March 4, 2017 1:00 pm JST
CEO in the news

Salim Group's Filipino confidant on final mission to revive PLDT

Manuel Pangilinan must find successor who can match his talents

CLIFF VENZON, Nikkei staff writer

Manuel Pangilinan, chief executive of PLDT (Photo by Lester Babiera)

MANILA -- Every week, Manuel V. Pangilinan, the chief executive of PLDT, the Philippines' largest telecommunications company, receives a briefing from what he calls the "kids" of Voyager Innovations, a unit that develops so-called "disruptive" technologies.

They update their boss on how the industry is evolving in response to the internet and smartphones, and pitch digital ideas, such as those relating to financial technology and e-commerce. A curious Pangilinan, meanwhile, listens intently, then gives deeper business insights on the project proposals, according to a person who has attended the meetings.

"The future of this company does not belong to me anymore," the 70-year-old Pangilinan told the Nikkei Asian Review on Feb. 17.

In mid-February, Pangilinan traveled to Shenzhen, China to seal a deal with Huawei Technologies to install 5G wireless broadband technology in the Philippines by 2020. By investing in a more advanced network, Pangilinan aims to address growing demand by consumers for improved internet speeds and gain edge over its rival Globe Telecom, which has eaten into PLDT's market share.

For nearly the last two decades, Pangilinan has devoted himself to building in the Philippines the businesses of First Pacific, the Hong Kong-listed group that he founded in 1981 with the backing of the Salim Group, one of Indonesia's largest and most influential conglomerates.

Starting with telecommunications, First Pacific has expanded into other strategic industries, such as power, tollways, water, healthcare and mining.

Every other week, Pangilinan takes a two-hour flight to Hong Kong to meet with First Pacific executives, including Anthoni Salim, the Salim Group chief executive who also chairs First Pacific.

Longtime partners

Pangilinan and the Salim Group first encountered each other in 1978 during a client call in Hong Kong when Pangilinan was working there as an American Express bank executive. The meeting eventually led to Salim's support for Pangilinan in founding First Pacific in 1981.

After its establishment, First Pacific went on an acquisition spree, buying companies like Hibernia Bank in San Francisco and Imagineering Australia, a software distributor, among other companies.

But it was only in 1998 that First Pacific decided to expand into the Philippines in the aftermath of the Asian financial crisis and the downfall of Indonesian President Suharto, who enjoyed close ties with the Salim Group.

First Pacific invested in Philippine Long Distance Telephone Company, now PLDT Inc. The investment jump-started Salim Group's acquisition of other critical assets there. In 2006, the group set up Metro Pacific Investments, which holds infrastructure investments in Manila Electric, Maynilad Water Services and Metro Pacific Tollways, which are chaired by Pangilinan.

In 2015, major businesses of First Pacific in the Philippines racked up over 470 billion pesos in revenues, equivalent to around 3.5% of the country's gross domestic product.

Pangilinan, who is known locally by his initials MVP, was born in a middle-class family. His mother was a housewife and his father was a bank president. He was schooled at the Jesuit-run Ateneo de Manila University, where he finished his economics degree with honors.

Immediately after his graduation at 20, he studied for a master of business administration degree at the University of Pennsylvania's Wharton School, funded by a scholarship provided by the U.S. consumer giant Procter & Gamble.

Pangilinan said his admission to the prestigious business school was a "mistake" because "I didn't know what I was doing. I was doing merger accounting but [as to] what the numbers really mean in the real world, I had no idea."

A rocky start

After getting his master's degree, he returned to the Philippines. But Procter & Gamble did not offer him a job, and he instead became the executive assistant to the president of Phinma, a local investment group.

Lured by the glamour of working overseas, he left the Philippines when he was 29 and moved to Hong Kong to pursue a banking career before he founded First Pacific.

Pangilinan's deal-making experience in Hong Kong has served him well in the Philippines, where many major businesses are led by the scions of wealthy colonial Spanish clans or self-made ethnic Chinese tycoons.

By 2012, Pangilinan was seen as winding down his successful career as a Salim Group adviser and top executive of First Pacific when he stepped down as head of Manila Electric, his last chief executive post at a major First Pacific unit in the Philippines.

