- Renegotiating and extending their 1997 contracts thirteen years prior to their expiration in 2022 without the benefit of public bidding.
- Attaching onerous provisions in the revised contracts that include transferring their income tax burden to the consumers and prohibiting government regulators, the MWSS (Metropolitan Waterworks and Sewerage System), from discharging its mandate to regulate the rate of charges that the companies will collect from the consumers.
- Collecting environmental fees intended to build water treatment facilities without actually building such facilities, resulting in the pollution of Manila Bay.
As a result, the MWSS has cancelled the extension of the water contracts to 2037 and the government is drafting revised water concession contracts that exclude the terms the President considers onerous.
Plunging Share Prices
Unsurprisingly, with their futures in limbo, the stocks of the water concessionaires have taken deep dives since the President launched his war late last year but have recovered some ground with the prospect of impending contract renegotiations.
Here is the chart for Manila Water:
And here's the chart for Metro Pacific Investments Corporation, Maynilad Water Services' holding company. Maynilad itself was publicly listed in the Philippine Stock Exchange (PSE) until its voluntary delisting in 2017.
Impressive Financials
Both companies have been among the biggest and most profitable companies listed in the PSE, pulling roughly Php 20.0 billion (US$ 392 million) in revenues and Php 6.0 billion (US$ 118 million) in net income each.
Naturally, both companies have stacked up very decent rates of return for their respective shareholders in the last five years. For instance, Manila Water's Return on Equity (ROE) for the last five years (2014 to 2018 plus the last 12 months) have averaged 14.34%. Maynilad's ROE (2015 to 2017) was an even more impressive 21.41%.
Global Comparisons
Now how do these returns stack up, globally?
After scanning Capital IQ for publicly-listed companies comparable to the Water Concessionaires, I arrived at a list of 74 companies that are primarily in the business of Water Supply. Here's the list:
| Company Name | Exchange:Ticker | Country of Operations | Revenue (US$ M) | Market Cap (US$ M) |
| Aguas Andinas S.A. (SNSE:AGUAS-A) | SNSE:AGUAS-A | Chile | 703.00 | 2,622.70 |
| American States Water Company (NYSE:AWR) | NYSE:AWR | California | 471.90 | 3,107.00 |
| American Water Works Company, Inc. (NYSE:AWK) | NYSE:AWK | USA | 3,558.00 | 22,519.30 |
| Aqua Spólka Akcyjna (WSE:AQU) | WSE:AQU | Poland | 40.71 | 54.47 |
| AquaVenture Holdings Limited (NYSE:WAAS) | NYSE:WAAS | Americas | 192.70 | 856.00 |
| Artesian Resources Corporation (NasdaqGS:ARTN.A) | NasdaqGS:ARTN.A | USA | 81.90 | 344.40 |
| AS Tallinna Vesi (TLSE:TVEAT) | TLSE:TVEAT | Estonia | 70.90 | 259.90 |
| Athens Water Supply and Sewerage Company S.A. (ATSE:EYDAP) | ATSE:EYDAP | Greece | 357.70 | 895.80 |
| Beijing Capital Co.,Ltd (SHSE:600008) | SHSE:600008 | China | 7,873.40 | |
| Beijing Enterprises Water Group Limited (SEHK:371) | SEHK:371 | Global | 3,528.10 | 5,235.50 |
| Beijing Water Business Doctor Co., Ltd. (SZSE:300055) | SZSE:300055 | China | 130.30 | 905.30 |
| Ben Thanh Water Supply Joint Stock Company (HNX:BTW) | HNX:BTW | Vietnam | 20.10 | 9.43 |
| Binh Duong Water - Environment Joint Stock Company (HOSE:BWE) | HOSE:BWE | Vietnam | 109.60 | 142.10 |
| Bohai Water Industry Co.,Ltd (SZSE:000605) | SZSE:000605 | China | 232.90 | 368.00 |
| California Water Service Group (NYSE:CWT) | NYSE:CWT | USA | 705.10 | 2,383.20 |
