Manila Water tumbled by a record in Philippine trading after the nation’s regulator rejected its petition for a rate increase and ordered the company to cut tariffs

September 13, 2013 Leave a comment

Manila Water Plunges by Record on Rate-Cut Order: Manila Mover

Manila Water Co. (MWC) tumbled by a record in Philippine trading after the nation’s regulator rejected its petition for a rate increase and ordered the company to cut tariffs.

The shares sank 16 percent to 26.1 pesos at 10:57 a.m. local time, heading for the sharpest loss since the stock began trading in March 2005. The stock was the biggest drag on the benchmark Philippine Stock Exchange Index, which dropped 1 percent.“We see this is as an unfortunate development,” James Thom, a money manager at Aberdeen Asset Management Plc, which owns 9.9 percent of Manila Water according to data compiled by Bloomberg, said by phone today. “It brings uncertainty to the future tariffs and prospects of the business.” Aberdeen hasn’t decided whether to sell or add to its holdings, he said.

Manila Water and Maynilad Water Services Inc.’s separate petitions for rate increases were rejected by the Metropolitan Waterworks & Sewerage System and were both ordered yesterday to cut their basic charges. The order follows a pledge by some lawmakers to investigate 15 billion pesos ($342 million) in income taxes and other expenses that water utilities passed on to consumers. Manila Water President Gerardo Ablaza couldn’t be reached at his office for comment.

The two companies, which won government contracts in 1997 to provide water to the Philippine capital, say they need to increase tariffs to recover investments and help fund about 1.12 trillion pesos in capital spending through 2037. The state regulator reviews tariffs every five years.

Earnings Prospects

The regulator directed Manila Water to cut its basic water charge by 29 percent, to be implemented in equal tranches in the next five years, according to the order. Maynilad must implement a 4.8 percent reduction within the same period, according to its statement.

“A rate cut severely limits its earnings prospects,” Rico Gomez, vice president at Rizal Commercial Banking Corp. (RCB), which oversees about $2.8 billion, said by phone today, referring to Manila Water. “Investors will probably be net sellers until this issue is resolved.”

JPMorgan Chase & Co. cut its rating on Manila Water yesterday to neutral from overweight and lowered its 12-month price target to 35 pesos from 40 pesos.

The stock has three buy ratings and five hold ratings, with an average price target of 34.55 pesos, according to a Bloomberg survey of analysts. Earnings-per-share is forecast to decline 7.3 percent from the previous year in 2013, data show.

Metro Pacific Investments Corp. (MPI), owner of Maynilad, fell 5.3 percent to 4.45 pesos, heading for the lowest close since Dec. 28, extending yesterday’s 7.8 percent drop. Ayala Corp. (AC), parent of Manila Water, retreated 0.7 percent to 559 pesos. DMCI Holdings Inc. (DMC), a partner of Metro Pacific in Maynilad, slid 0.8 percent to 45.90 pesos, extending yesterday’s 4.4 percent loss.

To contact the reporter on this story: Ian Sayson in Manila at isayson@bloomberg.net

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