METRO PACIFIC Investments Corp.’s (MPIC) plan to divest its stake in Light Rail Manila Corp. (LRMC), the operator of Light Rail Transit Line 1 (LRT-1), could test investor confidence in public-private partnerships (PPPs) for mass transit, because it highlights the challenges private operators face under the present fare and regulatory framework, analysts said.
“MPIC’s exit could raise questions on the long-term viability of personal investment in mass transit unless fare and regulatory frameworks are recalibrated to make sure industrial sustainability,” Toby Allan C. Arce, head of sales trading at Globalinks Securities and Stocks, Inc., said in a Viber message.
MPIC said it’s considering divesting its 35.8% stake in LRMC on account of continued losses, with ridership yet to get well from the pandemic impact.
In the primary quarter of 2023, MPIC reported that LRMC generated revenues of P595 million, a 73% increase yr on yr, however the operator still recorded a core net lack of P83 million, albeit 53% lower than the identical period the previous yr.
“We’re still losing on LRT-1, partially due to COVID. Ridership went down, obviously. We proceed to lose money from LRT-1, and I believe we’re considering selling it and getting out of the sunshine rail,” MPIC Chairman, President, and Chief Executive Officer Manuel V. Pangilinan said on Tuesday.
LRMC’s ridership has yet to totally get well, averaging around 450,000 each day passengers in 2019, dropping to 350,000-370,000 in 2023. By November 2024, just before the opening of the LRT-1 Cavite Extension Phase 1, each day ridership was 323,000. The primary phase of the Cavite Extension was projected so as to add roughly 80,000 each day passengers, potentially bringing ridership back as much as around 403,000.
“From a strategic standpoint, exiting the sunshine rail business could enhance MPIC’s overall profitability and capital efficiency. Rail projects, while socially critical, are typically capital-intensive and politically sensitive, offering lower margins and longer investment horizons in comparison with tollways and utilities — areas where MPIC has built strong competitive benefits,” Mr. Arce said.
“Divestment would allow the conglomerate to redeploy capital into higher-yielding or faster-growing ventures similar to renewable energy, logistics, and digital infrastructure, which align with its sustainability and diversification goals. Furthermore, shedding a persistently loss-making unit could improve consolidated earnings visibility, strengthen the balance sheet, and supply flexibility for shareholder returns or latest strategic investments,” he added.
“This may improve credit and bottom-line outlook,” said Cristina S. Ulang, head of research at First Metro Investment Corp., noting that the move reflects MPIC’s agility in exiting ventures that fail to satisfy return targets.
“It’s a logical business decision. I consider even Ayala might need provided for his or her co-investment. I consider the project is long delayed due to right-of-way issues which the federal government is speculated to maintain,” said Edu-ardo V. Francisco, president of BDO Capital.
MPIC previously said it was reconsidering plans to accumulate Ayala Corp.’s stake in LRMC following unresolved valuation issues and, last yr, explored acquiring Ayala’s shares after the latter announced its divestment plan. MPIC holds its 35.8% stake in LRMC through its unit Metro Pacific Light Rail Corp., while Sumitomo Corp. owns 19.2% and Macquarie Investments Holdings (Philippines) Pte. Ltd. holds 10%. LRMC is a joint-venture company of MPIC, AC Infrastructure Holdings Corp. (a unit of Ayala Corp.), Sumitomo, and Macquarie Investments Holdings.
LRMC assumed operations and maintenance of LRT-1 in September 2015 under a P65-billion, 32-year concession agreement with the Light Rail Transit Authority and the Department of Transportation. Under the agreement, the operator may seek a fare adjustment once every two years. In April, the Transportation department approved LRMC’s petition for fare adjustments, though the brand new fare matrix stays below the corporate’s requested rates, leading to a fare deficit of P2.17 billion.
LRMC said it has made substantial operational improvements, including the completion of Phase 1 of the LRT-1 Cavite Extension last yr. The second and third phases may begin next yr if right-of-way issues are resolved.
“Still, given the corporate’s disciplined capital allocation philosophy and the pressing need to administer return on invested capital, a divestment from LRMC appears each logical and timely,” Mr. Arce said, noting that MPIC’s exit might need reputational and strategic implications, because the rail line is one in all the country’s flagship PPP projects.
MPIC is one in all the three key Philippine units of Hong Kong-based First Pacific Co. Ltd., together with Philex Mining Corp. and PLDT Inc. Hastings Holdings, Inc., a unit of MediaQuest Holdings under the PLDT Helpful Trust Fund, has a majority share in BusinessWorld through the Philippine Star Group. — A.E.O. Jose