10 September 2018
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| Philippine Secretary of Finance Carlos Dominguez disclosed at the Senate this morning that San Miguel Corporation (SMC) subsidiary doesn't have financial capacity to build Bulacan Airport. In his disclosure, Dominguez said Bulacan Airport Project of San Miguel Holdings Corporation is worth ₱700 Billion (US$13 billion). Under the Build Operate Transfer (BOT) law following the 70-30 equity mix of financial investment into the project, SMHC, the project proponent, should have at least thirty percent (30%) equity into the project equivalent to ₱200 billion(US$3.7B) of assets for the project. SMHC however only has ₱60 billion(US$1.1B) of Capital Assets based on their latest audited financial statement in 2016. "How can a P60 billion company finances a P700 billion project?" quips Dominguez. Dominguez added the bank lenders require sovereign guarantee from the Philippine government in the amount of ₱140 billion (US$2.5B) to complete the 30 percent equity which is unacceptable. "Its parent company (SMC) may however guarantee said investments jointly and severally. Meaning, it will all be SMC's undertaking. But that is not the proposal. They have to change the proponent company to make it possible" Dominguez explains. "The actions we do and the documents we signed have ripple effects on the next generation. The burden is on my office to ensure the future generation does not suffer the consequences of poor decisions of previous governments," says Dominguez. The NEDA-ICC approval explicitly mentions that "the whole project costs will be born by the proponent and with no cost requirement from the government". "Let me asked you a question? Why would we not compare a farmer with a company investing in an airport. A farmer has no access to financing. He doesn't even owned the land. In fact he is the one who needs subsidy or guarantee of the government. But this corporation who are making tremendous profit, with access to banks, require a guarantee even if its their own fault if their airport isn't operational? This government guarantees for force majeure, and material adverse government actions can make project fungible but it cannot turn a bad project into a good one," Dominguez said in closing. Dominguez has been prodding San Miguel Corporation to guarantee the big project but up to this date no revised offer to the government has been made. Meanwhile, Transportation Undersecretary for Planning Ruben S. Reinoso, Jr. disclosed that they already talked to SMC last week and the company agreed to shoulder the cost of the project, and they are just waiting for SMC to submit the proposal by Friday so that they can already draft the propose "Concession Agreement". Under the rules, concession terms are approved by the DOTr first before being forwarded to the Finance Department for contract evaluation and approval before being set out for a Swiss challenge, where other parties may present counter offers that San Miguel Corporation may match. |
Sec. Dominguez is just being careful and wants to protect government interests and I understand this because government does not want to repeat previous mistakes, most notably the Build Lease Transfer (BLT) agreement of MRT-3 with the Sobrepena group. The ownership issue is the primary reason why MRT-3 is in a deteriorating state today. Government operates the railway line at a loss and the commuters are being 'fried in their own lard' despite paying their taxes while MRT-3 through MRTC and its 'tentacles' have a guaranteed profit. In other words, corporate greed over public interest, and the I think the government is sincere not to allow this again under a big ticket project like SMC's airport.
ReplyDeleteSMC does have the asset to back the project but decision to commit its property will adversely affect its stock value as as it will tie the property to the loan that affect its liquidity and ability to pay. Its Board of Directors may not like that. Also, most of SMC property are with banks as collateral security for existing debts. Sometimes these are lost in the translation. While they are assets you can't actually touch them as they are tied to a loan. There is reason why Assets=Debts+Equity. RSA may have different version of financing as two underwriter banks were hired recently to make committed assets free and be available to this project. DoF people know that and they are waiting SMC move for an ambush. Meanwhile, SMC corporate board could shut it down as it will affect corporate earnings. Ang hasn't called the Board yet for a vote on binding SMC. While RSA has full authority for SMHC, it doesn't have authority to bind SMC.
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