How Salim group skirted foreign ownership limits

The Indonesian Anthoni Salim’s empire has grown since 1998 to be the country’s largest conglomerate—controversially based on public utility firms where foreign investors are purportedly restricted by the Constitution.
Chances are, you won’t spend a day without a Salim firm getting a cut of your expenses.
When you turn on light, chances are, you’ll be making money for a Salim firm, the ultimate parent company now of Meralco (see my column February 24). When you use your cell phone, you’ll likely be paying Salim-controlled mobile phone companies—Smart and Sun, which together has 2/3 of the market. If you live in the western part of greater Manila, in any of its 17 cities and towns, the water you pay for is from his Maynilad Water Services, the country’s biggest water concession.
When you travel on the expressways, part of the toll you’ll pay goes to Salim, through his Manila North Tollways and Cavitex, which together make up the country’s largest tollway operator that runs 64 percent of the country’s toll roads.
If you get sick (and if you can afford it, that is), you’d be probably treated in one of his six hospitals, which include the most venerable ones such as Cardinal Santos and the Makati Medical Center, and the newest, Asian Hospital in Alabang.
And if you’re reading either two of the country’s biggest newspapers, Philippine Star and Philippine Daily Inquirer or even the has-been business paper BusinessWorld, or if you’re watching TV-5, Salim’s executives control those too.
In fact, according to Hong Kong-based First Pacific Co. Ltd. in its 2012 annual report, Salim’s holding and “command” firm, its profits from its Philippine operations now exceed those in the magnate’s home country, Indonesia, by about $200 million.
What a country we have become.

Ownership structure of Salim’s conglomerate in the Philippines.
Source: Company Reports, Submissions to US and Philippine SEC.
(Click to enlarge.)

Why ‘Salim,’ not ‘MVP’

As I explained in my column last Monday, the common media reference to Salim’s empire in the Philippines as the “MVP group”—after his top executive Manuel V. Pangilinan—is the result of one of the most successful PR campaigns in the Philippines. It is an utter misnomer.

First Pacific’s revenues, by country, 2011 and 2012.

Pangilinan owns only 0.09 percent of Salim’s flagship firm Metro Pacific Investments, and 1.4 percent in the parent company, First Pacific. The Indonesian tycoon’s holding companies own in those firms 56 percent and 45 percent, respectively with the rest of the shares dispersed to thousands of stock market investors.
For his huge role in building up Salim’s empire, Pangilinan has no share at all in any of the three offshore firms, which at the end of the corporate layering ultimately own the empire.
Instead, Salim’s partners in one of these offshore firms, the Liberia-based firm First Pacific Investments Ltd., are Sutanto Djuhar (with his son Tedy) and the late Ibrahim Risjad—both his father Sudono’s (Liem Sioe Liong) original collaborators in founding the conglomerate in Indonesia in the 1960s.
I doubt though if Pangilinan is complaining. First Pacific’s reports indicate that he could be the highest paid Filipino executive ever, making P25 million a month — nearly P1 million for his day’s work.  This does not include his salaries and directors’ fees in at least 40 of Salim’s firms in the Philippines, especially in the blue-chip firms Philippine Long Distance Telephone Co. (PLDT) and Meralco. (The other Filipino director in First Pacific is Napoleon Nazareno, who gets P14 million monthly from First Pacific.)

The empire, according to First Pacific’s 2012 annual report.
(Click to enlarge.)

Foreign Affairs Secretary del Rosario: a key figure in the Salim conglomerate’s expansion into the Philippines

Foreign Affairs Secretary Albert del Rosario was reportedly a key figure in Salim’s entry and expansion in the Philippines, and for that he was non-executive director from 2003 until he resigned in March 2011 when he became an Aquino Cabinet member. Del Rosario received about P10 million yearly in director’s fees from First Pacific, even
when he was ambassador to the US until 2006.
Salim and his executives must be laughing over the raging debate here that the Philippines’ continues to be poor because our Constitution restricts foreign investments so much.

Smarter than others

The reality: Some foreign businessmen—such as Salim—are just smarter than others.

