Manila Water Declines as Regulator Said to Scrap Tax Rule

Manila Water Co. (MWC) fell the most in more than a week after the Philippine Daily Inquirer reported that the nation’s water regulator scrapped a rule allowing the utility to pass on tax costs to consumers.

Manila Water slid 3.5 percent to 30.75 pesos in trading in the city, the biggest loss since June 24 for the water company that supplies half of the Philippine capital. In comparison, the Philippine Stock Exchange Index slipped 0.2 percent.

“Investors are pricing in the centavos that will be shaved from the stock’s earnings per share once the company isn’t allowed to pass on its tax obligations,” said James Lago, head of research at Manila-based PCCI Securities Brokers Corp.

The Metropolitan Waterworks and Sewerage System Regulatory Office rescinded a 9-year-old rule allowing Manila Water and Maynilad Water Services Inc. to recover income tax expenses from customers, the newspaper reported, citing a resolution adopted at a June meeting. The companies passed 15.3 billion pesos ($352 million) of corporate taxes to consumers from 2008 to 2012, the Daily Inquirer said, citing a consumer advocacy group.

“The board has asked the regulatory office to study the matter further,” MWSS Chairman Ramon Alikpala said in a phone interview without confirming the rule had been scrapped.

“Uncertainty will continue to weigh down the sector, capping potential gains in the short term,” Laura Dy-Liacco, an analyst at Maybank ATR Kim Eng, said in a July 3 report. Manila Water’s value could drop to 30.50 pesos a share if the government won’t allow the tax as a valid expense, she said.

Metro Pacific Investments Corp. (MPI), owner of Maynilad Water, fell 1.9 percent to 5.20 pesos, snapping a two-day rally.

To contact the reporter on this story: Ian Sayson in Manila at isayson@bloomberg.net

To contact the editor responsible for this story: Randall Hackley at rhackley@bloomberg.net

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