Meralco shares face protracted beating

MANILA, Philippines - Shares of Manila Electric Co. (Meralco) fell Wednesday as investors feared a possible protracted struggle for board control, with analysts saying a continued beating was likely. "We all know that the battle will continue," said Astro del Castillo, managing director of First Grade Holdings. "Meralco will face questions on the management proxies, it will continue to face regulatory pressure on pricing, plus negative sentiment in the global markets remains," he said. Meralco shares are down 27.3% for the year, compared to the main index’s 21.77% decline. Its shares plunged nearly 5% on Wednesday to close P3 lower at P60. Analysts said the firm’s shares would continue to seek bottom until the management dispute is resolved, but declined to provide estimates. "Obviously, the tug of war didn’t end in Wednesday’s (Tuesday’s) stockholder’s meeting. Uncertainty and the pending legal battle will continue to weigh down on the stock," Mr. del Castillo said. "Investors will opt not to be caught in the crossfire which will make them avoid the company until a clearer direction is seen." Francisco Liboro, PCCI Securities president, said that while investors had reacted positively to the Lopezes’ win, the "damage [to the firm’s shares] will be commensurate to the ’noise’ that’s created." BDO Capital & Investment Corp. President Ed Francisco said "The only reason the stock is depressed is because of investor sentiment on the issue. For me, Meralco’s intrinsic value is already cheap so investors should actually start accumulating." "The share price should be better this year because the performance-based rating scheme should be implemented this year, and there’s no law rescinded by the ERC (Energy Regulatory Commission) to make them change the way they earn." Laura Dy Liacco, analyst at ATR Kim Eng Securities, said "There are uncertainties on their ability to recoup their investment, given regulatory issues." The Philippine Stock Exchange imposed a trading halt on Meralco shares before the market opened following the results of the shareholders’ meeting on Tuesday. The Lopez family, which controls the country’s largest power utility, retained majority control of Meralco’s 11-person board but voting was delayed for 10 hours as the state pension fund Government Service Insurance System (GSIS) tried to halt proceedings. GSIS head Winston Garcia, who has led a campaign against the Lopez family’s management, said he would question the results of the vote with the Securities and Exchange Commission (SEC). The GSIS argues that the vote was tainted by illegitimate proxies and said the final vote would have showed the pension fund getting majority control. The GSIS, which holds about a fourth of Meralco, wants a change in the company’s management, saying the Lopez family has not done enough to bring down power rates in the country. Power rates in the Philippines are among the highest in the region due to expensive contracts with private power producers, the Southeast Asian nation’s reliance on costly imported oil to generate electricity and widespread illegal tapping of power lines. Critics say Meralco buys power at high rates from Lopez-owned generating firms and does not do enough to prevent illegal tapping of electricity, the cost of which is passed on to consumers. The SEC Wednesday ordered Meralco to explain why it had ignored an order to set aside disputed proxies. The firm has until noon this Friday to respond, and a hearing has been scheduled at two in the afternoon of the same day. Failure to comply, the SEC said could result in a fine of P50,000 to as much as P5 million. Meralco officials said the firm’s lawyers were studying the show-cause order, with the view of having the election results stand. The GSIS, however, on Wednesday insisted that it had won five seats during Tuesday’s stockholders’ meeting, with Mr. Garcia saying he was confident the SEC would nullify the 1.9 billion proxy votes cast in favor of the Lopez group. The pension fund Wednesday filed an urgent motion asking the SEC to review the results of the election. Mr. Garcia said that had the Lopez proxies not been counted, the GSIS nominees — himself, Daisy Arce, Bernardino Abes, Jeremy Parulan, and Eusebio Tanco — would have come out on top. This would mean that Cesar E.A. Virata would not have been elected, while Lopez nominees Manuel M. Lopez, Jesus Francisco, Christian S. Monsod, and Felipe B. Alfonso would stay. Elected independent directors were Artemio V. Panganiban and Vicente L. Panlilio. Lawyers said the courts will likely have to settle the issue. Atty. Reynaldo Geronimo, a partner at the Romulo Mabanta Buenaventura Sayoc and De Los Angeles law firm, said in a text message: "If I were there, I would examine the issue of whether any retirement fund, whether public or private, has any business meddling with a public utility company." Atty. German Q. Lichauco, a partner of the Siguion-Reyna, Montecillo, and Ongsiako Law Office, said the SEC had long been stripped off its quasi-judicial functions on intra-corporate disputes, with this now the realm of regional trial courts. He said "It will not be surprising if GSIS will again file a case at the trial court," claiming that the pension fund last Friday filed, and withdrew, a case at the Pasay City regional trial court. Mr. Garcia said the GSIS would have accepted a Court of Appeals stay order versus the SEC directive. At any rate, it is now up to the SEC to resolve the issue, he added. "We are confident that we will be confirmed the soonest time. Then we can assume control and we’ll have the power to change the management in the end view that we will bring down the cost of rates from 10% to 20% in a span of two months," he said. The GSIS’s representatives, Mr. Garcia said, would resign if they are unable to reduce power rates. - BusinessWorld