Infrastructure conglomerate Metro Pacific Investments Corp. said it will divert its investments to less risky businesses such as warehousing, real estate and tourism amid the heightened regulatory risks involving government contracts.
Metro Pacific made the statement as its core businesses, which include water and tollways, are facing heightened regulatory risks because of tariff issues.
Water unit Maynilad Water Services Inc. earlier waived its P3.4-billion compensation claim with the government. President Rodrigo Duterte ordered the review of water contracts because of alleged onerous provisions.
“As a practical matter, Maynilad is currently unable to pay dividends, thereby forcing MPIC to recast its investment program in light of lower inbound cash flow, higher regulatory risk and the resulting and self-evident lack of investor enthusiasm for this asset class,” Metro Pacific president and chief executive Jose Ma. Lim said.
“Ironically, even though there is huge demand for the services we provide, our discretionary investment spending beyond committed infrastructure projects will divert to less risky businesses like warehousing, real estate and tourism,” Lim said.
Metro Pacific approved a P5-billion share buyback program to be implemented for a period of three months in a bid to enhance and improve shareholder value. From a 52-week high of P5.28, the share price of Metro Pacific tumbled to P2.97 on Wednesday.
Lim said the sharp decline in the company’s share price showed that “investors now attach sharply higher risk premiums for government adherence to contract.”
Metro Pacific’s net income jumped 69 percent in 2019 to P23.85 billion from P14.13 billion in 2018, boosted by one-time gains as the group consolidated its investments in hospitals.
Core net income rose 4 percent to P15.6 billion from P15.1 billion, as the 7-percent increase in operating income was tempered by higher interest costs.
Power accounted for P11.6 billion or 55 percent of net operating income while toll roads contributed P5.2 billion or 25 percent.
The group’s water business contributed P3.6 billion or 17 percent while hospitals provided P867 million. The rail, logistics and other businesses combined for a net loss of P352 million.
“Our 7-percent growth in contribution from operations reflects a decade and more of sustained capital investment to enable meaningful volume increases in all our major businesses,” Lim said.
Metro Pacific said that despite the current challenges, it would strive to at least match its 2019 core income this year.