Salim’s empire here is even using huge amounts of local funds—through such instruments as PLDT’s P15 billion bond offering—and bringing out of the country millions of dollars in capital as its profit remittances.

How can an Indonesian control industries, which the Philippine Constitution’s Article 12, Section 11 reserves only to companies at least 60 percent owned by Filipinos?

No problem, Salim and Pangilinan must have thought more than a decade ago. “These folks are living in the 1960s, with no idea how the modern corporate world work,” Salim’s two Western executive directors, reputedly his strategists, Edward Tortorici and Robert Nicholson, must have told each other.
Even in 1987 when the Constitution was formulated, its provisions to reserve the operation to public utilities to Filipinos were so antiquated, and so vulnerable to an audacious foreign tycoon.
First, in modern corporations, especially those listed in the stock market, 60 percent or even 40 percent is not necessary to achieve corporate control.
Metro Resources and Philippine Telecommunication Investment Co. (which Metro Pacific Investments wholly owns) has 27 percent of PLDT’s shares. The next biggest corporate owners are two Japanese NTT entities, with 17 percent. The rest are shares held by over 12,000 stockholders, mostly bought and traded in the stock market.
With that 27 percent share, Salim has full control of PLDT. This was in fact demonstrated when he used the firm’s 100 percent subsidiary Piltel and even its Beneficial Trust Fund to take control of Meralco in 2009. It is also money from that Beneficial Trust Fund that was used to set up TV-5 and buy into newspapers.
Another example: First Pacific companies—Asia Link B.V., Maxella Ltd., and Kirtman Ltd., and Artino Ltd.—altogether have 31 percent in Philex Mining to make up the biggest bloc of shares. (The second biggest shareholder is the Social Security System with 20 percent holdings.)
With that 31 percent, Salim’s First Pacific has uncontested control of the company and its finances. So much so, that a source alleged that even the 12-page ads in Philippine Star greeting Pangilinan on his birthday in July were charged to Philex’s advertising expenses.
(I had begun asking asking two months ago people close to Pangilinan or who worked in his firms to interview him, to get his side for this series, to no avail.)

SEC’s sympathetic rulings

A second reason why an Indonesian conglomerate could go into public utilities is the fact that decisions issued by the Securities and Exchange Commission in effect have negated the spirit of the constitutional provisions restricting foreign ownership in certain strategic industries—a clear case of regulatory capture by the elites.
It wasn’t the Hong Kong-based First Pacific Co. that invested directly into Meralco, PLDT and other public utilities. It was Metro Pacific Investments Corp. (MPIC), which is incorporated in the Philippines, with First Pacific subsidiaries owning 59 percent, (reduced since to 56 percent) with the rest of the shares held by hundreds of investors who bought them in the stock market.
By setting MPIC up as a Philippine-registered corporation, rather than having his holding company First Pacific in Hong Kong directly invest here in our country, Salim can pretend that his flagship firm is a Filipino entity.
Common sense says that MPIC is majority controlled by foreigners, Indonesian magnate Salim’s firms, since it has the majority or 56 percent of the shares. The next biggest shareholders have 2 percent and fewer shares, and are even mostly foreign fund managers.
No, the SEC rulings would say. Amazingly, SEC jurisprudence says that the “primary test” whether a firm is Filipino is if it is incorporated in the Philippines. MPIC was incorporated in the Philippines, therefore it is Filipino. MPIC therefore can control more than 60 percent of utility firms since the SEC defines it as a Philippine national.
The SEC has ruled that a case has to be filed at the SEC, which has jurisdiction in such matters, to question whether a corporation is Filipino or not.
No such case has been filed at the SEC questioning MPIC’s nationality.
No case has been filed at the SEC whether Meralco, Maynilad Water Resources, and the two Salim rollway corporations are violating the Constitution by having foreign ownership larger than the 40 percent limit set by the Constitution.
(A case though was filed several years back alleging that PLDT had breached the 40 percent ceiling on foreign investments. The Supreme Court had ruled in 2011 and 2012 last year that PLDT foreign ownership amounted to 64 percent and therefore violated the Constitution. However, the SEC has defied the Court’ ruling. More on that in coming installments of this series.)
And if a case is brought to the SEC, it will apply—as it has done in several cases—the so-called “Grandfather Rule.”
In the case of Maynilad Water Services, this rule would be applied in the following manner.
MPIC, 59 percent owned by Salim’s subsidiaries, took the construction firm DMCI as a partner with the Indonesian firm holding 55 percent of the joint venture. It is that joint venture that owns 92 percent of Maynilad Water Services.
The Grandfather Rule applied by an SEC sympathetic MPIC would mean that foreign ownership totals (59 percent) x (55 percent) x (92 percent) or just 30 percent, below the 40 percent constitutional ceiling.

