Court rules vs MWSS drawdown on Maynilad’s $120-M standby LC

The Quezon City Regional Trial Court has issued a ruling prohibiting the Metropolitan Waterworks and Sewerage System (MWSS) from drawing on the $120-million standby letter of credit issued by Maynilad Water Services Inc.

In its order, the Court said MWSS’ act of seeking on Nov. 24, 2003 for the payment from the banks of $98 million out of the $120-million standby letter of credit or any similar act is violative of the stay order.

The RTC has placed Maynilad, the water utility firm of the Lopez-owned Benpres Holdings Corp., under receivership and effectively suspended the enforcement of all claims whether for money or otherwise.

It has directed MWSS, through its officers and officials, to withdraw under threat of contempt the written clarification/notice of drawdown to Citicorp International Ltd. dated Nov. 24.

The RTC also nullified any payment by banks to MWSS in the event such written certification/notice of draw is not withdrawn by MWSS or MWSS receives payment by virtue of the standby letter of credit.

The $120 million performance bond was put up by Maynilad when it bid for the concession in 1997. Benpres guarantees 60 percent of the bond while the balance of 40 percent is guaranteed by its joint venture partner Ondeo-Degremont group of France.

In granting Maynilad’s request for suspension of debt payments, the court said it found the petition to be sufficient in form and substance.

The stay order also effectively barred Maynilad from selling, transferring or disposing in any manner any of its properties except in the ordinary course of business.

Aside from MWSS, Maynilad is indebted to foreign lenders like Citibank NA, Credit Lyonnais, Chase Manhattan, Credit Industriel et Commercial Fortis Bank and KBC Bank NV.

The initial hearing on the petition for corporate rehabilitation was set on Jan. 7, 2004.

Rosario Bernaldo, managing partner of Bernaldo, Mirador Law offices and of the accounting firm RS Bernaldo and Associates, has been appointed as rehabilitation receiver for Maynilad.

In its petition for corporate rehabilitation, Maynilad said while it has total assets of P16.94 billion as of Oct. 31, 2003, it foresees the impossibility of meeting its debt payments as they respectively fall due.

Maynilad said on the basis of projected market conditions for the next nine years, it has a good chance of getting itself on track again.

The company’s rehabilitation plan calls for the rescheduling and restructuring of its suspended and current concession fees to MWSS with interest at nine percent and the rescheduling of a big portion of its liabilities.

Benpres earlier said the recourse to the courts would enable Maynilad to ensure continuous delivery of water services to its consumers.

Maynilad’s filing of petition for corporate rehabilitation came a few days after an international arbitration panel ruled that the utility firm would have to maintain its 25-year water concession for the western part of Metro Manila. The panel also allowed the MWSS to collect on debts.

Maynilad covers the west zone of the MWSS concession area consisting of Manila, Pasay, Las Pinas, Malabon, Muntinlupa, Valenzuela, Navotas, Paranaque, Bacoor, Kawit, Imus, Cavite City, Noveleta, Rosario and parts of Taguig and Quezon City.