| Chengdu Xingrong Environment Co., Ltd. (SZSE:000598) | SZSE:000598 | China | 643.90 | 2,033.50 |
| China Everbright Water Limited (SGX:U9E) | SGX:U9E | China | 673.10 | 690.70 |
| China International Holdings Limited (SGX:BEH) | SGX:BEH | China | 10.26 | 16.90 |
| China Water Affairs Group Limited (SEHK:855) | SEHK:855 | China | 1,095.70 | 1,250.80 |
| China Water Industry Group Limited (SEHK:1129) | SEHK:1129 | China | 124.30 | 97.60 |
| Chongqing Water Group Co.,Ltd. (SHSE:601158) | SHSE:601158 | China | 818.70 | 3,956.80 |
| Compagnie des Eaux de Royan (ENXTPA:MLEDR) | ENXTPA:MLEDR | France | 41.93 | 26.61 |
| Companhia Catarinense de Águas e Saneamento - CASAN (BOVESPA:CASN3) | BOVESPA:CASN3 | Brazil | 264.90 | |
| Companhia de Saneamento Básico do Estado de São Paulo - SABESP (BOVESPA:SBSP3) | BOVESPA:SBSP3 | Brazil | 4,351.00 | 10,007.80 |
| Companhia de Saneamento de Minas Gerais (BOVESPA:CSMG3) | BOVESPA:CSMG3 | Brazil | 1,196.80 | 2,049.30 |
| Companhia de Saneamento do Paraná - SANEPAR (BOVESPA:SAPR4) | BOVESPA:SAPR4 | Brazil | 1,071.90 | 2,406.70 |
| Consolidated Water Co. Ltd. (NasdaqGS:CWCO) | NasdaqGS:CWCO | Global | 69.20 | 251.30 |
| Eastern Water Resources Development and Management Public Company Limited (SET:EASTW) | SET:EASTW | Thailand | 150.80 | 636.80 |
| Essbio S.A. (SNSE:ESSBIO-C) | SNSE:ESSBIO-C | Chile | 217.30 | 409.10 |
| Esval S.A. (SNSE:ESVAL-C) | SNSE:ESVAL-C | Chile | 253.70 | 328.10 |
| Global Water Resources, Inc. (NasdaqGM:GWRS) | NasdaqGM:GWRS | USA | 35.04 | 276.53 |
| Grandblue Environment Co., Ltd. (SHSE:600323) | SHSE:600323 | China | 802.80 | 2,219.70 |
| Guangdong Investment Limited (SEHK:270) | SEHK:270 | China | 1,899.70 | 14,122.20 |
| Guangxi Nanning Waterworks Co., Ltd. (SHSE:601368) | SHSE:601368 | China | 210.20 | 757.30 |
| Heilongjiang Interchina Water Treatment Co.,Ltd. (SHSE:600187) | SHSE:600187 | China | 66.70 | 615.70 |
| Hyflux Ltd (OTCPK:HYFX.F) | OTCPK:HYFX.F | Global | 111.60 | 7.90 |
| Iguá Saneamento S.A. (BOVESPA:IGSN3) | BOVESPA:IGSN3 | Brazil | 214.30 | |
| Inversiones Aguas Metropolitanas S.A. (SNSE:IAM) | SNSE:IAM | Chile | 703.00 | 1,071.90 |
| Jiangsu Jiangnan Water Co., Ltd. (SHSE:601199) | SHSE:601199 | China | 138.30 | 528.00 |
| Jiangxi Hongcheng Waterworks Co., Ltd. (SHSE:600461) | SHSE:600461 | China | 689.60 | 835.40 |
| Kunming Dianchi Water Treatment Co., Ltd. (SEHK:3768) | SEHK:3768 | China | 230.00 | 309.70 |
| Luzhou Xinglu Water (Group) Co., Ltd. (SEHK:2281) | SEHK:2281 | China | 207.80 | 147.00 |
| Lydec S.A. (CBSE:LYD) | CBSE:LYD | Morocco | 786.20 | 401.30 |
| Manila Water Company, Inc. (PSE:MWC) | Philippines | 417.10 | 462.80 | |
| Middlesex Water Company (NasdaqGS:MSEX) | NasdaqGS:MSEX | USA | 135.10 | 1,084.40 |
| Muscat City Desalination Company S.A.O.C. (MSM:MCDE) | MSM:MCDE | Oman | 43.67 | 43.64 |
| New England Service Company, Inc. (OTCPK:NESW) | OTCPK:NESW | USA | 7.52 | 21.49 |
| Nha Be Water Supply Joint Stock Company (HNX:NBW) | HNX:NBW | Vietnam | 28.29 | 20.14 |
| PBA Holdings Bhd (KLSE:PBA) | KLSE:PBA | Malaysia | 83.30 | 88.00 |
| Pennon Group Plc (LSE:PNN) | LSE:PNN | United Kingdom | 1,869.20 | 5,822.40 |
| Puncak Niaga Holdings Berhad (KLSE:PUNCAK) | KLSE:PUNCAK | Malaysia | 106.00 | 33.00 |
| Pure Cycle Corporation (NasdaqCM:PCYO) | NasdaqCM:PCYO | USA | 27.75 | 296.05 |
| Qian Jiang Water Resources Development Co;Ltd (SHSE:600283) | SHSE:600283 | China | 165.30 | 522.00 |
| Ranhill Holdings Berhad (KLSE:RANHILL) | KLSE:RANHILL | Global | 406.80 | 280.10 |