Modus operandi

It is the modus operandi for nearly all of Salim’s investments in our country. It is perhaps legal but certainly it violates the spirit of the Constitution’s provisions.
No wonder Foreign Secretary Alberto del Rosario and Speaker Feliciano Belmonte (whose family owns Philippine Star which Salim’s empire is poised to buy control of soon) are vocal in supporting a constitutional amendment to lift restrictions on foreign investments.
The Salim empire’s hold on public utilities could be declared unconstitutional, or illegal by the SEC in the case of PLDT, which it admitted as one of the risks for its recent P15-billion bond offering,
The only way to preserve Salim’s billion-dollar conglomerate here is for the Constitution to be amended to lift foreign investment restrictions, and thereby legalize its control of public utilities here.
It’s been a long way since the 1980s when Salim’s firms in the country were in humdrum sectors such as bottling mineral water, paper manufacturing, and inter-island shipping. A long way since Metro Pacific was on the edge of defaulting on its huge loans and nearly went bankrupt that it had to give up its prize catch  Fort Bonifacio in 2003,   for which  it had bid way too high in 1995.
Ironically, Salim’s conglomerate here has largely failed in the market. But it has been a phenomenal success in the supposedly highly regulated public utility sector.
For our nation this is a painful irony.
A World Bank study (“Investing Across Borders”) of 87 countries has concluded: “More than a quarter of 87 countries have few or no sector-specific restrictions on foreign ownership of companies.”
However, it noted: “Worldwide restrictions on foreign ownership are strictest in media, transportation, electricity and telecommunications.”
But those sectors are precisely where we have allowed the Indonesian Salim conglomerate to exercise control.
On Wednesday: Salim in media: Isn’t that unconstitutional? Hm…

Details of Metro Pacific’s conglomerate map. (Click to enlarge.)
Source: Metro Pacific report to the SEC.

Other minor Metro Pacific Firms. (Click to enlarge.)

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www.trigger.ph and www. rigobertotiglao.com

ADB Manila HQ now RE-powered

MANILA, Philippines - The main headquarters of the Asian Development Bank (ADB) in Manila is now 100-percent powered by renewable energy (RE).

The ADB has entered into a geothermal power supply agreement with AdventEnergy Inc., a licensed retail electricity supplier of Aboitiz Power.

The headquarters is now powered by 100 percent powered by renewable energy generated by geothermal plants in Tiwi in Albay province and Makiling-Banahaw in Laguna province, in addition to existing on-site solar power generation.

ADB vice president Bruce Davis said that as an institution, it is committed to expanding the use of renewable energy across Asia and the Pacific starting with its own headquarters.

“This agreement (with AdventEnergy) will allow us to cut our annual corporate carbon footprint by nearly 50 percent, with an emission reduction of more than 9,500 tons of CO2 (carbon dioxide) equivalent,” he said.

The supply contract with AdventEnergy will see ADB purchase an average of 1.5 million kilowatt hours (kWh) of electricity a month.

This will be supplemented by about 50,000 kWh generated monthly from ADB’s rooftop solar panels.
“These two sources will meet the entire energy requirements of the headquarters building, where more than 2,600 staff and consultants work each day,” Davis said.

It also means ADB will no longer purchase electricity directly from the Manila Electric Co. (Meralco), although it will continue to use the company’s distribution network.

The move follows ADB’s decision to take advantage of electricity reforms in the Philippines, which allow large users to choose their power supplier.

The contract with AdventEnergy followed a competitive bidding process. It was picked as it was the only one to offer a large portion of its electricity generated from renewable sources.

