• Construction may grow 8% a yr if PPP listed – BMI

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    Easing the regulations for listing public-private partnership (PPP) projects on the Philippine Stock Exchange could help step up infrastructure building and boost growth in the construction industry substantially in the next five years with increased available funding, Fitch-owned BMI Research said.

    “We believe the government’s proposal to ease the regulations for companies to list major public-private partnership infrastructure projects on the Philippine Stock Exchange bodes well for the expansion of the Philippine’s construction sector, which we forecast to expand at an annual average of 8.2 percent in real terms over our five-year forecast period up to 2020,” it said in a report.

    The PSE expects to fin alize the listing rules before the end of the year.

    According to the recently released draft of the supplemental listing and disclosure rules applicable to a company engaged in PPP projects under Republic Act 6957 as amended, the PSE will allow the listing of a PPP company without compliance to the three-year track record and operating history requirements under the existing PSE Listing Rules.

    Listing rules that BMI anticipates will be approved and issued this month are the specification of a minimum P5-billion project cost; the requirement that projects have completed construction work or begun commercial operations; and the requirement that the PPP contract has a remaining effect life of at least 15 years.

    BMI stressed alternative financing schemes for PPP projects or proponent companies are vital to sustain industry growth.

    “We also believe increased flexibility in the existing laws will provide added momentum to the current PPP program, launched by the Aquino Administration in 2011—which to date has rolled out 12 deals worth P217.4 billion, all financed by local banks,” it said.

    BMI also believes that with the stock market adding an alternative source of funding to the construction sector a more diverse competitive landscape can be developed.

    Currently, it noted that local conglomerates such as Metro Pacific Investments Corp. (MPIC), Ayala Corp., San Miguel Corp. and Megawide Construction Corp dominate the market.

    It added that PPP stocks could attract institutional investors, insurance companies, pension funds, and foreign investors, which would improve weak financing availability for infrastructure projects.

    “Consequently, smaller or less well-known companies typically unable to finance big infrastructure projects would be more willing to compete,” it said.

    Risks

    BMI said it does not expect risks such as land acquisition delays or weak risk management—which hinder project execution and lower investor confidence—to impact the benefits of the new initiative, as only PPP projects near completion or already operational will be allowed to list.

    “However, there are risks linked to the operation stage,” it said, noting that rate adjustments could prove to be an obstacle and might offset positive expectations coming from the new listing rules.

    “A pertinent example is MPIC’s arbitration case in Geneva in April 2016 against the Philippine government for failure to increase road toll since 2013,” it highlighted.

    Continuity

    For its part, the Duterte administration earlier vowed that it would continue the current lineup of projects under the PPP program.

    “There are several that about to be bid, also a number that needs the last step which is the NEDA [National Economic and Development Authority] Board approval. I think these projects can be bid or completed for bidding within the year,” said Socioeconomic Planning Secretary Ernesto Pernia.

    Pernia said priority PPP projects include link roads, railways and airports.

    Under the current PPP pipeline, there are currently 53 projects in various stages of development with an estimated $34 billion.

    As of the second quarter of 2016, 14 PPP projects costing P303 billion have already been awarded, while 17 projects worth nearly P580 billion are in various stages.

    Of the awarded projects, three projects are already completed: the Muntinlupa-Cavite Expressway, PPPs for School Infrastructure Project Phase 1 and the Automatic Fare Collection System now known as the beep card.

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