The Board of Directors of Metro Pacific Investments Corporation (MPIC or the Company),  through the Risk Management Committee (RMC), oversees and monitors MPIC management’s adoption of a risk management system. Management is primarily responsible for the design, implementation, and maintenance of risk management procedures and their continuous improvement.

MPIC’s Chief Risk Officer (CRO) leads the implementation of the ERM Policy, as approved by the RMC of the holding company and advocates adoption of the same by the MPIC investee companies.

Each of MPIC’s principal operating companies has their own ERM unit and ERM Policy, under the oversight of their respective RMCs. Regular reviews of the ERM Policies and risk management practices of MPIC’s major investees are conducted by the CRO to ensure consistency of the salient provisions of the holding Company’s ERM Policy and if possible, align certain risk management practices across the Group.

MPIC’s ERM system aims to identify, analyze, evaluate and manage risks that may affect the achievement of the Company’s business objectives, through a practical approach. The ERM process implemented is based on International Standards Organization (ISO) 31000 : 2018 Risk Management Guidelines.


As an investment and management company, MPIC undertakes risk management at a number of distinct levels:


MPIC’s geographic focus is still predominantly the Philippines within which its management team has extensive experience. MPIC has recently begun expanding its operations in Southeast Asia through its equity investments in Don Muang Tollways Public Company Limited in Thailand and in CII Bridges and Roads Investment Joint Stock Company in Vietnam; these investments are made in partnership with established reputable local partners.

Prior to making a new investment, any business to be acquired is subject to an extensive due diligence including financial, operational, regulatory and risk management as well as dispute resolution mechanisms. Risks to investment returns are then calibrated and specific measures to manage these risks are determined. The Company is highly selective in the investment opportunities it examines. Due diligence is conducted on a phased basis to minimize costs of evaluating opportunities that may ultimately not be pursued.

MPIC’s investments involve – in varying degrees – a partnership approach with MPIC taking a controlling position and key operating partners providing operational and technological input thereby mitigating risks associated with investing in new business areas. These partners are equity partners – and having co-invested with the Company in a particular opportunity, they participate in the risks and rewards of the business alongside MPIC.

Financing for new investments is through a combination of debt and/or equity by reference to the underlying strength of the cash flow of the target business and the overall financing position of MPIC itself. 


MPIC does not guarantee the borrowings of its investee companies and there are no cross default provisions from one investee operating company to another. Financial stability of the holding company, including its dividend commitment to shareholders, is managed by reference to the ability of the investee companies to remit dividends to MPIC to cover operating costs and service borrowings. We avoid currency and investment cycle mismatches by borrowing only in Pesos using primarily long term instruments with fixed rates. The Company sets the level of debt on its own balance sheet so as to withstand variability of dividend receipts from its operating companies associated with regulatory and other risks described below.


Operational Risks

Each of the operating companies has a full management team which is responsible for having their own plan to manage risk which is reviewed annually by the MPIC Risk Management Committee, together with MPIC’s Chief Risk Officer, and each of the respective operating companies’ board of directors.

Political and Regulatory Risks

The majority of MPIC’s invested capital is deployed into businesses which are directly regulated by arms of the state: electricity distribution; water supply and distribution along with sewage treatment; tollroads; and light rail. Each of these businesses has concession or franchise agreements which involve a degree of operating performance obligation in order to retain our rights and earn our expected returns. In some cases, these agreements provide for retrospective assessment of the extent of our overall operational and financial performance sometimes over a period of years.

Risks arising from these types of businesses include the potential for differences with regulators involving interpretation of the relevant agreements – either during the period in question or in retrospect. To manage these risks, the investee companies have established dedicated regulatory management groups with experienced personnel. Their duty is to manage the relationship with regulators, keep management up-to-date on the status of the relationship and ensure companies are well prepared for any forthcoming regulatory changes or challenges.

Competition and Market

There is strong competition in bidding for the various Public-Private Partnership (PPP) projects offered by the Philippine Government which has reduced forecast equity returns for winning bids. MPIC manages the risks associated with this by adhering to the holding company’s investment disciplines outlined above.

Excluding PPP, competitive and market-driven demand risks are most pronounced in Manila Electric Company (MERALCO), Metro Pacific Tollways Corporation (MPTC) and the Healthcare group.

MERALCO carries a degree of market risk and its returns in the short term may be influenced by consumers who elect to self-generate and disconnect from the distribution grid. We are mitigating that risk by improving efficiencies to the point that makes it largely uneconomic to self-generate.

With the move to Open Access from June 2013, MERALCO has taken on new risks associated with buying and selling power on its own account instead of on a pass through basis. MERALCO has put in place an experienced management team to lead this business.

