PNoy approves buyout of $1-B private equity in MRT-3

(Updated 8:12 p.m.) President Benigno Aquino III approved the plan to buyout the private sector stake in Metro Rail Transit Line 3 (MRT-3), during a meeting with Cabinet officials on Monday.

 

This was the recommendation of Cabinet secretaries,  Transportation Secretary Joseph Emilio Aguinaldo Abaya told reporters in a briefing on Tuesday.

 

“The consensual decision of the Cabinet secretaries is go. It's good for the government and for the people,” Abaya noted.

 

During Monday's meeting, President Aquino also directed the Department of Justice (DOJ) to find out if there were anomalies involved when DBP and LandBank bought equity in MRT-3 operations but without voting rights in running the business. Abaya said. The transaction happened during the incumbency of former President and now Pampanga Rep. Gloria Macapagal Arroyo,  Abaya noted.

 

“We see this happening, however... There are clear intentions from the President directing DOJ to start the process of investigating and eventually – if warranted – filing charges for both original sins and secondary sins,” he said.

 

At $1 billion, the transaction is vital and necessary to settle the issues of who actually holds the controlling stake in the commuter train. The Aquino administration wants to offer the MRT-3 back to the private sector under the new public-private partnership (PPP) program and under more equitable terms.

 

The buyout would also allow LandBank and DBP to unload their interest in MRT3. 

 

“Likewise, the DBP and LandBank have been put on warning by BSP, because they simply say this is not your core competencies and neither a banking function,” said Abaya.

 

While giving an assurance that government has enough money finance the deal, the government still doesn't know – at this point – exactly where to source the funds for the buying out the 100 percent economic interest in Metro Rail Transit Corp. (MRTC) which runs MRT-3, said National Treasurer Rosalia de Leon.

 

“The valuation of MPIC is more than $1 billion,” De Leon added.

 

Owning the private sector stake in MRT-3 would also free the government from paying yearly fees that include equity rental payments, maintenance cost, debt guaranteed payment, insurance expenses, and others. 

 

This means savings worth billions of pesos on the part of taxpayers whose money is used to pay for the government guaranteed 15 percent return on investments in favor of the private sector stake holders. In all, the government shells out about P7 billion worth of subsidies for the MRT-3 operations.

 

The 17-kilometer MRT-3 runs along EDSA from North Avenue in Quezon City to Taft Avenue in Pasay City, and is operated by MRTC which is now controlled by businessman Manuel V. Pangilinan’s Metro Pacific Investments Corp. (MPIC).

 

State-owned Land Bank of the Philippines (LandBank) and Development Bank of the Philippines (DBP) control 22 percent of the equity and 80 percent of the economic rights in MRT-3 after the acquiring a 75-percent stake for an estimated $800 million to $900 million in MRTC.

 

In 2003, MRT-3's private concessionaire Metro Rail Transit –  then owned by the Sobrepena family –  decided to cash in on its investment by issuing asset-backed bonds for future equity rental payments.

 

LandBank and DBP bought the MRT Bonds issued by MRT III Funding Corp. in 2008, which gave the banks an 80 percent economic interest in Metro Rail Transit but without voting rights.

 

Pangilinan's MPIC owns the 20 percent economic interest in Metro Rail Transit. — VS, GMA News