Gov’t allows Benpres to bail out of debt-ridden Maynilad

The government allowed Benpres Holdings Corp. to bail out of its debt-ridden Maynilad Water Services Inc. as part of a reorganization plan that the Department of Justice (DOJ) said would ensure continuous water supply to Metro Manila’s west zone.

Under the deal, the government would take over Maynilad in lieu of unpaid concession fees of more than P6 billion. It will receive a 61 percent stake worth almost the same amount.

Maynilad, which was ordered by a Paris-based arbitration panel to pay its overdue amount last year, had filed a petition in a local court seeking debt relief and corporate rehabilitation.

Justice Undersecretary Manuel Teehankee, who is also acting government corporate counsel, said the Metropolitan Waterworks and Sewerage System (MWSS) and Maynilad agreed to a plan for the extra-judicial reorganization of the utility firm to ensure settlement of all outstanding concession fees it owed the government.

The plan will be submitted to the Securities and Exchange Commission (SEC) and the Quezon City regional trial court, where Maynilad filed a rehabilitation petition, for necessary approvals.

Under the reorganization scheme, Maynilad shareholders have agreed to write off almost P6 billion — consisting of their existing equity of P5.21 billion and P757 million of the P1.92 billion in receivable due to them — in order to eliminate the company’s capital deficit.

A further P36 million of the receivable was granted by the sponsors to initially fund the Employee Share Ownership Plan while the remainder will be converted into a minority equity stake in Maynilad.

Meanwhile, local creditor banks, together with the MWSS, have agreed in principle to convert P3 billion in debt to coupon-generating voting, convertible and redeemable preferred stock.

Local banks and foreign lenders are also being called upon to provide a restructured loan payable over seven to eight years under special rates to be approved by the rehabilitation court or by the SEC.

The plan also calls for providing foreign lenders relief and assurance of payment.

After the reorganization, the government will hold a 61 percent stake; French utility Suez will own 30 percent; Metrobank will hold three percent; and employees, six percent.

Teehankee said the government will eventually take over the debt-ridden firm after it becomes the majority stakeholder.

"With a strong financial position and new board members from local banks and the government, professional management is enabled, tariff increases can be tempered over time and in the medium term, new investors can be attracted into Maynilad, enabling the government to fully re-privatize the operation," Teehankee said.

According to Teehankee, the reorganization also preserves the financial and public interest of the government while avoiding any of the risks associated with terminating a concessionaire and taking over Maynilad.

These risks, he said, include the difficulty of locating a qualified replacement operator to assume the concessionaire under the unattractive financial circumstances of Maynilad, the payment of the "early termination amount" to Maynilad as per concession agreement, which, net of the P6.6 billion concession bond, is insufficient to cover the annual debt service of concession fee loans.

Other problems, he said, include takeover costs, including the assumption of debt service by MWSS and the government, potential service disruption and immediate, unpredictable increases in the water tariff.

News of the reorganization came out after the stock market had closed. Benpres finished two percent higher at 51 centavos as the main index rose to 1.15 percent.

Benpres is controlled by the influential Manila-based Lopez family, which also has huge stakes in the nation’s largest media network, ABS-CBN Broadcasting Corp., and dominant power distributor Manila Electric Co. (Meralco).

There have been rumors that the Lopezes entered a compromise with the Arroyo administration to be able to bail them out of their Maynilad obligations. The family allegedly mediated to convince their number one news anchor, Sen. Noli de Castro, to be the running mate of Mrs. Arroyo.