The ceremony to mark today’s switchover to full renewable power is the centerpiece of ADB’s second “No Impact Week,” during which staff are encouraged to make work and personal lifestyle changes to reduce their carbon footprint and impact on the environment.

Clean energy has become one of ADB’s highest priorities, with over one fourth, or 27 percent, of the total approved loans in 2008 supporting projects with clean energy components.

ADB’s Clean Energy Program is multi-pronged. It seeks to increase regional energy efficiency in energy, transport and urban sectors; to adopt renewable energy sources; and to improve access to energy for the poor and remote regions - avoiding the use of traditional biomass.

The clean energy program seeks to meet energy security needs, facilitate a transition to a low-carbon economy, universal access to energy, and achieve ADB’s vision of a region free of poverty.

With high levels of confidence for clean energy investments, ADB’s Energy Policy targets the annual lending for related programs to $2 billion by 2013.

source:  Philippine Star

Aquino: Invest in Mindanao

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Korean group bags LRT-2 extension consultancy

The Department of Transportation and Communications (DOTC) announced it has awarded to a Korean consortium the civil works consultancy contract for the Light Rail Transit Line 2 (LRT-2) Extension from Marikina City to Cainta in Rizal province.

The winning consortium, composed of Foresight Development and Surveying Co., Soosung Engineering Co. Ltd. and Korea Rail Network Authority, submitted a bid of P240.77 million, it said on Thursday. The bid was P100 million lower than the DOTC project cost ceiling of P350 million.
The cost of the infrastructure development for the LRT-2 extension project is P9.7 billion.

The LRT-2 will be extended from the Santolan Station in Marikina City to Masinag, Cainta in Rizal province, for a total of 4.2 kilometers. The rail link stretches 3.8 kilometers from the Recto Station in Manila to the Santolan Station in Marikina City. It is the most modern city rail system in Metro Manila

The other groups that took part in the bidding for the civil works consultancy include JF Cancio and Associates and Development Engineering and Management Corp., Engineering and Development Corp. of the Philippines, Filipinas Dravo Corp., TCGI Engineers, Urban Integrated Consultants Inc., and Oriental Consultants Co. Ltd.

source:  Manila Times

Salim brought in zero funds to capture Meralco

Second of a series on the Salim Empire in the Philippines
ONE compelling economic justification for foreign investments is that a capital-deficient developing country like ours needs capital from abroad, which developed countries with capital-surpluses can provide.
This is not the case, though, in the accumulation of the controlling stocks in Manila Electric Co. by firms controlled by the Indonesian magnate Anthoni Salim.  It is a cautionary tale proving that the presence of foreign business does not necessarily entail capital inflows into the country.
According to publicly available data, Salim’s firms acquired what now makes up the 50 percent controlling stocks of   Meralco —now under the corporate vehicle Beacon Electric Assets Holdings— through the following two main avenues.
First, was a clever, but I would say questionable, scheme that involved the funds of the Beneficial Trust Fund of Philippine Long Distance Telephone Co., the giant telephone firm which Salim also got to control in 1998.
The Fund was used in 2009 to purchase 10 percent of Meralco shares —which made up, as it were, the Indonesian tycoon’s first beachhead in this capture of Meralco.
And second, domestic borrowings, both short- and long-term, from local banks totalling at least P30 billion, financed the rest of the purchase of the Meralco shares, collateralized by those very stocks.
In effect the savings of thousands of Filipinos, both small depositors and corporate investors. financed the acquisition by an Indonesian magnate of our biggest power firm.
PLDT Beneficial Trust Fund
PLDT’s Beneficial Trust Fund in February and March of 2009 had quietly bought Meralco shares totaling for 10 percent of its shares.  To this day, the cost to the Trust Fund of its purchases had not been disclosed, as the price during that period ranged from a low of P90 per share to a high of P123.
However, PLDT’s 2009 reports to the Philippines Securities and Exchange Commission as well as to its US counterpart, did not report the Fund’s purchases of  Meralco shares. The Fund had assets of over P20 billion at that time, accumulated through contributions both by the company and its staff, as required by various agreements with its labor unions and as part of its compensation scheme.
It is run by a board of trustees, which although theoretically independent, has been controlled by PLDT management, which is in turn is appointed by its controlling stockholders—since 1998, Salim’s firms.
The fund’s chairman when it bought the Meralco shares was now Foreign Secretary Albert del Rosario, who had been a board member of the PLDT ever since the Salim Empire got to control it in 1998.  He was also a director of First Pacific, Salim’s flagship for his Asian empire since 2003—even when he was Philippine Ambassador to the US from 2001 to 2006—until 2011, when he was appointed Foreign Affairs Secretary.
“Del Rosario is not MVP’s man, but Salim’s,” an investment banker explained. “He opened the doors in Manila’s business world for MVP, who then was an obscure investment banker in Hong Kong.”
“MVP” is Salim’s chief executive in Manila, the face of his empire here, who chairs most of the Indonesian magnate’s main companies here. “That’s how well connected the Salim Empire here has been,” the banker said.
One of Pangilinan’s top executives, Ray Espinosa, who has been vice chairman of the fund from that time until now, claimed then that the fund’s Meralco shares were merely portfolio investments it bought just like shares of other listed firms.
However, seven months later, in October 2009, Salim’s holding firm in the Philippines, Metro Pacific Investments, bought all of PLDT Beneficial Trust Fund’s Meralco shares, for a purchase price of P14.2 billion, or P126 per share.
But Metro Pacific didn’t pay the pension fund cash.
Metro Pacific swap
Payment was in the form of new shares in Salim’s flagship in the Philippines, Metro Pacific Investments Corp, which it issued and valued at P9.5 billion.  It cannot be determined how much the Fund gained or lost, since it had not disclosed how much it spent in buying the shares in the market early in October.
The Fund though got to turn those shares into cash only a year later, when it sold these in the stock market, in tranches in April and October for a total of P12.9 billion—lower than the P14.2 billion sale price of its Meralco shares.


