Maynilad files for corporate rehab due to debt payment problems

Hobbled by its inability to service debt obligations on time, Maynilad Water Services Inc. was forced to file a petition for corporate rehabilitation before the Quezon City Regional Trial Court last Thursday.

This was disclosed by Maynilad majority shareholder Benpres Holdings Corp. to the Philippine Stock Exchange.

A Filipino-French joint venture, Maynilad is about 59 percent-owned by Benpres, the local flagship of the Lopez family while about 20 percent is owned by Ondeo, a French multinational affiliated with Suez Lyonnaise des Eaux. Another 20 percent is held by Lyonnaise Asia Water Ltd.

Benpres corporate secretary Enrique Quiason said Maynilad filed the petition because "it now foresees the difficulty of meeting its debts when they fall due as a result of the international arbitration panel’s decision to allow the Metropolitan Waterworks and Sewerage System to draw on the performance bond."

This course of action will enable Maynilad to ensure continuous delivery of water services to its consumers, Quiason said.

The International Appeals Committee, an internationally recognized arbitration panel, ruled that Maynilad would have to maintain its 25-year water utility concession for the western part of Metro Manila, covering about six million people.

The panel also ordered Maynilad to settle the P6.77 billion in unpaid concession fees and allowed the government to draw on the $120-million performance bond that is primarily guaranteed by Benpres to ensure payment.

Benpres said the payment of the performance bond is part of the debt restructuring plan it is now working out with its creditors. It has guaranteed up to 60 percent of the performance bond.

The panel also ruled that neither Maynilad nor MWSS has grounds to terminate the concession and ordered both parties to continue from where they left off prior to the arbitration.

Quiason also said Maynilad has sought clarification on the terms and conditions of the continuation of the concession agreement which in their view failed to take into account the financial impact of such a decision.

In particular, Maynilad sought the arbitration panel’s guidance on the rate rebasing exercise conducted by the MWSS-Regulatory Office that has a negative effect on the economic viability of the concession.

Furthermore, Maynilad asked the arbitration panel to consider the impact of authorizing MWSS to draw on the performance bond in the light of the recommendation of the arbitration panel for the parties to continue to seek extra-judicial solutions.

In Dec. 2002, Maynilad filed a notice of termination of its concession agreement with the Philippine government and sought the return of at least $303 million it allegedly invested in the privatized water utility.

The decision to return the concession agreement was actually made by Benpres. Benpres, which also has interests in broadcasting, telecommunications and property, has around $600-million worth of debt that it is seeking to restructure.

Benpres’ financial stability was shaken late last year when a Supreme Court division ruled that subsidiary company Manila Electric Co. should refund its customers for allegedly overbilling them since 1994.

The pretermination move by Maynilad was opposed by MWSS as it cited violations by the water concessionaire of its own contract.

MWSS said Maynilad is liable for its failure to reconstruct and rehabilitate the Balara-Novaliches aquaduct, among other violations.

When it took over, Maynilad’s concession was hailed as a landmark in the Philippines’ efforts to privatize more of its utilities and improve vital services.

Maynilad offered to lower tariff rates when it took over the west zone in 1997. It also promised other supposed benefits which include the following: 100 percent water cover coverage within 10 years, no real increase in water rates within the first 10 years, $7.5 billion in new investments over 25 years, uninterrupted 24 hours per day water service that meet Department of Health standards, waste water program to dramatically improve public health and environmental conditions with 80 percent coverage within 25 years; and some $4 billion in income tax revenues over 25 years.