May 28, 2015

Metro Pacific Investments Corp (MPI) submits highest offer for CALAX

Metro Pacific Investments Corp (MPI) announced today that its subsidiary MPCALA Holdings Inc (MPCALA) submitted the highest bid for the Cavite-Laguna Expressway (CALAX) project. MPCALA’s offer of P27.3b is 36% above the P20.105b floor price set by the Department of Works and Highways (DPWH) and 23% higher than the P22.2b offer by the only other bidder, Optimal Infrastructure Development Inc (OIDI). OIDI is a subsidiary of San Miguel Corp (SMC).

CALAX involves the financing, design and construction, operation and maintenance of the entire 4-lane, 44.63 km closed-system tolled expressway connecting Cavite Expressway (CAVITEX) and South Luzon Expressway (SLEX). The project will start from the CAVITEX in Kawit, Cavite and end at the SLEX-Mamplasan Interchange in BiƱan, Laguna. The project will have interchanges in nine locations.

According to MPI, the project’s indicative cost amounts to P50.6b, broken down as a bid premium of P27.3b and construction cost of P23.3b. An upfront payment, equivalent to 20% of the bid premium (P5.46b) should be settled prior to turn-over with the balance to be paid annually over five years equivalent to 16% of the bid premium (or P4.37b) beginning on the fifth year after turn-over (or 2020, assuming the project is turned over this year). MPI President and Chief Executive Officer Jose Ma. K. Lim, quoted by the press, said MPI has sufficient funds to finance the P5.46b upfront payment. As of end-March 2015, MPI has total cash of P7.63b at the parent level while total debts amounted to P6.35b.

DPWH aims to award the project on 4 Jun and sign the 35-year concession contract on 28 Jul. The project will have a construction period (including right-of-way acquisition) of four years. Detailed engineering design will be prepared from July 2015 to 2016, construction will be undertaken from July 2016 to July 2020, and operating and maintenance period will be from July 2020 to July 2050

The successful rebidding of the CALAX project is clearly good news for the national government. CALAX was first auctioned off on 2 June 2014, attracting four qualified bidders: SMC’s OIDI; MPI’s MPCALA; Team Orion of Ayala Corporation (AC) and Aboitiz Equity Ventures Inc (AEV); and MTD Philippines Inc. The government ordered DPWH to rebid the project after SMC questioned the disqualification of OIDI over a typographical error in its bid. OIDI’s financial bid of P20.105b was 70% higher than the P11.66b offer of Team Orion, which bested the bids of all qualified bidders. Other qualified bidders were MPCALA and MTD, which offered P11.33b and P922m, respectively

Our take: MPI’s offer, at least on paper, looks high, exceeding its previous offer of P11.33b by 140% or P16b. MPI said a review of the cost estimates pointed to lower costs than previously forecasted, particularly for steel and petroleum-related components. Indeed, MPI’s estimated construction cost of P23.3b is lower by P12b than the government’s initial construction cost estimate of P35.4b. Furthermore, opening traffic forecast (2020) increased by 10% to 66,000 vehicles per day. Note that MPI’s CAVITEX, to which CALAX will connect to, currently has 118,000 average vehicle entries per day and is growing at 9% annually.

Expansions in Cavite, Sta Rosa, Laguna and surrounding areas are reportedly progressing more quickly than previously projected. Population growth in the area is approximately 50% higher than the national average. Based on a range of traffic estimates and a 55:45 debt-to-equity ratio, the project’s IRR is estimated to be between 10% and 14%. – WealthSec