Ayala Corp eyes a comeback in MRT-3


Posted at Mar 08 2011 04:45 PM | Updated as of Mar 09 2011 08:38 AM

The country's oldest conglomerate was an original member of the private consortium behind MRT-3

MANILA, Philippines (UPDATED) - Ayala Corp. said on Tuesday it was considering investing in infrastructure projects to be offered by the government, including the Metro Rail Transit (MRT) 3.

The country's oldest conglomerate said it was studying some of the infrastructure projects the government intends to offer under its Public-Private Partnership (PPP) program.

On Monday, the government said the bidding process for the first 5 projects, worth more than $1 billion, was set to get underway. 

"Please be advised that Ayala Corporation has expressed interest to explore various opportunities in the infrastructure sector," chief financial officer and senior managing director Delfin Gonzalez Jr. told the stock exchange. 

"The MRT 3 is one among other projects that the company is currently looking into," Gonzalez said.

MRT-3 is the elevated railway on Epifanio de los Santos Avenue or EDSA, a major thoroughfare in the country's capital.

The Ayala group, which has businesses in real estate, banking, manufacaturing, telecommunications, has been keen on diversifying into power and participating in infrastructure projects the government may bid out. 

Ayala's return to an aggressive mode is seen to pit the company against other conglomerates with ambitions in these sectors, including San Miguel Corp., Metro Pacific Investments Corp. (MPIC), Aboitiz Equity Ventures Inc. and JG Summit Holdings Inc.

Original MRT-3 player

The Ayala group was one of the original members of the consortium behind MRT Corporation, which was awarded the original contract on the MRT-3 rail project in the late 1990's.

The 5 consortium members, which included the Ayalas, Sobrepenas (real estate, pre-need), Ramcar (battery manufacturing, food), and the owners of National Bookstore, had inked the deal with the government represented by the Department of Transportation and Communication.  

Their build-lease-transfer (BLT) contract was one of the variants of the PPP scheme. It was a contract that assured the private players a 15% return on their equity.

The deal, in effect, made the government assume all the financial risks. Thus, when the Arroyo government decided not to increase fares due to populist pressures, the DOTC--and eventually the national government--had to plug the revenue gap to meet the promised 15% returns to the consortium.

A few years after, the Ayalas and other consortium members decided to cash out of the contract when the national government decided to securitize, or sell, the rail operation's future cash flows to bondholders.

Eventually, two state banks -- Development Bank of the Philippines (DBP) and Land Bank -- purchased the bonds from the investors to stave off legal and collection cases abroad.  

This was the state of the project financing behind MRT-3 when Pangilinan-led Metro Pacific Investments Corp (MPIC) acquired a minority stake in MRT Corp in November 2010. 

MPIC buys into MRT-3

MPIC, a unit of Hong Kong's First Pacific Co. Ltd., acquired its initial minority stake in the project from the Fil-Estate group of the Sobrepenas, one of the original consortium members. 

Recently, MPIC chairman Manuel Pangilinan said that the other shareholders of MRT Corp, which has different layers of ownership, signed deals that could lift its stake to as much as 48% in the operator of MRT 3.

Pangilinan said the other shareholders in the MRT-3 project gave proxy rights that the MPIC could then exercise as soon as some requirements of the government are met. 

MPIC earlier offered $1.1 billion for the government's stake in the railway system. The state banks, DBP and Land Bank, acquired their stake in the project for less than $800 million in 2007. 


However, Transportation Secretary Jose de Jesus has not been keen on accepting the MPIC offer just yet.

He has said all deals on infrastructure projects, including MRT-3, will be auctioned. This is in keeping with the Aquino government's promise of transparency. 

That opens the opportunity for Ayala group to make a comeback. 

The Aquino government, which is seeking help from the private sector to fast track the construction and upgrade of infrastructure, will later this month issue an invitation to bid for a contract to operate and maintain line 3 of the MRT.

The project has an estimated cost of P6.3 billion.

3-way fight

Meantime, San Miguel Corp, a Philippine conglomerate that is diversifying away from its food and drinks business, has been eyeing to participate in bidding for the PPP projects of the Aquino government.

San Miguel said last month it planned to invest $4 billion over the next 5 years as it looks to double sales through its diversification into energy and infrastructure.

Possible bids from MPIC, Ayala Corp. and San Miguel would result in a 3-way fight for the MRT 3. - with Lala Rimando of abs-cbnnews.com, Reuters