Fertile ground for M&A and cross border investments

Reading this article confirms my belief of the huge opportunities the Philippines has being a fertile ground for cross border investments. Hopefully, I can help Australian investors take advantage of these opportunities for the mutual benefit of both counties.

Philippines seen to draw investors with open wallets


Monday, May 7th, 2012

Tourists are shown going out of the Puerto Princesa Subterrarean River National Park located in Puerto Princesa on the western Philippine island of Palawan. Fresh investments in key sectors like tourism may go the country’s way, according to Dutch financial giant ING Bank. AFP PHOTO/NOEL CELIS

The Philippine growth story has attracted the attention of the global community and soon freshinvestments in key sectors like power, infrastructure, tourism and business process outsourcing may go the country’s way, according to Dutch financial giant ING Bank.

Officials of the finance firm told the Inquirer that while large funds were flowing to emerging markets in general, investors had begun to take notice of the Philippines, paying close attention to its rosier macroeconomic fundamentals as well as progress in weeding out corruption and the improvement in theinvestment climate.

ING Bank delegates are in town for the Asian Development Bank annual meetings.

“Money needs to find its way to safer havens, but I think, fundamentally, the country is doing everything right and I can see why the market is really booming,” said Bart Schmeetz, ING managing director and global head of emerging markets business. “What investors want is predictability. They don’t like volatility. And of course they have to buy into the growth story.”

According to Manuel Salak III, ING managing director for clients and corporate finance in Asia, “good governance is not the single most successful formula” in attracting investors, but it is essential.

Salak, a Filipino now based in Singapore, said foreign investors would like to put their capital in countries with clear policies, where they know they need not offer bribes to get their papers approved, and where they could withdraw their funds any time.

“For the longest time, we haven’t seen an economic team so dedicated to making the bureaucracy less pronounced, and processing much more efficient,” Salak said. “That will go a long way.”

ING, a major player in wholesale banking in the Philippines, said this surge in confidence on the country had translated into new investments from foreign and local groups.

The finance firm helped arrange big merger and acquisition deals, among which was the $2.4-billion acquisition by Philippine Long Distance Telephone Co. of Digital Telecommunications Inc.

Game changer

It also engineered Integrated Micro-Economic’s acquisition of selected assets in Europe, the setting up of a joint venture between Trans-Asia Oil and Energy Development Corp. and Ayala Corp. for the operation of a 150-megawatt thermal power plant, and Sky Cable Corp.’s sale of a 40-percent interest in STT Communications of Singapore.

The Dutch bank likewise helped arrange the fund-raising efforts of top-tier Philippine corporations like Rizal Commercial Banking Corp., Development Bank of the Philippines, Philippine Savings Bank, SM Prime Holdings, Petron Corp., Energy Development Corp., Philippine National Bank and Ayala Corp.

Transactions also include “financial institutions’ deals [to] assist top Philippine banks in raising much-needed capital and liquidity, further reinforcing the country’s banking system,” Salak said.

As for the PLDT-Digitel deal, Salak described it to be a “true game changer” for the telecommunications industry, while IMI’s acquisition of various assets in Europe and Mexico was a “major cross border deal for the Ayala-IMI group.”

ING is also hopeful that more public-private partnerships (PPP) projects will be auctioned off this year. After the Daang Hari toll road project, investors are awaiting the bid for the Light Railway Transit 1 extension from Baclaran to Cavite.

“We’ve sat down with economic managers and feel confident that this time it’s going to happen. This has a … multiplier effect,” said Consuelo Garcia, country manager of ING Philippines. “A lot of our clients are preparing for it. That will be a major catalyst for growth.”

Garcia said foreign investors’ interest on the Philippines as far as foreign direct investment (FDI) was concerned had greatly increased. But she noted that local conglomerates awash in cash were giving interested foreign investors a run for their money.

In terms of sector, she said BPO was among the first to attract investors. “If you look at the amount invested, it’s not as big but they invested a lot of technology and created a lot of jobs,” Garcia said.

The purchase by Dutch dairy giant RFC of a controlling stake in Alaska Milk, Garcia said, was a big vote of confidence on the country.

“Also, the MNCs [multinational corporations] that have been for a long time, like Nestle and Shell, are expanding. The ones who are here know where the opportunities are. They are betting with their wallets,” she said.

Fertile ground for M&A

Salak said power, utilities and infrastructure were going to be “very fertile ground” for mergers and acquisitions (M&As) involving local and foreign companies.

The likes of Ayala and SM groups are now looking beyond their traditional businesses and are getting more into infrastructure—giving the San Miguel and First Pacific groups a tough time.

Also, existing players will undertake more expansion projects, such as those in the power sector, Salak said. Interest in renewable energy is likewise building up, particularly on geothermal and wind power generation.

Oil and gas exploration, Garcia said, is one area that will require foreign technology.

A lot of major global oil/gas countries are now focusing on upstream activities (exploration and production) where margins are higher, while selling their downstream businesses, like in the case of ExxonMobil, Salak added.

San Miguel Corp., through oil refining unit Petron Corp., recently bought the downstream oil businesses of ExxonMobil in Malaysia and has indicated interest in buying the operations in Thailand as well if these were to be put up for sale.

On mining, Salak said the Philippines would have to get its act together to be as big as Indonesia in the commodities space.

“The Philippine potential is all too clear for investors to see. They know that and they’re ready to come in,” he said.

Salak believes that more Philippine companies must consider overseas opportunities.

“The Philippines has always been an exciting market, but we need to get to the next level, be more internationally looking out,” he said.

In 2011, ING divested its asset management business.

“This divestment is consistent with ING’s group strategy to concentrate on banking and divesting its insurance-asset management business. The sale attracted major bids from the country’s top banks, which Bank of the Philippine Islands ultimately won,” Salak said.

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