with hospitality group Dusit International to develop and manage jointly hospitality and residential properties in the Philippines. Starting this year, MPIC and Dusit will focus on the development of two hotels and three condominiums at sites long held by MPIC in Batangas, as well as upgrading Dusit’s existing properties in the Philippines.

MPIC created a new real estate, hospitality and tourism subsidiary called Metro Vantage Properties Inc. (MVPI) to lead the design, development, marketing and sales of the real estate properties, while Dusit Thani Philippines will oversee the hospitality and tourism side of the business.