Apparently encouraged by the role of PLDT Beneficial Trust Fund in acquiring Meralco shares for the Salim group, and with nobody opposing such utilization of a pension fund, his executives have used it to the hilt, by using its funds to organize what would be a very aggressive MediaQuest Holdings.
If you’ve never heard of it, its investments are in firms that you would certainly know unless you are a hermit.
MediaQuest wholly owns Channel 5 together its website interaskyon.com; 80 percent of the Business World newspaper (whose editors it will soon replace); 20 percent of Philippine Star (which it plans to completely control soon by buying the shares of Speaker Feliciano Belmonte’s family); and 18 percent of the Philippine Daily Inquirer.
Business sources say that Salim’s media holdings could explain why he has been able to remain virtually invisible to the public here, while Mr. Pangilinan, who has only microscopic shares in Salim’s firms, has been the conglomerate’s face.
The use of the PLDT Beneficial Trust Fund was a brilliant, though controversial, financial maneuver, and one would have to give a lot of credit to Pangilinan.
Sources claim though that it was the brainchild of two British First Pacific executives who control tightly the conglomerate’s finances and who report directly to Salim: Christopher Young, PLDT’s “Financial Advisor” since 1998, and Metro Pacific’s Chief Financial Officer David Nicol.
The bottom-line of it all: It was the thousands of stock market investors who bought those MPIC shares held by PLDT Beneficial Trust Fund that were exchanged for the Meralco stocks. They financed Salim’s Metro Pacific acquisition of that 10 percent bloc in the power firm.
Cash-out: Zero
How much therefore did Metro Pacific in effect spend for that block of shares now valued at a mind-boggling P31 billion?
Zero.
The financing for the purchase of the rest of 40 percent of Salim’s Meralco shares also came not from fresh capital from Hong Kong or Indonesia, or the British Virgin Islands, but from our country’s financial system.
The P21.4 billion that financed the July 2009 purchase of 20 percent of Meralco shares by PLDT subsidiary Piltel  (later renamed PLDT Communications and Energy Ventures, or PCEV), according to PLDT’s report to the US SEC, came from the telephone company’s   “cash flows from operations and borrowings.”
The rest of the Meralco shares which the umbrella firm Beacon Electric Assets Holdings in 2012 bought were financed first through bridge-financing facilities and then through Corporate Notes with 5 to10 years’ maturity all totaling P30 billion, mostly arranged by the investment banking units of Metro Bank and the Philippine National Bank.
And the collateral used for these borrowings?
The very Meralco shares Salim firms had bought with the money they borrowed.
And how would the Salim firms pay these loans?
With Meralco dividends.
Since the advent in late 2009 of the Salim-picked management of Meralco, the firm’s dividends have rocketed, from just P2.8 billion in 2009 to P9.4 billion yearly from 2010 to 2013.
Because Salim’s firms are the 50 percent owners, they got half of that bonanza or P18.8 billion in the last four years.
That would be more than enough for the Salim firms to pay off in the coming two to three years the debts they incurred to buy the Meralco shares.
And they would have still billions of pesos, first, to remit to Salim’s investment company First Pacific in Hong Kong, and then to his offshore firms in the  tax havens in the British Virgin Islands and Liberia.
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Indonesian magnate controls Meralco

