Illiquid

The DOTC should take a long, hard look at the financial situation of the winning bidder for the Mactan Cebu Airport Project. A post-qualification process is not underway to examine the capacity of the winning bidder — a consortium involving a group called Megawide and GMR Infrastructure of India.

Conflict-of-interest issues have already been raised regarding GMR and the Malaysian group partnered in another rival consortium. The strict rules set down by the DOTC’s own bidding committee penalizes conflict-of-interest with outright disqualification.

Last week, the Wall Street Journal mentioned GMR rather prominently in a report titled “Indian Firms Sell Assets to Cut their Debt Burdens.” The context for that report is the general financial difficulty experienced by Indian corporations in the wake of the drastic devaluation of the rupee.

We know from our experience with the 1997 Asian financial crisis that sharp depreciations could bring down otherwise strong firms saddled with foreign debt. Depreciation of the home currency magnifies the debt service for foreign currency debts.

Between 2005 and 2007, according to the report, Indian companies borrowed heavily to take advantage of low interest rates and the rapid expansion of the subcontinent’s economy. After the depreciation of the rupee, banks worried about deteriorating loan quality. The banks exerted pressure on the biggest borrowers to dispose of assets in order to pay debt.

Companies in the infrastructure and power sectors were most indebted and figured high in the concerns of the Indian banks. Among the three largest companies that were asked to dispose of assets was the GMR Group based in Hyberdad, India.

The GMR Group agreed to sell its 40% stake in Istanbul’s international airport and a related firm providing airline services to raise $305 million just last month. Before that, the group sold its 70% stake in GMR Energy (Singapore) Pte. Ltd. For about $520 million. The proceeds from these sales go to pay down debt.

According to its September 30 filing, the GMR Group held $6.2 billion in debt, and that is after the Singapore sale. Analysts say that a debt-to-equity ratio of one or less would be considered comfortable for Indian companies. GMR’s ratio as of the middle of last year stood at 4.9 — considered too risky by creditors. As a consequence, GMR will likely be pressured to sell more assets soon.

With its heavy debt burden, GMR will find difficulty in seeking new financing for additional projects such as the Mactan airport. That could lead to major delays in the project timetable.

Before taking the final steps in the Mactan Airport bidding, the DOTC should conduct due diligence on GMR’s financial standing. The airport project is a capital-intensive undertaking. Whoever builds this project must be in very good standing with the banks if the project is to be completed in time.

If, at any time, financing becomes a problem, the Mactan Airport will be held hostage.

Childish

If the spat did not cause so much inconvenience to everybody else, the corporate dispute involving an access road might seem outright childish, even funny. The matter, however, actually worked its way to the courts.

The dispute revolves around an access road traversing the Century City project on the site of what was formerly the International School in Makati. It connects General Luna St. to Kalayaan Avenue.

Century City Development Corporation (CCDC) owns 72.5% of the road and PICAR owns 27.5%. The road is essential to access the impressive high-rises being built in the former campus.

CCDC has a total of eight residential, office and retail developments at Century City, owning 3.4 hectares of 4.8 hectare International School property. PICAR, with its single property development (Stratford Residences), owns the remaining portion.

The eight Century projects, including the tallest building in the country, are proceeding according to schedule. By contrast, the PICAR project, scheduled for delivery by 2015, is only about a tenth complete.

A few months ago, for whatever bizarre reason, PICAR decided to barricade the access road. The company apparently does not want any development on the road, including the installation of traffic lights and sidewalks.

Last month, PICAR installed a boom barrier across the road. Later, three buses were positioned to completely barricade road, preventing vehicular traffic from Kalayaan Avenue. More vehicles were added to completely close off access.

This drastic step was taken notwithstanding an earlier agreement between Century and PICAR to beautify road, install pedestrian conveniences and begin landscaping. The barricade interferes with vehicular movement and access to the multi-billion peso development. It is as if PICAR wants the development projects delayed.

Earlier this month, Judge Bonifacio Pascua of the Makati Trial Court Branch 56 ordered PICAR to remove the barrier on the road it co-owned. This was after tensions on the road escalated and gunfire was heard.

The trial court likewise restrained CCDC from implementing finishing works on the contested road — possibly including the traffic and pedestrian lights donated to the city. This should be enough assurance for PICAR to lift its funny barricade.

The dispute does not make sense to ordinary people who need to use the road. It might discourage potential buyers from buying into this major development project. If this petty matter is not resolved by the big boys making big investments in massive development projects, it could backfire on both parties.

With the increasingly intolerable traffic jams that plague Makati, any new road should be a welcome sight. PICAR, for its own reasons, does not seem to enjoy the sight of a new road.