June 08, 2015

Metro Pacific Investments Corp (MPIC) eyes partners and sets financing options for CALAX deal

Government yesterday issued the final notice of award of the Cavite-Laguna Expressway project to Metro Pacific Investments Corp (MPI) after the latter passed the financial and technical evaluations. MPI also told the media yesterday that it is now finalizing its financing options for the project that will include a loan from three to four local banks and a possible equity financing if necessary. The company also said that it is open to partners who can add value especially the expertise in real estate, construction or financing.

Our take: Based on the terms of the project, MPI can maximize the debt/equity ratio to 80/20. Of the P50.6b total project cost, MPI needs to settle just the upfront payment of P5.5b out of the P27.3b bid premium with the remaining balance to be paid over five years starting on the fifth year after the project turnover. MPI is in a net cash position on the parent level as of end-1Q15 thus leaving enough room to lever up and meet this requirement.

However, MPI may need to raise additional financing during the construction period (from 2016-2020 assuming the government can complete the right of way acquisitions during this period) during which it expects to spend P23.3b. This is where partnerships may be necessary to help ease the financing burden for MPI. Otherwise, MPI may either need to further lever up or resort to equity financing which can result in share dilution that may not be immediately offset by earnings given the relatively long gestation period of the project. MPI has recently announced that it will seek shareholder approval for its proposed P10b increase in authorized capital that will raise its common stock by 10b shares. – WealthSec