December 02, 2013

SM awarded Pasay reclamation project

SM Investments Inc (SM, Buy) was awarded by the Pasay City government the P54b contract to reclaim 300 hectares of land. SM committed to complete the project in seven years with the city government getting 153 hectares. The contract was signed on November 15 after the city government declared the Swiss challenge over in the absence of any competing bids. The contract has been forwarded to the Philippine Reclamation Authority.

Our Take: The project can expand the SM group's land bank by a third as per our estimates. This should also provide a big boost to both NAV and long-term earnings given the strategic location. However, this presumes there will be no legal challenges that may be raised by those who earlier wanted to participate in the bidding but raised questions on the procedures followed by the city government. Ayala Land Inc (ALI, Buy), GT Capital (GTCAP, Buy), and unlisted S&P Construction Technology and Development Corp earlier expressed interest in the contract.

It also remains to be seen if the contract will need to be reviewed by the National Economic and Development Authority in light of Executive Order 146 issued by the President on November 13 (which precedes the award contract issued by the Pasay City government),transferring to the NEDA board the power to approve all reclamation project proposals. The PRA's power has been limited to reviewing, evaluating and recommending reclamation proposals to the NEDA.  - WealthSec