MRT plans to raise $100 million from sale of bonds

The consortium that operates the Metro Rail Transit (MRT) system is planning to raise $100 million from the sale of bonds backed by future rental fees from the government.

The MRT bonds, which will be sold in a secondary public offering, will be listed at the Luxembourg Stock Exchange and eventually be listed in the soon-to-be-established fixed income exchange to be operated by the BAP Consulting Inc.

Penta Capital was tapped as financial adviser and issue manager for the bonds. It is now in the process of forming a syndicate composed of investment houses to underwrite the bond float.

Penta Capital Executive Vice-President Jose Revilla Reyes Jr. said the MRT bonds, which were originally issued last Aug. 7, 2002 with a total present value of $378 million, are a securitization of cashflows arising from equity rental payments from the Department of Transportation and Communications (DOTC) under a build, lease and transfer agreement relating to the MRT 3 project.

Under the build-lease transfer agreement between the DOTC and the MRT, the government made a commitment to pay the MRT group a total of $2.4 billion over a 25-year period.

In 2004, the government is scheduled to pay MRT a total of $20 million and another $38 million in 2005. In 2006, the government is set to pay $39 million; increasing to $44 million by 2009 before hitting its $118.33-million peak in 2010.

Members of the consortium involved in the offering are the Fil-Estate Group, Anglo-Philippine Holdings Corp., Railco Investments, Sheridan LRT Holdings, and DBH Inc., which together hold 77 percent of MRT stock.

They have formed MRT III Funding Corp. Ltd., to which they transferred their share of the rentals paid by the DOTC.

Reyes said the MRT bonds will have several maturities ranging from four years to 23 years and are expected to generate yields of 10.5 percent to 13 percent a year.

The MRT bond issue is considered the biggest and most significant securitization ever completed in Philippine capital markets.

Its success is expected to generate more interest in ABS as alternative financing for companies while the market has yet to show signs of stability and banks have remained reluctant to lend more money.

Reyes said the MRT bonds have now established for itself a track record of equity rental payments from the DOTC and payment of interest coupons to bond holders.

The asset-backed securities will be available only to qualified institutional buyers and investors which include banks, insurance companies, trust funds and pension funds.

Reyes said the underwriting syndicate will require the MRT bonds to have "cash liquidity reserves" as a credit enhancement for the bondholders.

He explained that the MRT bonds are a perfect "hedge investment" for banks, insurance companies, pre-need companies and trust funds considering that they are dollar-denominated and secured by rental payments from the government. These bonds, he said, are ideal investments to match their long-term liabilities.

Reyes noted that the equity rental payments from the DOTC are covered by a standby letter of credit of the Philippine National Bank (PNB).

He said the Bangko Sentral ng Pilipinas is expected to issue a new circular assigning a 50-percent risk weight factor on such securitization bonds.

Penta Capital is now in the process of getting an international credit rating for the MRT bonds.

Proceeds of the public offering will primarily be used to fund the second phase of the MRT, which will link the EDSA MRT to the Light Rail Transit (LRT) 1 station in Monumento.

Some of the proceeds will also be used by members of the consortium to retire debts or strengthen operations.

The extension would give commuters access to both lines and enable the existing MRT to get a sizable number of passengers from north of Metro Manila.

The MRT, which currently runs from Taft Ave. in Pasay City to North Triangle in West Ave. in Quezon City, ferries over 300,000 commuters daily.

It registered revenues of P339.97 million in the first quarter of the year, up by 13 percent from the previous year’s P285.37 million due to a rise in passenger traffic.

During the period, the MRT served a total of 27.8 million people against last year’s 23.1 million.