IFC takes 9% stake in Manila Water

The International Finance Corp. (IFC), the private sector arm of the World Bank, will acquire a nine percent stake in Manila Water Co. (MWC) for $15 million, its first ever investment in the water sector in East Asia.

At the same time, IFC has agreed to extend a $30 million, 13-year loan facility to MWC which will be used to fund capital requirements over the next five years, as well as possible expansion initiatives in other areas of the country and the Asian region.

The equity and loan agreements were signed May 31 in Hong Kong by Javed Hamid, IFC’s director for East Asia, MWC president and chief financial officer Antonino T. Aquino and Manila Water treasurer Sherisa Nuesa.

Aquino said IFC’s investment is an indication of confidence in MWC and in the long-term growth of the Philippines. "The timing of this investment by IFC is very significant. While most foreign companies prefer to remain in the sidelines until they see the final results of the May 10 national elections, IFC chose to immediately affirm its confidence in the country’s business climate and in Manila Water as a highly viable company," he said.

For his part, Hamid said their decision to become a shareholder shows our confidence in Manila Water’s business model, which creates shareholder value by setting a high standard for public service, operating in an environmentally and socially sustainable manner and ensuring solid corporate governance."

"We are proud to partner with Manila Water. We have been a long-term partner of the Philippines since the 1960s. We believe that we can do a lot here. This is our share of encouraging foreign investments into the country," IFC resident mission senior investment officer Jesse Ang said.

As a result of this equity infusion, IFC becomes MWC’s fifth major stockholder, joining a list of highly reputable companies led by the Philippines’ biggest and oldest conglomerate Ayala Corp. whose equity has been reduced to 43.6 percent from 48 percent.

Other major shareholders are United Utilities Plc., a leading water and power company in the United Kingdom (16.9 percent); Mitsubishi Corp. of Japan, one of the largest and most diversified trading firms in the world (9.7 percent); and BPI Capital Corp., a wholly-owned subsidiary of the Bank of the Philippine Islands (9.7 percent).

Employees own a combined 6.1 percent equity in MWC while the remaining 4.8 percent is held by a new company called MWC Holdings.

Aquino said IFC’s investment is a welcome development as this would boost MWC’s shareholder value in preparation for its planned initial public offering (IPO) next year.

He said the company expects to raise $75 million from the IPO but the figure could still vary depending on market conditions. Proceeds from the offering will largely go to the expansion of water service coverage, non-revenue water reduction program, and the development of new water sources.

The IPO is part of MWC’s 25-year concession agreement with the Metropolitan Water Works and Sewerage System (MWSS). MWC intends to market its shares locally and internally and has tapped ING and BPI Capital as its financial advisors.

MWC has been posting aggressive growth rates since winning the bid to operate the East concession of the privatized MWSS in 1997.

Last year, the company posted a net income of P1.2 billion or more than double the figure reported in 2002.

MWC reported a 13 percent growth in its first quarter net income this year to P309 million. Revenues, on the other hand, rose 16 percent to P930 million from P802 million.

Aquino disclosed that MWC had received a lot of invitations from foreign companies but stressed that the company’s main focus would be to continue improving services to the East Zone. "We are looking at these things mostly on the expertise sharing agreement," he said.

The East zone is made up of the cities of Marikina, Pasig, Mandaluyong and Makati, most of Quezon City, a small portion of the city of Manila, the municipalities of San Juan, Taguig and Pateros as well as the cities and municipalities of Rizal province.