After two years, Ayala Corp. will achieve its target to raise P50 billion from the sale of non-core assets after the country’s oldest conglomerate agreed to unload its remaining shares in Manila Water Co. (MWC) to tycoon Enrique Razon Jr.
Some context
Manila Water was one of the Zobel family’s prized assets before they became a target of former President Rodrigo Duterte, who threatened to jail their executives as part of a successful campaign to rewrite the company’s decades-old contract.
Ayala lost control of Manila Water in 2021 when it sold shares to Razon’s Trident Water Co. Holdings.
With only a minority stake, Ayala decided to put the rest of Manila Water on the selling block to focus on its core banking, property, telecommunications, and energy businesses as well as emerging sectors such as healthcare and electric cars.
Ayala reaches P50 billion goal
On Friday, the final terms of the sale were announced: Ayala will offload its remaining Manila Water shares to Trident for P14.5 billion. This will bring proceeds from the asset disposal program to P51.5 billion, slightly above target.
“The proceeds will be used to pare down debt and/or fund future investments,” Ayala said in a stock exchange filing.
Ayala is selling common shares worth P12.9 billion, to be paid in cash, while the preferred shares, worth P1.6 billion, will be paid in installments from 2024 to 2029.
This means Ayala will lose all voting power in Manila Water but the preferred shares will give it an effective 12.1 percent economic interest, which will go down to zero in 2029.
Insider’s view
Ayala chief finance officer Alberto M. de Larrazabal explained to InsiderPH the installment terms were agreed upon so Trident can manage cash flow.
“Nothing significant, so we are okay with it,” he said on Friday.
Market view: a “win win” for Zobel and Razon
“This was in-line with AC's strategy of divesting from non-core units to raise funds for debt reduction and additional investments into their strategic units,” Alfred Benjamin R. Garcia, head of research at AP Securities Inc., told InsiderPH.
“It's a win-win, since the Razon group will also solidify its control over MWC, which will make it easier to execute their plans for rationalizing and expanding MWC's portfolio,” he added.
The Manila Water acquisition also beefs up the asset portfolio of Razon’s infrastructure behemoth Prime Infrastructure Capital, one of the firms waiting to launch an initial public offering after market conditions improve.
Neutral rating
Garcia has a neutral or “hold” rating on Manila Water due to the stock's recent rally that pushed it past AP Securities' target price of P26.10 per share target.
The target also includes a regulatory risk discount because of events that occurred during the Duterte administration. Without the discount, the water services firm should have a fair value estimate of P30.05 per share, Garcia said.
As for future prospects, AP Securities expects earnings to grow in the five years, taking into account the company's "higher-than-expected rate hike on top of stable billed volume growth for East Zone" in Metro Manila and increasing contributions from new businesses.
What’s next?
Larrazabal said they are also working toward selling their share in the Light Rail Transit Line 1 (LRT-1) project for over $350 million or about P20 billion.
Manuel V. Pangilinan-led Metro Pacific Investments Corp., which co-owns 35.8 percent of LRT-1 operator Light Rail Manila Corp. (LRMC), is among the interested buyers for their railway shares.
“On LRMC, conversations are ongoing but not to the point where a predictable outcome has been defined. In other words, it’s hard to say if we can get it done this year or not,” Larrazabal said on Friday.
Miguel R. Camus has been a reporter covering various domestic business topics since 2009.
