SMC LIGHTS UP DIM INVESTMENT HORIZON

The Philippine Star
12/15/08

Sitting atop a mound of cash does have its advantages especially these days when there are so many distressed companies that are starting to feel the pinch due to the downturn in demand or simply when there are some bargain buys being put on the block.

Finding itself in a most enviable position is San Miguel Corp., having sold off its shares in premium Tasmanian brewery J. Boag’s and Sons and Australia’s National Foods Corp. in November of 2007, thereby accumulating about P105 billion in cash.

At the conclusion of its asset sales, San Miguel announced its intention to diversify further its already broad portfolio of businesses to the power generation and transmission, mining, water and other utilities, and other high-growth and high-yield sectors.

At that time, the government was in the thick of auctions trying to sell off the assets of state-owned National Power Corp. Aside from professing an interest in some power plants, San Miguel was most keen on buying National Transmission Corp., touted as the jewel of the power industry privatization agenda.

San Miguel’s participation in several bidding exercises for the Napocor assets, however, turned out to be unsuccessful. In the bidding for Transco, San Miguel’s artillery and fire power was no match for the combined muscle of Monte Oro Grid Resources, a joint venture between businessmen Enrique Razon and Walter Brown.

These first but foiled attempts to expand into the power industry may have disappointed Ramon Ang and his eagerly bullish henchmen, but it did not diminish their drive to grab a piece of their other target industries. Even while waiting for the big ticket items, San Miguel continued to be busy nibbling on small bargains.

Finally, towards the end of the year, patience paid off.

State pension fund Government Service and Insurance System sold its 27-percent share in Meralco to San Miguel, giving the food, beverage and packaging conglomerate a credible foothold in the energy business.

Never mind if the sale price, at P90 per share or double the current market value, is considered at a premium. GSIS says it expects to book P12.7 billion in net profit from the transaction, which will only be fully realized once the sale is completed after three years.

In the meantime, with continued talks that the Lopezes are not in a healthy position to pay maturing loans, San Miguel’s entry not only allows it a peek at the power distribution that Meralco holds, but also at its various power generation interests.

More recently, San Miguel announced its intention to buy 50.1 percent stake of Ashmore Group in Petron Corp. With its still enormous war chest, San Miguel continues to be well positioned to buy part or all of Ashmore’s holdings in Petron.

San Miguel is also in the play for a piece of the telecommunications industry after announcing its intention to tie up with Qatar Telecommunications, owned by the State of Qatar but with an aggressive drive to become one of the 20 telecom companies in the world.

Giants at play

How San Miguel will fare with the three companies will be interesting fare next year.

Meralco is known to be a tightly controlled and guarded company of the Lopez family, and had just withstood the informal bid of GSIS chief Winston Garcia for transparency, i.e., open scrutiny of trade secrets and practices.

Unlike ABS-CBN, Meralco has not enjoyed the same earning power of its sister company. For years, under a regulated environment, Meralco’s power rates have continued to be controlled. The electricity distribution company also does not enjoy public support, having been perceived to be the cause of high power rates.

Petron has been enjoying a modest rise in its share prices and better quarter and yearend profits, thanks largely to its ability to pass on new petroleum product prices in step with crude price movements.

During the last two years until the third quarter, with crude prices on the rise, its refinery in Limay, Bataan has been instrumental in boosting profits. Lately, though, as world crude prices slid by more than 70 percent in a span of three months, the financial statements have not been that appetizing.

The volatility of crude prices in the world markets could be tapering towards a narrower bandwidth, reducing risks for San Miguel. But this could also mean lower earning ratios.

Finally, San Miguel’s announced tie-up with Qatar Telecoms is not a move that will be pooh-poohed by PLDT, which still holds the distinction of being the country’s dominant industry player.

San Miguel may find that carving a slice of the telecom sector’s share does not look as easy as it seems, as could be attested by the Gokongwei-owned Sun Cellular.

While still sometimes viewed as a dinosaur, PLDT has surprisingly displayed a market agility that allowed it in the last couple of years to continue expanding its profits.

It would be interesting how these giants, SMC and PLDT will fare in the telecom market in the midst of the ongoing global financial crisis.

Bold moves

The announced moves of SMC’s Ramon Ang definitely added some little excitement in the otherwise subdued local investment scene. It demonstrates the great confidence Ang has in the resiliency of the local economy and the ability of the Filipinos in general to overcome economic difficulties.

Indeed, these bold moves to keep the wheels of business turning and lighten up the dimming investment horizon deserve our kudos.

Champions League “Sweet 16” highlights

The Philippine Collegiate Champions League (PCCL) online survey conducted at the start of the “Sweet 16” Final Challenge of the recently concluded Philippine Collegiate Championship drew over a thousand responses.

To determine the top favorites for the finals, each respondent was asked to submit their choices of the Final Four teams and the final ranking of the top four teams. Participants with the correct choices were to receive surprise gifts from the sponsors.

The compilation of survey responses showed Ateneo as the top favorite followed by San Beda and La Salle. But none of the over one thousand respondents were able to get the correct ranking – DLSU Green Archers, National Champion; Ateneo Blue Eagles, runner-up; Letran Knights, third placer; and San Beda Red Lions, fourth.

The surprise of the tournament was the third placer Letran Knights. The team was the only survivor among the eight teams that had to pass through the zonal competitions. The Knights started their run for the Final Four with hard earned wins in the zonals against tough teams in the South led by San Jose Recoletos of Cebu.

In the “Sweet 16,” Letran eliminated NAASCU champion San Sebastian College-Recoletos de Cavite. The team survived the “Elite 8” with a squeaker over the FEU Tamaraws but then lost to Ateneo in the Final Four on last-minute heroics of Blue Eagle Buenafe.

In the battle for third, the Knights prevailed at the closing minutes over the short-handed San Beda Red Lions, and captured it highest ranking in this annual search for the best collegiate teams in the country.

For more details about the biggest collegiate basketball event for the year presented by SMART, PLDT, FilOil Flying V and KFC visit the official website, www.CollegiateChampionsLeague.net and www.gameface.ph, internet media partner of PCCL.

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, SalcedoVillage, 1227 MakatiCity. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net.