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Thursday, August 17, 2017 | MANILA, PHILIPPINES
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Date posted: Friday, December 11, 2015 | Manila, Philippines

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Bringing infrastructure expertise across the region


THERE IS so much work to do in the Philippines, a country that has underinvested in infrastructure for so many years. But what does a company that has invested a lot in the country do when returns haven’t been forthcoming?

For Metro Pacific Investment Corp. (MPIC), the choice was clear: look for growth opportunities elsewhere.

The local affiliate of Hong Kong-based First Pacific Co. Ltd. has built an infrastructure empire in the Philippines with investments in the country’s biggest electricity distributor (Manila Electric Co. or Meralco), the largest water utility (Maynilad Water Services, Inc.), a major toll road operator (through Metro Pacific Tollways Corp. or MPTC), and the most extensive chain of hospitals (through Metro Pacific Hospital Holdings, Inc. or MPHHI).

In recent years, the conglomerate has bagged three public-private partnership (PPP) projects, part of the Aquino government’s centerpiece program designed to boost spending on infrastructure and spur economic activity.

Since the flagship program was launched in 2010, the conglomerate has won the P55.51-billion Cavite-Laguna Expressway Project, the P64.9-billion Light Rail Transit Line 1 Cavite Extension Project and the P1.72-billion Automated Fare Collection System -- the last two of which were in partnership with Ayala Corp.

MPIC acknowledges the Philippines’ staggering need for infrastructure investment. But the consistent theme of contracts not being adhered to and delays in meeting grantor responsibilities have prompted the company to put its money overseas where it can deliver value for its shareholders.

LIKE WATER IN A PIPE
“If the environment here is not friendly towards business for infrastructure, the money will go elsewhere. That’s not a moral judgment on my part: money chases returns. Like water in a pipe, it finds the best outlets,” MPIC Chief Financial Officer David J. Nicol said.

MPIC, through MPTC, has four years’ worth of inflation adjustments pending for the North Luzon Expressway (NLEx) and six years for the Manila-Cavite Toll Expressway (CAVITEx), equivalent to 19% and 23%, respectively.

Likewise, Manila North Tollways Corp. (MNTC) -- a unit of MPTC -- has yet to be awarded the contract to manage, operate and maintain the Subic-Clark-Tarlac Expressway (SCTEx) after the February deadline for offers to match its P3.5-billion proposal for the deal passed without takers. MNTC secured the SCTEx contract in 2011, or the final year of the Arroyo administration, but the Aquino government opted to renegotiate the terms of the deal.

Meanwhile, Maynilad is locked in arbitration over losses incurred from a deferred tariff hike.

Amid regulatory uncertainties in the Philippines, MPIC began to look for opportunities outside its home turf, leveraging on the experience and expertise that it has developed in its businesses.

“We have a level of technological, managerial and operational expertise here in the Philippines that we think can be usefully applied to selected opportunities in the region. Our focus remains domestic, but sometimes projects here take a while to get going and [we] need to continue to deliver growth for [our] shareholders,” Mr. Nicol said.

In 2013, MPIC teamed up with First Pacific and formed FPM Infrastructure Holdings Limited to acquire a 29.45% stake in Don Muang Tollway Public Co. Ltd. (DMT) for P5.8 billion. DMT operates a 21.9-kilometer (km.) six-lane elevated toll road stretching from Din Daeng in central Bangkok past Don Muang Airport and on to the National Monument in the north of the capital.


Metro Pacific’s wholly owned subsidiary MPIC Infrastructure Holdings Ltd. (MPIHL) initially owned 25% of FPM Infrastructure, but gained full ownership of the company after buying out its parent firm’s 75% interest.

A few months ago, MPIC, through MPTC, completed its second investment outside the Philippines with the purchase of a 45% interest in CII Bridges and Roads Investment Joint Stock Co. for P4.1 billion. The Vietnamese infrastructure firm has around eight toll road and bridge projects spanning approximately 123 km with a total daily traffic of 46,000 vehicles.


WELL-CONNECTED PARTNER
Partnerships play a crucial role in MPIC’s overseas expansion strategy, Mr. Nicol said, since they will allow the Philippine firm to navigate through the host country’s regulatory environment and acquaint itself with the realities of investing in that country.

“The core strategy when looking at foreign markets is finding a great foreign partner. What we have is a general transferable skill set -- our technical and operational skills -- and we don’t dream of putting money in a jurisdiction without a well-connected partner,” Mr. Nicol said.

For its Thai venture, MPIC has the Thai Ministry of Finance and the Phanichewa family as partners. In Vietnam, the Philippine firm has teamed up with Ho Chi Minh City Infrastructure Investment Joint Stock Company (CII), one of Vietnam’s largest private infrastructure firms, with exposure in toll roads, water, real estate, and engineering and construction.

“We are very pleased with our investment in Thailand to date. This is our first year in Vietnam so it’s too soon to say, but so far, we are very encouraged and happy with our partners,” Mr. Nicol said.

MPIC has set its sights on countries that provide the best risk and reward ratio. The conglomerate plans to start investing in a generally modest fashion as it establishes a sound footing from which to invest on a larger scale.


“Each jurisdiction has its own regulatory risks. We have been impressed, however, with the pace of development and rate of execution on new projects,” Mr. Nicol said.

MPIC is scouting for operating water and road projects in Vietnam, Thailand and Indonesia, but any future investment overseas will hinge on when and how its regulatory challenges in the Philippines are addressed.

“If the environment here was to become more business-friendly and fast-paced and the people are more confident about the regime on contracts, there’ll be so many things to do here that there’s no time to look outside,” Mr. Nicol said.

Despite its foray overseas, MPIC continues to expand its existing businesses and participate in the Aquino government’s PPP program.

“Despite the challenges, there is a clear sense in the business community that the country has a rare opportunity not only to grow, but also to move up the next level of development. We must not let this pass,” MPIC President and Chief Executive Officer Jose Ma. K. Lim said in a recent forum.

“To make this happen, the government and the private sector must forge a genuine partnership, with each doing their share to move the country forward. This will take a lot of work, and companies will have to make many hard choices. But we owe it to ourselves and our people to create a really sweet spot for our country,” Mr. Lim said. -- Krista Angela M. Montealegre

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*Send e-mail to Krista at krista.montealegre@gmail.com or follow her on Twitter @_kmontealegre.

 
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