Meralco stocks take beating; A & B shares fall below P10

The woes of power distributor Manila Electric Co. spilled over to the stock market yesterday as its shares went on a freefall, even dragging down the stocks of the other Lopez-controlled firms and utility companies.

With foreign brokers pressing the panic button first, Meralco’s A and B shares fell to their all-time lows of below P10 each, and analysts expect the selldown to continue.

"The seemingly lack of indication whether the High Tribunal would accede to Meralco’s strong call for a reversal in its decision caused foreign fund managers to panic, as restricted cash flows might cause a repeat of the 1992-1994 power crisis in the Philippines," said a report by 2TradeAsia.com, the investment portal of F. Yap Securities.

At the close of yesterday’s trading at the Philippine Stock Exchange, Meralco’s class A shares dropped P5.20 or 38.5 percent to P8.30 while its "B" shares slid P6.60 or 40 percent to P9.90.

Meralco B was the heaviest traded stock, making up 37.4 percent of yesterday's total turnover, but it was also the top loser as foreigners sold off a net value of P86.83 million out of the stock’s aggregate P106 million worth of trades.

With Meralco on the losing end,other Lopez-owned shares followed suit. The Lopez family, through investment holding units Benpres Holdings Corp. and First Philippine Holdings Corp., owns a substantial block of Meralco, although the government still holds a 20 percent stake in the company.

While the Meralco selldown was anticipated, concerns were raised that the impact of the decision on the economy will be tremendous since Meralco’s franchise areas contribute significantly to the economy.

But PhilStocks.net, another local investment portal, said the odds were still stacked in favor of Meralco since the Court of Appeals earlier ruled in favor of the power firm.

"Investors are wary of the possible impact if Meralco goes underwater, given that its franchise areas contribute significantly to the economy," said AB Capital economic analyst Jose Vistan.

"There are worries we might go back to the days when power outages were rampant. Meralco’s ability to provide service will be hampered by its cashflow problems."

The key index dropped 24.23 points or 2.29 percent to 1,034.48, its lowest finish since October 25.

Volume climbed to P323.81 million from Friday’s P187.73 million. Meralco accounted for 34 percent of the total with P110.46 million worth of A and B shares changing hands.

Losers clobbered gainers 40 to 11 and there were 23 stocks unchanged.

"We expect follow-through selling in the next session but the losses will not be as big. The market’s initial reaction was felt today," Vistan said. "The market’s next support level is at 1,010."

Meralco’s B-shares, which are open to foreigners, fell P6.60 to P9.90. They were the session’s most actively traded.

Its A-shares, which are restricted to Filipinos, lost 38.52 percent or P5.2 to P8.30.

"The consequences are staggering," said BPI Securities investment analyst Spencer Yap.

"Either they borrow or cut back on capex (capital expenditure) and other costs. Given the company is highly leveraged already, Meralco can only borrow at higher interest rates – assuming there are creditors willing to lend."

Standard & Poor’s cut its rating on the company by two notches to B-plus from BB on Friday after the court ruling.

Other utilities and companies affiliated with the Lopez group also suffered.

Philippine Long Distance Telephone Co (PLDT) , the country’s largest telco, dropped 4.85 percent or 12.5 pesos to P245 after a newspaper reported it might suffer a similar fate to Meralco if it used the same accounting system.

BusinessWorld reported that the Meralco ruling would be considered as a precedent once it becomes final and may be used against other utilities.

First Philippine Holdings Corp., the power holdings firm of the Lopez group, shed 18 percent or P2.25 to P10.25.