The capital increase was one of the requirements set by the government to ensure that the company that will continue the operations of the west zone for the remaining years of the 25-year concession has enough funds.
The Consunji family’s DMCI Holdings Inc. and Metro Pacific Investments Corp., the newly-created debt-free investment holding company of Hong Kong’s First Pacific Co. Ltd., each subscribed P2.99 billion to the capital increase.
DMCI-MPIC topped the auction for the government’s 83.97 percent stake in debt-strapped Maynilad Water Services Inc. which covers 10 cities and eight municipalities, serving six million customers. It has drawn up a two-stage rehabilitation plan for the water concession in the western part of Manila aimed at providing better and uninterrupted water supply.
The first stage of the recovery plan will include conducting a system-wide water audit, improving water supply and pressure management, and enhancing reservoir management and pump station efficiencies. It will also involve the upgrading of the system’s software and information technology facilities.
The second stage, on the other hand, will provide for physically replacing old water mains, conducting extensive post-rehabilitation network maintenance and improving overall service repairs and connections, with a goal of providing safe, reliable 24-hour water supplies to the tens of thousands of businesses and households in the west concession zone.
Maynilad’s network facilities include two water treatment plants and 4,100 kilometers of pipes and aqueducts.
DMCI-MPIC has committed to pay a total consideration of $503.9 million for the 84 percent stake, comprised of a minimum cash bid of $56.7 million and a financial supplement of $447.2 million.
The minimum cash bid comprises $22.7 million worth of common shares in Maynilad plus $3 million in interest and $31 million in financial assistance for past advances made by the Metropolitan Waterworks Sewerage System to Maynilad.
The $447.2 million will be represented by standby letters of credit to be presented by DMCI-MPIC on Jan. 10, the expected transaction completion date. It will be infused as new equity into DMCI-MPIC over a three-year period, to be used to fund new capital expenditures or pay off debt.
Maynilad currently has approximately $256.8 million of debt that is subject to various debt and restructuring agreements.
Under the mandatory requirements of the bidding process, DMCI-MPIC will also be required to establish a performance bond in the amount of $12 million in respect of Maynilad’s obligations under the concession and required to undertake payment of transaction fees and expenses of approximately $19.6 million.
DMCI-MPIC believes there is significant opportunity for long term value creation by its investment in Maynilad due to water distribution being a critical and essential public service and from the potential of stable operating cash flows resulting from an expected turnaround of Maynilad’s operations under its management.
There is further opportunity for DMCI-MPIC to achieve substantial improvements in revenue, for while Maynilad presently supplies over 2,100 million liters of water per day to approximately six million of the over eight million population included in its concession areas, approximately 67.6 percent of that is non-revenue due to antiquated infrastructure delivery, leakage and pilferage.