By CLAIRE JIAO and CECILIA YAP (BLOOMBERG) Philippine regulators plan to cut government guarantees and increase oversight when they negotiate with the capital’s two water suppliers. Manila Water Co. slumped by a record. If talks fail, the government has the option to bid out Metro Manila’s water service when the contracts expire in 2022, Metropolitan Waterworks and Sewerage System chief regulator Patrick Ty said in an interview. Manila Water sank as much as 39% on Tuesday, the biggest drop on record. While share prices have recovered slightly, they are still headed for their lowest close since 2006. DMCI Holdings Inc., a shareholder of Maynilad Water Services Inc., dropped as much as 8%. “The government already agreed to the terms of the current contract, and now they want to change it,” said Lexter Azurin, senior analyst at AB Capital Securities in Manila. “That’s a big no-no for foreign investors.” The uncertainty has wiped out more than $2.7 billion from the market value of the water utilities and their parents. It is also a reminder of contract disputes and regulatory flip flops in the past that led companies from Fraport AG to Suez SA to leave the Philippines, and may threaten the country’s ability to compete with peers from Indonesia to Vietnam for investment. The contract extensions of Manila Water and Maynilad to 2037 have not been canceled yet, even after the regulator revoked a 2008 order authorizing the agreement, Ty said. “It was a process to start the renegotiation,” Ty said in Manila. “As far as we are concerned, it is status quo” until a new agreement is crafted, he said. The government will begin the negotiations in January, Philippine Daily Inquirer reported on Tuesday, citing Justice Secretary Menardo Guevarra. Manila Water has said it’s more than willing to discuss issues in its contract. Metro Pacific said in a disclosure on Monday that banks have stopped lending to Maynilad amid uncertainty over its concession. Maynilad expects to make 86% of its 34.7 billion pesos ($686 million) in loan repayments from 2023 onward, according to its latest annual report. A quarter of Manila Water’s 51.3 billion pesos in debt is due from 2023 onward.