MWSS seeks payment of P7B in concession fees from Maynilad

The Manila Waterworks and Sewerage System (MWSS) is preparing to demand payment from the Maynilad Water Services after the International Arbitration Panel handed down its decision last week.

Maynilad was ordered to settle some P7-billion worth of unpaid concession fees and MWSS officials said the government could "theoretically" collect payments within 15 days of the decision or else the MWSS could call on its $200-million performance bond.

Despite the ruling of the international panel, however, the MWSS proceeded with its P780-million bond issue intended to refinance its existing obligations that were scheduled to mature up to the first quarter of 2004.

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

The agreement was signed at the Department of Finance (DOF) yesterday and 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 told reporters 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.

According to Polloso, MWSS had originally considered the possibility of rolling over an existing foreign borrowing from Keppel 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.

The pre-termination provision was important, according to Polloso, in case the court resolves the Maynilad case with finality. "The appeals process is still on-going but we are preparing for all contingencies," he said.

Polloso said MWSS solicited proposals from financial institutions but only a few actually responded and the FMIC deal emerged as the best offer. "We don‚t even have to borrow if only Maynilad didn’t stop making payments," he said.