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Philippines presence provides pillar for growth

Manuel Pangilinan, chairman of Philippine Long Distance Telephone and Salim Group's point man in the country

MANILA -- Salim Group's investments in the Philippines have played a key role in its renaissance. 

     The 1998 acquisition of a stake in Philippine Long Distance Telephone by First Pacific, the group's Hong Kong-listed holding company, spawned other strategic businesses. These, in turn, have helped build a war chest for expansion beyond Indonesia and the Philippines.

     Last year, Philippine businesses chipped in more than 60% of First Pacific's earnings. The nation's brisk economic expansion provided a tailwind -- its 6.1% growth rate topped Indonesia's 5%. Earnings from these investments contributed to Salim Group's recent shopping spree elsewhere in Asia and farther afield. 

     PLDT controls nearly 70% of the Philippine telecommunications sector -- a market where the number of cellphone subscriptions exceeds the population. Through a trust fund for PLDT employees, First Pacific's reach extends into Philippine media assets, which foreign companies are barred from owning. The trust fund owns TV5, the nation's third-largest broadcaster, and controls two newspapers.

     Subsidiaries of Metro Pacific Investments, the local arm of First Pacific, dominate public utility services on the main island of Luzon, which generates two-thirds of the country's gross domestic product. Manila Electric provides power to a quarter of the nation's 100 million people, while Maynilad Water Services holds half of the capital's water rights. Metro Pacific Tollways runs three expressways, or more than half of the country's toll-road network. 

     The group also owns nine hospitals scattered across the archipelago and a significant interest in Philex Mining, the nation's largest gold and copper producer.

     In 2013, First Pacific acquired 34% of Roxas Holdings, one of the country's largest raw sugar millers, marking its first major investment in Philippine agriculture. 

Aggressive bidding

The group is vying for still more pieces of Philippine infrastructure. Metro Pacific Investments has participated in the bidding for nearly all projects under the Aquino administration's public-private partnership program -- through which more than $20 billion worth of deals are up for grabs.

     Last year, Metro Pacific Investments and Philippine conglomerate Ayala Corp. won a $1.5 billion contact to extend the capital's longest and busiest light railway line, as well as run it for 32 years. The duo has pledged to go after all public-private railway contracts, including an upcoming $3.8 billion project to revive Luzon's old rail system and expand it to the south of the island.

     Earlier this year, Metro Pacific Investments won a $790 million toll-road deal by offering to build the 44.6km thoroughfare at no cost to the government, and to pay $580 million upfront. Amid surging auto sales, the company is proposing two more toll roads -- one on Luzon and another on the central island of Cebu.

     The group has also bagged a project to develop an automated fare collection system similar to Hong Kong's Octopus card.

Fruitful meeting

The engineer of First Pacific's expansion in the Philippines is chairman Manuel V. Pangilinan -- or as some like to call him, MVP.

     Anthoni Salim and his late father, Salim Group founder Sudono Salim, crossed paths with the Filipino businessman in Hong Kong in 1978. Pangilinan was working for American Express Bank and met the Indonesian tycoons during a client call. Pangilinan reckoned he had achieved nothing at the meeting, since the Salims appeared to be well-funded, but it marked the start of a relationship that led them to establish First Pacific in 1981.

     Pangilinan returned home in the 1990s to cultivate the group's Philippine investments.

     Even with a Filipino at the top, First Pacific's success in the country has invited scrutiny. The Philippines limits foreign ownership in strategic industries, such as utilities and natural resources. Due to its complex corporate structure, some critics wonder whether the group has breached those limits, perhaps by using dummy companies.

     There is also the question of who will fill Pangilinan's shoes once the 69-year-old retires. In 2013, he made Ray Espinosa, PLDT's head of regulatory affairs, an associate director at First Pacific. But it is unclear how Espinosa fits into Pangilinan's succession plans.

     With or without its MVP, First Pacific's businesses in the Philippines are on solid footing, an analyst said.

     "MVP will be a great loss if he retires, but First Pacific's [assets] in the Philippines are well-invested," said Astro del Castillo, managing director at First Grade Finance in Manila. "He has also laid the foundation for growth by investing in companies with good returns."

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