Announcement of IFC to Invest Yen 4 Billion in Manila Electric Company September 16, 1988

ULP 1818 H Street. N.W. International Finance Corporation Washngton, D C 20433, U S A September 16, 1988 Ekwow Spio-Garbrah FOR RELEASE: Press Release No 89/08 CONTACT: (202) 473-7716 IFC TO INVEST YEN 4 BILLION IN MANILA ELECTRIC COMPANY The International Finance Corporation (IFC) has signed an agreement with the Manila Electric Company (MERALCO) under which IFC will provide a loan of Yen 4 billion (approximately $30 million) to MERALCO to help finance its $313 million capital expenditure program for 1988-1992. The remainder of the financing would be provided by local bond issues, bilateral credits, and equity. IFC, an affiliate of the World Bank, is the largest source of direct financing for private investment in developing countries. MERALCO is the largest electricity distribution utility in the Philippines. It supplies electricity to the city of Manila and its suburbs, an area that accounts for approximately half of the total industry of the Philippines. The improvement in power generation and distribution to support industrial capacity is a major concern of the Philippine government as it pursues policies to boost economic growth. IFC's loan will allow MERALCO to rehabilitate and continue the expansion of its primary and secondary power distribution systems. It will enable MERALCO to optimize the design of its systems, strengthen inadequate power lines, upgrade its network of 68 substations, construct 11 new high voltage substations, and install new control and monitoring equipment. In addition, the program is expected to improve service quality, reduce interruptions in electricity supply, provide faster restoration of power in the event of blackouts, and reduce system losses. -2- IFC's Yen 4 billion loan will be represented by first mortgage bonds, repayable in 20 equal semi-annual installments commencing in 1991. It will carry an interest rate of 7.375 percent per annum. MERALCO was founded in 1903 by U.S. investors as the Manila Electric, Rail & Lighting Co. It was owned and operated by the General Public Utilities Corporation of New York (GPU) until 1962, when a group of Philippine citizens formed the Meralco Securities Corporation (MSC) and purchased the holdings of GPU. In 1973, the MERALCO Foundation, a non-profit, non-stock corporation was formed by the government, to aquire all outstanding MERALCO stock. At present, the government is implementing a privatization program of MERALCO which will ensure that it becomes a widely held, investor-owned utility. An investor syndicate comprising foreign and local financial institutions is expected to buy and then resell nearly half of MERALCO's shares in the secondary market, creating a market for MERALCO shares in the process. IFC made its original investment in MERALCO in 1966, consisting of a loan of $8 million and a $4 million equity investment. IFC's equity investment was sold in 1976 and IFC'S loan was fully repaid in 1980. Since 1963, when IFC made its first investment in the Philippines, IFC has approved investments totaling over $260 million in the country's private sector. IFC's investments span a wide range of industry sectors, including telecommunications, construction materials, mining, agro-industry, copper smelting, textiles and chemicals. - END -