First of a Series on the Salim Empire in the Philippines

Through several corporate layers, the 65-year-old Indonesian Anthoni Salim who owns Indonesia’s biggest conglomerate controls Manila Electric Co. (Meralco), the Philippines’ biggest private corporation and the monopoly in electricity distribution in Metropolitan Manila, according to publicly-available corporate information.

I asked two people close to Salim’s conglomerate in the country two months ago for its top official in the country  to comment on this column’s topic. They replied that he didn’t want to.
It is probably the country’s most successful case of corporate imaging that the Indonesian tycoon’s control of Meralco—as well as Philippine Long Distance and several other huge firms—has been hidden from public consciousness.

Meralco Chairman Manuel V. Pangilinan, Mr. Salim’s point-man and top executive in the Philippines, has been been portrayed as the face of the Indonesian’s empire in the Philippines, that it is casually referred to as the “MVP Group of Companies.”

However, Mr. Pangilinan owns only token shares (25,000 out of the firm’s 1.2 million shares) in Meralco and less than two percent in Meralco’s ultimate mother companies, the Hong Kong based First Pacific Co., Ltd. and the Philippine-incorporated Metro Pacific Investments.

Salim’s control of Meralco starts with his 45 percent control of the firm which is, as it were, the “mother ship” of his empire in Asia, the Hong Kong-based First Pacific Co. Ltd., listed in that China special region’s stock market.


Salim’s 45 percent holdings in First Pacific are through three offshore-firms, created in secretive, tax haven countries. He is the sole owner of Salerni International Ltd., organized in the British Virgin Islands.

Salerni in turn is the sole stockholder of First Pacific Investments (BVI) Ltd. also incorporated in that tax haven, and 57-percent owner of a similarly named corporation, but incorporated in another tax haven, Liberia.

The shares of the two First Pacific Investments and those directly held by Salim compose 45 percent of First Pacific’s (HK) total shares. (Anthoni in 2002 for some reason bought off shares in the two First Pacific investments from his brothers, therefore becoming the undisputed sole biggest owner of the First Pacific conglomerate.)

That Salim’s 45 percent shares in First Pacific means total control is obvious in that the next biggest stockholder are fund managers, who represent thousands of portfolio investors around the world: Lazard Asset Management with 7 percent and Marathon Asset Management with 4.4 percent. Some two dozen-fund managers own less than 1 percent. Pangilinan holds 1.4 percent shares.

The Metro Pacific layer
The next corporate layer for the control of Meralco is the Philippine-incorporated Metro Pacific Investments, which is, as it were, Salim’s command ship in the country.

A Salim holding firm called “Metro Pacific Holdings” has 56 percent ownership of Metro Pacific. (Salim’s control of the holding firm for some reason is through three other firms with interlocking ownership: the Amsterdam-based Intalink, B.V, Enterprise Holdings Corp., and First Pacific International.)

As in the First Pacific layer, that Salim’s firms’ 56 percent holdings in Metro Pacific represent complete control of the firm is beyond any doubt, for the remaining shares are distributed among nearly 40 fund managers, most of which hold less than 1 percent stocks.

