Maynilad IPO seen after next rebasing cycle

MANILA, Philippines — Pangilinan-led Maynilad Water Services Inc. expects to undertake its initial public offering (IPO), as mandated by the newly signed Republic Act 11600,  after its next rate rebasing cycle.

“It will definitely not be this year. At the minimum, it will be after the rate rebasing or when the contract and franchise are stable,” Maynilad president and CEO Ramoncito Fernandez told The STAR.

Rate rebasing is a process that determines the level of rates for water and sewerage services that permits the water concessionaires to recover over the life of the concession its operating, capital maintenance, and investment expenditures.

The next rate rebasing will commence in March 2022, and if it is successful, rates will increase in January 2023.

Republic Act 11600, signed into law last Dec. 10, 2021, grants Maynilad a 25-year franchise to establish, operate and maintain a waterworks system and sewerage and sanitation services in the west zone service area of Metro Manila and the province of Cavite.

The franchise also requires Maynilad to publicly list at least 30 percent of its outstanding capital stock within five years from the grant of the franchise, and prohibits it from passing corporate income tax to customers.

Maynilad, as well as its east zone counterpart, Razon-led Manila Water Co. Inc., welcomed the enactment of the franchise law.

With the franchise, the next order of business for Maynilad is to submit a revised business plan outlining the capex required to meet its service obligations.

A long-term franchise offers Maynilad more elbow room to implement the capital expenditures needed for sustaining service enhancements.

“Continued investments in infrastructure and technology are essential in view of emerging industry challenges, such as climate change and the increasing water requirements of a growing population and developing economy,” Fernandez said.

Without that long-term horizon, either capex will be curtailed or the required tariff increases to cover such expenditures will be deemed unreasonable, he said.

A longer term also provides Maynilad and its regulators more flexibility in creating a solution that will respond to these competing concerns.

The law grants authority to the government, through the Metropolitan Waterworks and Sewerage System (MWSS), to extend the term of Maynilad’s revised concession agreement (RCA) to coincide with the term of the franchise or until 2047, as long as it is beneficial to customers.

It  acts as the Certificate of Public Convenience and Necessity of Maynilad for the operation of its system.

RA 11600 also provides that in the event the waterworks and sewerage system assets of MWSS pertaining to the franchise area are privatized by law, Maynilad has the right to match the highest compliant bid after a public bidding.

“This is an assurance to investors that Maynilad can continue to operate even after the expiry of its contract with the government. Creditors would be more comfortable about extending loans to Maynilad for the funding of multi billion-peso capex projects that are needed to sustain service improvements,” Fernandez said.