PinoyBusiness.ORG – Home

The Metro Railway Transit 3 is up for “re-privatization” as the government plans to sell an 80-percent stake which it earlier acquired from private equity and bondholders through state-owned banks, before the May 2010 elections.

The government acquired controlling stake when the state-owned Development Bank of the Philippines (DBP) and Land Bank of the Philippines (Landbank) accumulated equity and debt paper of Metro Railway Transit Corp. (MRTC) for about $750 million.

A significant portion of its interest, however, was expected to be acquired by another government firm, which is the National Development Corp. (NDC), by October this year. “Once the NDC takes it, it should be re-privatized but in a different share and form,” said DBP president Reynaldo David, who is a key architect of the MRT 3 buyout scheme.

David said the re-privatization of MRT should be done in such a way that would be a strain to the government’s finances as the previous build-operate-transfer scheme was which guaranteed an internal rate of return (IRR) of 15 percent a year for equity holders of the MRT 3 consortium and 11 percent a year for its bondholder.

The MRT 3 was built 15 years ago at a total project cost of P679 million, $190 million of which was funded by equity contributed by the Fil Estate, Alfredo Ramos, Unilab, Ramcar, Ayala and Edward Dy groups.

David said, “The government was paying a substantial amount to the private group because it guaranteed the IRR. In 1994 it might have been the right to do because interest was way, way up.”

With the cost of borrowing money sharply gone down, the MRT 3 takeover made sense, according to David, in order to realize huge cost savings. If they hadn’t done that, he said the 25-year contract would have cost more than $3 billion through 2025, which is way above the $989 million in projected revenue from MRT 3.