The two biggest of these are T. Rowe Price International (UK) Ltd. and Morgan Stanley Investment Management, which hold, respectively, 1.6 percent and 1 percent of the firm’s stocks. Pangilinan has 0.09 percent of the shares, the minimum for him to have to be in its board.

Salim’s third corporate layer—or his third step—for his control of Meralco is a firm incorporated in 2010, Beacon Electric Asset Holdings. The firm is effectively 100 percent controlled by Salim, through Metro Pacific Investments, which has 50 percent shares, and a 100 percent PLDT subsidiary, PLDT Communications and Energy Ventures, which has the other 50 percent.

Salim controls 27 percent of PLDT. That holding may seem small, but that makes up the indisputable controlling bloc in PLDT, which has thousands of shareholders. Its next biggest shareholder with 15 percent shares is the Japanese NTT group. How Salim got to control the country’s biggest telephone firm is yet another story.

And at the end of the corporate layers: Beacon Electric Holdings has 50 percent control of Meralco. The next biggest shareholder is the San Miguel Corp. and its subsidiaries, which together have 27-percent holdings.

Lopez clan gone
Whatever happened to the old-elite Lopez clan, whose name had been synonymous with Meralco? After the Lopezes bought Meralco from its US owners in 1962, after they lost Meralco to Marcos’ brother-in-law Kokoy Romualdez, and then, after the EDSA revolution, President Cory handed back Meralco to them. The Lopez clan then, in 2009, sold most of the Meralco shares to the Indonesian Salim’s firms. The Lopezes now hold only 4 percent of Meralco.

One of course could believe that Mr. Pangilinan has full autonomy in running the First Pacific empire, and that he is of course the most patriotic of Filipinos. That would be supremely naive, unless one is in a socialist system.

But most of the Meralco and PLDT profits flow not to Pangilinan through his 1 percent or token shares in those firms, but to their owners. The lion’s share would be claimed by Salim, and the rest by the thousand or so US and European portfolio investors in First Pacific.

Pangilinan may be the most patriotic of Filipinos, but what happens if one morning, Salim wakes up deciding to replace him with the best executive the world can offer? He can even just pick from the list of the best CEOs in the world the Harvard Business Review annual determines.

And of course, what if, God forbid, Salim passes away, and we learn that the Indonesians had found a way for Salim’s holdings to be turned over to the state of Indonesia, which may have a policy of cut-throat competition with its neighbors?

There are important reasons why nearly all countries in the world have restrictions—not necessarily through their constitutions but through laws and regulations—on foreign ownership of strategic industries, especially utility companies. (That topic for a coming installment of this series.)
And who is Anthoni Salim? Forbes magazine ranked him as the third richest Indonesian last year. He is the youngest of the four sons of ethnic Chinese Liem Sioe Liong, who took the Indonesian name of Sudono Salim, and who had been for decades that country’s richest magnate.

Liem had been Indonesia’s most controversial magnate. He had been viewed as the former strongman Suharto’s most successful crony so much so that he and even Anthoni had to flee Indonesia during the anti-government, anti-Chinese May 1998 riots that eventually led to Suharto’s fall. Sources say that because of that harrowing experience, Anthoni lives mostly in Los Angeles.

The Salim conglomerate includes Indofood, the world’s biggest noodle factory and about 500 firms in diverse industries all over Asia. In Indonesia alone the Salim firms have a workforce of 200,000.
Quite significant though is that according to First Pacific’s 2012 annual report, its profits from its Philippine operations have outstripped those from its Indonesian operations starting in 2011, by about $200 billion in 2012.

Take it the way you want it.

Two interpretations
Salim’s control of Meralco and PLDT—both utility firms—is a mockery of our constitutional and legal restrictions on foreign control of strategic industries. And these are not only strategic industries: Salim controls a monopoly in electricity distribution in Metro Manila and surrounding provinces and one member of the duopoly in mobile telecommunications (Smart Communications).

Or the other interpretation: the restrictions imposed by the constitution and our laws are so full of legal loopholes that all that a foreign investor wishing to invest in the Philippines has to do is to contract a good lawyer, or, as some say, a lawyer or law firm with strong political connections.

Sadly, the issue of Salim’s empire in the Philippines would muddle the debate over amending the constitution.