| Saigon Water Infrastructure Corporation (HOSE:SII) | HOSE:SII | Vietnam | 7.82 | 49.73 |
| Salcon Berhad (KLSE:SALCON) | KLSE:SALCON | Malaysia | 43.26 | 43.05 |
| Severn Trent Plc (LSE:SVT) | LSE:SVT | United Kingdom | 2,344.40 | 7,997.20 |
| SIIC Environment Holdings Ltd. (SGX:BHK) | SGX:BHK | China | 853.60 | 512.00 |
| SJW Group (NYSE:SJW) | NYSE:SJW | USA | 393.40 | 1,976.00 |
| Société de Distribution d'Eau de la Côte d'Ivoire, S.A. (BRVM:SDCC) | BRVM:SDCC | Ivory Coast | 176.60 | 42.70 |
| Taliworks Corporation Berhad (KLSE:TALIWRK) | KLSE:TALIWRK | Malaysia | 90.70 | 431.50 |
| The Torrington Water Company (OTCPK:TORW) | OTCPK:TORW | USA | 7.34 | 35.42 |
| The York Water Company (NasdaqGS:YORW) | NasdaqGS:YORW | 50.60 | 622.00 | |
| Thessaloniki Water Supply & Sewerage Co S.A. (ATSE:EYAPS) | ATSE:EYAPS | Greece | 76.80 | 192.70 |
| Thu Duc Water Supply Joint Stock Company (HOSE:TDW) | HOSE:TDW | Vietnam | 21.13 | 8.80 |
| TTW Public Company Limited (SET:TTW) | SET:TTW | Thailand | 201.40 | 1,830.10 |
| United Utilities Group PLC (LSE:UU.) | LSE:UU. | United Kingdom | 2,393.80 | 8,867.70 |
| Universal Technologies Holdings Limited (SEHK:1026) | SEHK:1026 | China | 34.54 | 148.32 |
| Watlington Waterworks Limited (BER:WWW.BH) | BER:WWW.BH | Bermuda | 11.99 | 26.66 |
| WHA Utilities and Power Public Company Limited (SET:WHAUP) | SET:WHAUP | Thailand | 59.60 | 731.60 |
| Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji S.A. (WSE:WOD) | WSE:WOD | Poland | 9.82 | 8.36 |
| Wuhan Sanzhen Industry Holding Co.,Ltd (SHSE:600168) | SHSE:600168 | China | 225.70 | 710.50 |
| Yunnan Water Investment Co., Limited (SEHK:6839) | SEHK:6839 | China | 912.90 | 255.10 |
| Zhongshan Public Utilities Group Co.,Ltd. (SZSE:000685) | SZSE:000685 | China | 300.10 | 1,821.80 |
Some are big, some are small. Many are in China or the ASEAN. But in every case, both Manila Water and Maynilad's Rates of Return tended to gravitate to the upper end of the spectrum, be it globally, Asia-wide, or in Southeast Asia and in every category of return. Manila Water's returns are highlighted in orange while Maynilad's are highlighted in yellow.
Global Returns:
Asian Returns:
Southeast Asian Returns:
Statistical Rankings
Both Manila Water's and Maynilad's Rates of Return are far above average on a global, Asian-wide, and Southeast Asian-wide basis.
Manila Water's Rates of Return are above the 75th percentile (meaning only 25% of the companies have higher returns) globally and in Southeast Asia in terms of ROA and ROC. Asia-wide, its returns are at least in the 83rd percentile in all categories of returns.
Maynilad's Rates of Return rank above the 90th percentile in all geographic categories and in all categories of return except one: global Return on Common Equity (ROCE) - where it ranks in the 65th percentile.
Conclusion:
The impending contract renegotiations and removal of the provisions deemed "onerous" by the Duterte administration will inevitably result in a much slower growth in water tariffs and higher costs for the water concessionaires. They will no longer be able to pass on their income tax burdens to the consumers, they will have to build expensive water treatment plants, and they will no longer enjoy uncontested and automatic rate increases.
All this will serve to lower their rates of return and align them with international averages. The returns of Manila Water and Maynilad will closely resemble that of a regular water utility stock: safe but boring.
Source: Capital IQ, www.edge.pse.com.ph
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