MERALCO is now also invested in power generation with attendant demand volume and price risks and fuel source price and supply risks. The primary mitigants are contracting to match demand and supply side volumes where possible and employing highly experienced power market professionals to manage any open positions by trading in the market.

MPTC sets tariffs on new road projects based on traffic projections agreed with the regulator. Changing fuel prices, alternative means of transport and existing or prospective alternative routes are all factors that can affect the number of vehicles that use our roads. We alleviate this risk by choosing our projects carefully. Existing high traffic density, difficulty in securing competing routes, a high potential for growth given demographic changes and conservative growth estimates, even with the prior factors included in the assessment, are the important variables we consider when committing to traffic projections with the regulator.

For the Hospitals group, investment is taking place to enable more qualified personnel to better serve patients more efficiently and effectively in upgraded facilities and with better equipment. The primary risk is that investment runs ahead of demand and patient ability or willingness to pay. We mitigate this risk by ensuring we know our target market and scale our improvements to their ability to pay. The pace of medical innovation is accelerating. This requires increased management of the risks that costly equipment may become out of date before its cost is fully recovered and traditional healthcare delivery models may be disrupted.

MPIC’s water company, Maynilad Water Services, Inc. (Maynilad), has some supply side risk in that: (i) it secures almost all of its supply from a single source – the Angat dam; and (ii) this water source is shared by another water concessionaire, a hydroelectric plant, and the needs of farmers for irrigation. A water usage protocol is in place to ensure all users receive water as expected within the constraints of available supply. Following significant water supply disruptions in the past, the business has experienced periods of lower water supply than allowed for in its concession. We have worked to moderate our reliance on Angat by developing the Putatan Water Treatment Plant. In addition, the Sumag Diversion Project, which was initiated by the Government, aims to provide additional 188 MLD, is now jointly implemented by Maynilad and Manila Water and is expected to be completed by November 2016.

MPIC Group’s newest business segment, light rail, through Light Rail Manila Corporation (LRMC), has significant operational safety and security risks. These risks have been exacerbated by the poor condition and inadequate maintenance of the system prior to the 12 September 2015 takeover by LRMC. We are mitigating these risks by appointing a combination of strong senior management and consultants with extensive light rail operating experience. In addition, there are risks to projected financial returns through late delivery of Government procured items such as Rights of Way, additional Light Rail Vehicles (LRVs), and the Common Station. Plans to mitigate these risks include consistently engaging the regulators on the status of the projects’ milestones and joint regular performance reviews by both parties – the Concessionaire (LRMC) and the Grantors (the Department of Transportation and Communications or DOTC and the Light Rail Transit Authority or LRTA).


MPIC’s investee companies’ financial risks are primarily: interest rate risk, foreign currency risk, liquidity risk, credit risk and equity price risk (see Note 35 to the 2015 Audited Consolidated Financial Statements). The Board of Directors of each investee company reviews and approves policies for managing each of these risks as follows:

Interest Rate Risk. Interest rate exposure is managed by using a mix of fixed and variable rate debt. Foreign Currency Risk. In general the investee companies will place some degree of reliance on their regulated return mechanisms to pass through foreign currency risk. The current liquidity and depth of the Philippine credit market is such that there should be little need for raising new borrowings in foreign currency. Maynilad has some foreign currency borrowing but there is a mechanism in place wherein it can recover currency fluctuations as approved by MWSS.

Foreign Currency Risk. In general the investee companies will place some degree of reliance on their regulated return mechanisms to pass through foreign currency risk. The current liquidity and depth of the Philippine credit market is such that there should be little need for raising new borrowings in foreign currency.

Maynilad has some foreign currency borrowing but there is a mechanism in place wherein it can recover currency fluctuations as approved by MWSS.

Liquidity Risk. Each business monitors its cash position using a cash forecasting system wherein all expected collections, disbursements and other payments are determined in detail.

Credit Risk. Credit risk is managed by setting limits on the amount of risk a business is willing to accept for individual counterparties and by monitoring exposures in relation to such limits.

Equity Price Risk. The Company’s investee companies are generally not faced with equity price risk beyond that normal for any listed company, where relevant. MPIC’s investment in MERALCO, through Beacon Electric, is partly financed by borrowings which require a certain security cover based on the price of MERALCO’s shares on the Philippine Stock Exchange (PSE) on a volume weighted 30 trading day average calculation. MERALCO’s share price would have to decline by 83.67% from its price as at December 31, 2015 before Beacon Electric would be required to top-up collateral with cash or pay-down debt.

The risk management of the operations is primarily managed within each portfolio company with the most material risks being reported to the Risk Management Committee of MPIC.

The active risk management for MPIC itself is focused on new investments and holding company liquidity.

The specific key risks identified by the Group and approved by the MPIC RMC include political and regulatory, liquidity, competition, current portfolio operational execution, and climate change and related issues.


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