I have heard a conspiracy theory that with the weak legal basis for Salim’s control of utility and mining firms in the country, the solution would be to lobby for amending the constitution so that its existing restrictions on foreign ownership in these industries would be lifted, and the issue becomes moot.
What kind of country have we become?

A magnate in a foreign country which is in our level of development—Indonesia with a GDP per capita of $1.731 just a bit bigger than our $1,501—takes control of what are not only the prized gems of our corporate world, but also the most strategic of our industries.

We are the only country in the world in which a foreigner controls the biggest power company and the biggest telecommunications firm.

What an irony: Our restrictions on foreign investments have turned off global investors so much, that it explains partly why we are the smallest recipient of foreign capital in Asia, barring, of course Cambodia and Laos. Yet an Indonesian magnate of Chinese ethnicity—reputed to have ties with certain leaders of China has businesses in the mainland—controls our strategic industries.

The need to keep out of the public mind such obvious anomaly is probably what has prodded Salim to go into an industry that controls public opinion: Media. That topic in coming parts of this series.

Other parts of these series:
• Foreign ownership by Salim still a legal issue.
• So what if foreign owned? How the Salim conglomerate mobilizes Philippine savings to fund the empire. How its Philippine firms’ profits flow to Hong Kong, Indonesia, and ultimately to Salim’s tax-haven firms.
• The Salim Empire in the Philippines: From telecommunications to toll roads, electricity to the press, mining to medical center.

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www.trigger.ph and www.rigobertotiglao.com

source:  Manila Times' Column by RIGOBERTO D. TIGLAO

Aboitiz keen on bidding for other airport projects

The Aboitiz Group is keen on bidding for other “bundled” regional airports the government may auction off under its public private partnership (PPP) program and it may keep its partnership with the Ayala group, a company official said.

Aboitiz Equity Ventures president and CEO Erramon Aboitiz said the airport business remained attractive if the government could structure deals that would provide the scale similar to the P17.5-billion Mactan-Cebu International Airport project.

Aboitiz and partner Ayala, as well as five other groups, were outbid during the opening of financial proposals last Dec. 12 for the Mactan-Cebu airport deal. The project, however, has yet to be awarded given a still-to-be-resolved row between the top two bidders.

Recently, the government has indicated that it was looking at bundling airport operations contracts for Iloilo, Bacolod, Davao, Puerto Princesa (Palawan), Bohol and Laguindingan (Misamis Oriental) under the PPP scheme. This means bidders keen on breaking into the business could pursue fresh opportunities.

“We definitely had intentions of growing that business if we were successful in Mactan,” Aboitiz told reporters in a recent interview, adding that they would again participate “if there are interesting projects” and of a particular size.

He noted that there were no commitments to pursue future airport deals with Ayala but “it makes sense that we look at them together.” 

Other conglomerates like JG Summit Holdings and Metro Pacific Investments as well as San Miguel Corp., which were also unsuccessful in the Mactan-Cebu bid, were keen on other deals that may be auctioned off, their respective officials said.

The PPP Center said it would hold a series of meetings with the private sector to help determine the optimal size of bundling. For example, airports in Davao, Bacolod and Iloilo handled about 5.5 million passengers in 2011, government statistics showed. Mactan Cebu International Airport, the Philippines’s second-busiest airport, handled about 6.7 million passengers last year.

Other bidders had noted that they would first need to see the issues surrounding Mactan-Cebu Airport resolved. The awarding of the project, originally scheduled on Jan. 6 this year, has been delayed as the Filinvest group, which placed the second-highest offer, raised various issues, including an alleged conflict of interest violation, against frontrunner Megawide-GMR.

Megawide-GMR offered a P14.4-billion premium bid against the roughly P14 billion offer of Filinvest-Changi. The main conflict-of-interest allegation, being contested by GMR-Megawide, involves a key official of Malaysia Airports Holdings Berhad, which is a partner of a rival consortium for the Cebu airport deal, but is also a director of two airports that GMR operates in India.

PPP Center executive director Cosette Canilao told reporters this week that the transportation department’s bids and awards committee would soon render a decision on the matter.

source: Philippine Daily Inquirer