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When it
comes to investments, retail tycoon Henry Sy Sr. has a
better grasp than the San Miguel Corp. Retirement Fund (SMCRF).
When the tycoon unloaded his shares of SMC for P80
apiece, the SMC pension fund bought them for a total of
P27 billion, netting the tycoon half of that in profits.
Now, the
tycoon is reported to have his sights on tourism,
whereas the pension fund is staring at a paper loss of
about P25 billion on its combined investments in SMC by
way of the purchases of SMC shares that used to be owned
by the Social Security System, the Government Service
Insurance System and the Sys.
The
astuteness of Sy, who parlayed his tremendous cash float
on his retail empire in his various forays into shares
of other listed issues, should offer a lesson to SMCRF
which, based on banking rules on collaterals, needs to
pare its borrowings or put up additional collateral with
the huge decline in the value of the SMC shares possibly
used in funding their acquisitions. That is, if the
pension fund borrowed to fund its successive
acquisitions.
Banks,
as a rule, ask their borrowers to put up additional
collateral should the underlying value of that
collateral fall below the reckoned value as of the date
of the borrowings. Another way that banks deal with the
decline in their borrower’s collateral value is by
asking the borrowers to partially pay off the amount
representing the decline in the value of that
collateral. This means SMCRF would have to cough up
almost half of its combined acquisitions to satisfy the
banks.
Of
course, the pension fund can always turn to San Miguel
for help. After all, the pension fund’s ownership in San
Miguel is very substantial that it could even initiate,
in theory, a management takeover. Why, it could even
have a voice in the announced shift in the business
model of San Miguel and the pronounced delinking of one
of
Southeast Asia’s food giant, from its core business that is food. The
beer-and-food giant has, of late, been pretty busy
fine-tuning its new corporate strategy focused on power
and other heavy industries.
Shareholders of San Miguel are not apparently happy over
the pronounced tectonic shift in its corporate strategy.
This could be the reason for the decline in the share
price of San Miguel. Another thing is that the spinning
off and the projected initial public offering (IPO) of
SMC’s brewery unit affect that of San Miguel since they
may just opt for having a direct share in the brewery
unit, which accounts for 40 percent of the SMC Group
profit. This is, perhaps, what the retail tycoon saw
when he unloaded his San Miguel shares at a premium.
Since it
is a zero-sum game, Sy’s gain is the SMC pension fund’s
loss. Sy, like the legendary stock picker Warren Buffett,
is a long-time stock investor, preferring to hold on to
his investments and, at times, even acquiring additional
shares. This is true, for instance, of his initial foray
into banking, when he bought the 10-percent share of the
Uy Chaco family in China Bank in the early 1980s. He
later on increased his investments and now has a
controlling stake.
SMC’s
pension fund should study the investment savvy of Sy who
has gotten into Ayala Corp., although he was shunted out
of a possible board seat when the Ayalas reduced the
number of the board of directors, Keppel Marine and
Equitable Bank. It is bruited about that Sy could have
opted for getting hold of the shares of stock that the
SMC pension fund owned in the Philippine Stock Exchange,
but which it sold for a little over P900 million. For Sy,
the name of the game is diversification.
Business
closures
With the
unabated rise in the price of oil and the challenging
business environment, business closures are expected to
rise some more. By August 1 this year, for instance,
Levi Strauss Philippines, one of the oldest apparel
makers in the world, is closing shop, after more than 36
years of operation. The jeans maker has been hard-hit by
slumping sales as the country saw the unbridled entry of
other less-priced jeans that include smuggled ones.
Other garment firms, notably the small and medium ones,
are expected to follow suit.
The
increase in the price of oil has aggravated the problems
of businesses operating in the country as they are
confronted by the twin effects of dumping and increased
costs. On the one hand, the small- and medium-scale
firms are faced with the prospect of goods priced lower
than those obtaining in their home fronts, and on the
other, they have to contend with the march of direct
costs such as oil, utilities and even of taxes, like the
two-percentage-point rise in the expanded value-added
tax.
Levi’s
closure this August would affect 257 direct employees,
not to mention the thousands of indirect employees who
profit from the continued operation of the jeans maker.
They include the button contractors and other
outsourcing contracts of the
US
apparel giant. The closure of Levi’s will have a
tremendous psychological impact on the part of investors
wanting to locate in the country, and the government
should come up with a program to woo other investors
into the country.
One
problem, though, is that the government is not wont to
grant additional tax perks and other incentives that
other Southeast Asian nations like Vietnam and Thailand
are offering to foreign investors. The government should
rethink its policy on the withdrawal of incentives that
resulted in the entry of investors in export-processing
zones. Unless this is done, the country will have to
come to grips with additional business closures owing to
the difficult business environment now obtaining, thanks
to the financial meltdown in the United States, United
Kingdom and Switzerland.
E-mail: hugagni@yahoo.com |
