Japanese investment in Maynilad pushed to December

MANILA, Philippines – A deal that would give one of Japan’s biggest trading houses, Marubeni Corp, a 20% stake in Maynilad Water Services Inc has been pushed back 2 months to December, according to a top executive in the water concession’s parent firm.

“We met with them last week in Hong Kong. And we worked our way backwards and said that basically, what we would like is a closing on the 6th of December,” said David Nicol, chief finance officer of Metro Pacific Investment’s Corp (MPIC), one of the owners of the West zone water concession-holder.

“We put everything in place such that if their board approves on the 30th of November, that everything has already been done. And they can transfer the funds, which takes about a week to organize,” he told reporters the sidelines of the COL Financial Group Inc. special customer briefing on October 22.

The parties had been aiming to seal the deal, which values Maynilad at a total of $2 billion, in September. They pushed it back to October.

“I don’t think there is a deadline per se that has slipped. It’s just been the estimates of doing this,” said Nicol.

“They [Marubeni] are a big corporation but this is still a big investment,” Nicol highlighted. “[Let’s] put this into context: they will be investing considerably more than we did in 2007/2008 when we invested in the concession in the first place. So they’re just taking their time. I must say I’m very impressed by the level of due diligence and their level of understanding [of Maynilad],” said the CFO.

Maynilad was previously mulling source cheap development assistance loans from Japan International Cooperation Agency (JICA) as it prepares for a major investment in sewerage services. However a long-term loan from the JICA also carries a big risk, admitted Nicol.

“It brings with it a huge risk that is either taken by ourselves or the public in the end. I don’t think history says that’s a good move,” he said, referring to the foreign exchange risk involved in foreign loans.

“We’re trying to work out what to do. If we can get the JICA financing, that will be good. But we have to find some way to manage the foreign exchange risk so that neither we nor the public manage the foreign exchange risk,” he added.

Maynilad is a joint venture between Pangilinan-led MPIC and Consunji-led DMCI Holdings Inc. If the entry of Marubeni pushes through, the Japan-based firm would acquire a 20% share in the water concessionaire, with 16% coming from DMCI and 4% from MPIC, explained Nicol.

MPIC is eager to close the deal before the end of 2012. “I think these transactions need some element of urgency about them or there is some danger they can drift. So i think where we’ve reached is that slipping any further is not an option,” said Nicol. – Rappler.com