BSP allows MWSS to borrow $220-M

The Bangko Sentral ng Pilippinas is allowing the Metropolitan Waterworks and Sewerage System (MWSS) to borrow $220 million from the foreign credit market to refinance its maturing obligations and fund part of its capital expenditures for 2004.

With no cash coming from the Lopez-controlled concessionaire Maynilad Water Services, MWSS has sought the BSP approval of its borrowing plan although it was not known how much the water agency would have to raise before the end of the first semester.

BSP Governor Rafael Buenaventura told reporters yesterday that the Monetary Board approved MWSS’ borrowing, saying that the water agency is in the position to borrow since its current obligations are not worrisome.

"Their debt level is not problematic so they have room to borrow more," Buenaventura said.

Maynilad has already been ordered to settle some P7 billion worth of unpaid concession fees to the MWSS but sources said the principals have not reached an agreement on how these obligations would be settled.

Despite the ruling of an international panel, MWSS has already been forced to proceed with its P780-million bond issue last year to refinance its existing obligations that were scheduled to mature up to the first quarter of 2004.

To raise the amount, MWSS decided to issue sovereign-guaranteed bonds a transaction that was underwritten by the First Metro Investment Corp., the investment banking arm of the Metrobank group.

MWSS officials said the government was forced to borrow from the market in order to refinance the obligations that were supposed to be serviced by Maynilad under its franchise agreement.

MWSS financial manager Estrelito Polloso earlier explained that the government did not really need to refinance the obligations had Maynilad been paying its monthly amortization, but the Lopez-controlled company had stopped making payments since March 2001.

Theoretically, Polloso said MWSS could demand payment from Maynilad 15 days after the decision of the arbitration court came out.

"We can demand payment from Maynilad or else call on the performance bond that they posted when the franchise was awarded to them," Polloso said.

Since it stopped payments, Maynilad had accumulated some P7 billion worth of monthly payments to service MWSS loans that it had agreed to assume when it made the bid for its existing water service franchise.

MWSS had originally considered the possibility of rolling over an existing foreign borrowing from Singapore’s Keppel group but the water company decided in favor of a peso-denominated bond issue because it was cheaper.

Polloso said rolling over the Keppel loan would have cost MWSS a spread of 225 basis points (bps) above the 3-month LIBOR. In contrast, the peso bond cost about 151 bps over the 91-day Treasury bills and the MWSS had the option to pre-terminate after 180 days.