Water

Country Water Action: Indonesia
Two Public-Private Operators Go to Market as a Financing Option
(August 2005)

This year in Southeast Asia, two separate private water operators for Western Jakarta and Eastern Manila made historic trips to the market to offer the public a financial stake in their companies.

In July, PALYJA, a subsidiary of the French firm Suez Environnement, launched IRD 650 billion (USD66.5 million) worth of bonds on the local stark market. The company hopes the sale will offer relief of a foreign currency risk it had been facing since national economic and political problems forced the company into hard currency loans-US$61 million between 1998 and 2001.

In March, Manila Water Company Inc. turned over 37 percent of its equity shares to public hands when it opened on the Philippine Stock Exchange with an P799 million (USD 96 million) share offering, also a first since Manila divided its public system between two private concessionaires in 1997. The initial public offering (IPO) positions the company nicely for an aggressive expansion campaign over the next five year.

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PALYJA was led to the market to resolve USD61 million in foreign loans it incurred shortly after its concession agreement began in 1998. PALYJA had to raise commercial loans to finance its expansion, but was unable to access local currency because of national financial and economic hardships. The company's 5-year investment plan for the water network was reduced to offset the imbalance between the company's revenue in Indonesian Rupiah and the U.S. dollar loans.

To resolve the currency risk it was operating under, PALYJA resorted to bonds as a parallel source of finance.

The bond sale was launched July 12 with fixed interest rates and with maturities of 2, 3, 5 and 7 years. The bond interests are payable quarterly, starting 12 October 2005.

The book building for the bond sale closed quickly, with the short term bonds more popular than the middle term ones, according to company results. The USD66.5 million raised from the sale will fully cover its hard currency loans, with the remaining amount used for working capital and capital expenditure.

"It is important to stress that it is the population of Jakarta that will ultimately benefit from the elimination of the currency risk that was, in the past, indirectly transferred to them through the water rates," said PALIJA's Christian Bouvier.

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Ayala Corporation and United Utilities PLC have been principal shareholders of Manila Water since August 1997, when it took over water supply and sanitation services in Manila's east zone.

The IPO was the first local listing of a water utility in the country, with a simultaneous offer to international investors, since 1997. It registered record-breaking sales with 15 times over-subscription in the international market, earning the company US$62 million.

"The successful IPO of Manila Water placed the company on the global financial radar," said Perry Rivera of Manila Water.

Manila Water listed on the Philippine Stock Exchange on 18 March with almost 800 million common shares offered to the public at 6.50 Pesos per share, or about US$.12 per share. The share offering was valued at US$96 million, with 70 percent offered to global investors.

The IPO's fresh capital infusion of US$62 million tops off the company's net profit of about US$24 million.

Manila Water says it is planning to spend about US$73 million per year over the next 5 years to improve infrastructure, develop new water resources, expand the business, and reduce nonrevenue water, which it estimates at a new record low of 37 percent in the east zone.

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The IPO adds momentum to the company's expansion agenda in Manila, national and international markets:

• In the metropolitan area, Manila Water is already expanding further east into areas at the periphery and eyeing an equity stake in the troubled Maynilad.
  
  
• Elsewhere in the Philippines, Manila Water is eyeing the potential acquisition of the rights to develop the Carmen Bulk Water Supply Project in Cebu. The project is expected to help 1.3 million people by providing treated water and create additional surface water supply.
  
• Internationally, Manila Water recently prequalified to bid for a water supply and sewerage services project in Delhi, India. To bid for the project, Manila Water teamed up with Larsen and Toubro Limited, India's largest engineering and construction firm, and the Mahindra Group, one of India's leading conglomerates, to bid for the project. It faces competition from three other international firms - Veolia Water, Suez, and Saur. Competitive bids are expected in October 2005.
  

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