But with the retirement of Napoleon Nazareno, the long-time PLDT head, Pangilinan returned in January 2016 to lead the company, where he last held the chief executive post in 2003, although he has served as chairman since then. He took up the post at a time of turmoil for PLDT.

After 2012, the company's net profit fell as it devoted more capital to compete with its much smaller arch-rival Globe Telecom, a joint venture between Ayala Corp. and Singapore Telecommunications, which promoted more attractive mobile data packages, such as free Facebook access.

Adding to PLDT's challenges was weakening revenue from traditional services like international long distance calls and fee-based messaging services due to increased competition from internet-based calls and free messaging services like Viber and Whatsapp. PLDT lost an estimated 17 million cellular subscribers in three years, Pangilinan said last November.

Slow response

"We were late in the migration on the wireless side. We were trying to protect our legacy venues, which was wrong," he told NAR. "We did not want to disrupt ourselves, and we did not want to get disrupted."

Pangilinan said shareholders in Hong Kong were disappointed with PLDT's performance since it was the Philippines' most profitable and valuable company just a few years ago.

Investor frustration was reflected in a plunging share price, which hit bottom on Nov. 29, 2016, when it closed at 1,266 pesos, far below its peak of 3,460 pesos on Sept. 4, 2015, making it one of the worst-performing blue-chip companies in the Philippines last year. On March 3, shares rose for the second straight day to 1,447 pesos per share, up by 1.54%, as the appellate court stopped antitrust authorities from probing the Philippine telecom duopoly.

The company expects to report on March 7 a core net income of 28 billion pesos for 2016. But excluding the gains from the partial sale of a stake in Manila Electric, PLDT's underlying profit is expected to be 20 billion pesos, the lowest in more than a decade, as the company continues to spend heavily on programs to defend its dominant market position.

Even though its market capitalization has more than halved, PLDT is still the core business of First Pacific in the Philippines, contributing 35% of operating profit as of the end of June 2016. First Pacific's Philippine ventures accounted 68% of the total group's operating profit at the end of June.

Philippine President Rodrigo Duterte has also pressured PLDT and Globe to improve services, threatening to break their duopoly by opening the sector to foreign players. In May, PLDT and Globe spent a combined $1.5 billion to jointly purchase San Miguel's telecom assets and frequencies, which were deemed critical in improving internet speeds.

Apart from dealing with intensifying competition, Pangilinan has another crucial mission to accomplish: select a new chief executive.

Miracle worker

Under the country's constitution, the head of a public utility like PLDT must be a Filipino. But Pangilinan's requirements are more demanding as he joked to NAR that his successor must be a "miracle worker" who can "turn water into wine, multiply the fish and loaves" like Jesus Christ.

Pangilinan told reporters last year that other requirements should include someone who is digitally savvy and has the "intestinal fortitude" to take on this job."

"If you ask me, he has to be ready to die for the job. Give up his family. Those are my strict rules," he said. "If I could see that, you are in." He then added, "You know there is always a price you pay for the life you choose, right?"

That could be a description of Pangilinan himself, who is unmarried and has a reputation of being a workhorse.

Ramoncito Fernandez, who has held various senior executive positions at Metro Pacific, for 23 years, admits his boss is workaholic, but practical. "He calls anytime of the day--sometimes even close to midnight--and calls for weekend meetings," he said. "But I would say he is a visionary."

Pangilinan has built a track record of positioning First Pacific units in monopolies that are vital to consumers, like water and power distribution, to ensure steady earnings. But even with his knack for business, finding a successor to match his talents appears to be a tall order.

Pangilinan, who earlier expressed a preference for selecting someone from within PLDT, is now casting a wider net and looking at outsiders for the position. Last year, he hired Liza Sichon, a human resources veteran in Silicon Valley, to be PLDT's chief people and culture officer.

Pangilinan said a formal search committee will be convened this year. A decision could be made by 2018, according to local reports.

However, he said there is more to learn about the new telecoms landscape and he does not mind allowing more time in choosing the best possible successor, which is being closely watched by its competitor and investors wary of PLDT's future. "I am not in a hurry" he said.

-- CEO in the news

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