Metro Pacific, DMCI confirm talks to draw Marubeni as partner in Maynilad

MANILA, Philippines—Infrastructure holding firms Metro Pacific Investments Corp. and DMCI Holdings Inc. confirmed on Monday ongoing talks to bring in Japanese trading giant Marubeni as a third strategic partner in water concessionaire Maynilad Water Services Inc.

The move is believed to be in line with boosting Maynilad’s expansion and efforts to curb leakages in the west zone water pipeline.

“We confirm that there have been ongoing discussions with foreign investors interested in Maynilad Water Services, Inc. However, no definitive agreement has been reached as of the moment, and any disclosure of such discussions would be premature,” MPIC said in a disclosure to the Philippine Stock Exchange.

DMCI’s disclosure had a similar content, adding: “We will make necessary disclosure to the Exchange as soon as any definitive agreement has been reached.”

The Philippine Daily Inquirer reported on Monday that the Metro Pacific-DMCI consortium would like to bring Marubeni into the picture and sell close to 20 percent of Maynilad to the Japanese trading firm. MPIC would retain majority control while DMCI would tolerate a bigger dilution.

The reported valuation for lock, stock and barrel of Maynilad is $2.2 billion (P94.5 billion) or 15.5 times the P6.01 billion core net profit in 2011. Based on this “asking” price, a 20 percent stake in Maynilad is estimated at over P18 billion.

CitisecOnline.com head of research April Lee-Tan said such a potential deal would benefit Maynilad by having a source of cheap funding. “Japan is known for cheap funding,” she said.

At the same time, she said DMCI – the party reported to be keen on selling more – would be able to unlock more value out of their investment. Even if DMCI were to trim its stake in Maynilad, Lee-Tan said it would not be a concern because at this point, a bigger contributor to its net asset value has been its investment in coal mining subsidiary Semirara Mining. “It will enable them to evaluate other investment opportunities,” she said.

Investors sold on news after buying on the Marubeni buy-in rumors in the last two weeks. MPIC shares fell by 3.11 percent to P4.05 per share, giving it a market capitalization of P102.8 billion. Shares of DMCI, which will benefit more from the deal because it was reported to be willing to tolerate a higher dilution, fell by a more modest 0.36 percent to P54.85 per share, giving it a market cap of P145.2 billion.