Manila Water Plunges After Ordered to Cut Rates: Manila Mover

Manila Water Co. tumbled the most in more than four years in Philippine share trading after the nation’s regulator rejected its petition to increase rates and ordered it to cut tariffs.

The shares sank 15 percent to 26.5 pesos at the close in Manila, its steepest loss since Jan. 16, 2009. The stock earlier plunged by a record 19 percent. It was the biggest drag on the benchmark Philippine Stock Exchange Index, which dropped 1 percent, paring this week’s gain to 2.7 percent.

“We see this is as an unfortunate development,” James Thom, a money manager at Aberdeen Asset Management Plc, said by phone today. “It brings uncertainty to the future tariffs and prospects of the business.” Aberdeen, which owns 9.9 percent of Manila Water according to data compiled by Bloomberg, hadn’t decided yet whether to adjust its holdings, Thom said.

Manila Water and Maynilad Water Services Inc.’s separate petitions for rate increases were rejected by the Metropolitan Waterworks & Sewerage System and were both ordered yesterday to cut their basic charges. The order follows a pledge by some lawmakers to investigate 15 billion pesos ($342 million) in income taxes and other expenses that water utilities passed on to consumers. Manila Water President Gerardo Ablaza couldn’t be reached at his office for comment.

The two companies, which won government contracts in 1997 to provide water to the Philippine capital, say they need to increase tariffs to recover investments and help fund about 1.12 trillion pesos in capital spending through 2037. The state regulator reviews tariffs every five years.

Earnings Prospects

The regulator directed Manila Water to cut its basic water charge by 29 percent, to be implemented in equal tranches in the next five years, according to the order. Maynilad must implement a 4.8 percent reduction within the same period, according to its statement.

The two companies said in separate statements yesterday they will dispute the ruling at an arbitration panel.

“A rate cut severely limits its earnings prospects,” Rico Gomez, vice president at Rizal Commercial Banking Corp., which oversees about $2.8 billion, said by phone today. “Investors will probably be net sellers until this issue is resolved.”

JPMorgan Chase & Co. cut its rating on Manila Water yesterday to neutral from overweight and lowered its 12-month price target to 35 pesos from 40 pesos.

The stock has three buy ratings and five hold ratings, with an average price target of 34.55 pesos, according to a Bloomberg survey of analysts. Earnings-per-share is forecast to decline 7.3 percent from the previous year in 2013, data show.

Metro Pacific Investments Corp., owner of Maynilad, fell 6.4 percent to 4.4 pesos, the lowest close since Dec. 21. Ayala Corp., parent of Manila Water, lost 0.9 percent to 558 pesos. DMCI Holdings Inc., a partner of Metro Pacific in Maynilad, slid 1.6 percent to 45.50 pesos, extending yesterday’s 4.4 percent decline.

Before it's here, it's on the Bloomberg Terminal.