Tito F. Hermoso / San Miguel Corporation | March 22, 2010 11:23
A beer giant goes into the business of road building
Of the current images of San Miguel Corporation, the one that comes to mind is the Jose "Pepe" Smith radio spot about Red Horse Beer. The changes in accent and target cliches, done by perhaps, just one talent, shows the spread of the Beer giant's transformation into a chameleon of sorts. San Miguel Corporation is in a rush to use its considerable financial muscle and reputation to transform our San Miguel Beer country. Its getting into everything in energy, infrastructure, utilities, toll highways and mining, utilizing both text book approaches of vertical and horizontal integration, JV and acquisition.
Like the Lopez family before them, nation building is the stock in trade of several conglomerates. The Lopez family is in telecommunications, mass media, energy generation, energy distribution, residential development and at one very successful time, toll roads. When First Pacific of Hong Kong decided to reach out of the Crown Colony before 1997, its main nation building vehicle has been Metro Pacific, which today is a powerhouse for telecoms, utilities, ports, mass media, energy distribution and toll roads.
For DMCI or DMConsunji, Inc., perhaps Bouygues, a giant in construction, telecoms and utilities in France is its inspiration. Or was it, the CDCP the predecessor of the PNCC? Just like Bouygues, DMCI has been reaching for scale in construction, utilities, toll roads, residential development and mining, although in the TPLEx project DMCI seems to be primarily interested only in the construction part and not the more profitable operations and management side.
These conglomerates, whether for the profit motive and/or love of country, are doing the big bucks long term projects that are essential for nation-building. Our country has been constantly trying to catch up with the backlog of infrastructure so much so that the private sector, through Build-Operate-Transfer, are filling in where government is stretched.
To achieve this San Miguel Corporation, the globally renowned Philippine company, has en-cashed its crown jewel, the Beer division, in order to bank roll its plans for nation building. With this cash, it has bought controlling stakes in Liberty Telecoms, Petron and a large share of Meralco. San Miguel, through Team Energy, has bought coal fired power plants. It has proposed mega projects like the Laiban Dam. It has immersed itself in the toll road business by linking SMC's Rapid Thoroughfares with D M Consunji for PIDCo's Tarlac to Gerona, TPLEx tollway project. To gain established experience in Tollway Operations and Management, it has linked with STAR Tollways and a Hong Kong fund to create Northlink, an O&M company that bidded for the SCTEx. SMC is bidding high for the PNCC's 20% stake in MATES, O & M of the South Luzon Tollways. It is buying into Ausphil's North Luzon East Expressway, a project that partially uses the MWSS right of way from Commonwealth to San Ildefonso which also runs parallel to Universal LRT's LRT-7 project. SMC's horizon for the NLEEx doesn't end there as it plans to take the expressway to Cabanatuan and eventually Tuguegarao with a projected daily volume of 65,000 vehicles. And the hunt for shovel ready projects and capital hungry long term projects continue. Judging by the scale and intensity of this shopping spree, San Miguel Corporation is not wasting any time, climbing a steep learning curve in order to be a force to be reckoned in nation building.
San Miguel makes no pretenses of having core competence beyond brewing beer. The post Andres Soriano years brought in a new cadre of managers with a different management style. San Miguel's core think tank doesn't veer from its familiar formula. That's why when San Miguel Energy took over a couple of power generating plants and bought a couple of coal mines to ensure the plants' coal supply, it was only prudent to review and audit high cost items like coal supply contracts and operation contracts. SMC has to be responsible to its numerous stockholders of voting common stock, and soon, an even faster growing number of non-voting preferred stock holders that are promised an attractive dividend.
The same can be said when SMC and its partners took over Petron from Saudi-Aramco. Coming in during the peak of the recession, advertising budgets were vaporized but Petron's impressive forecourt image remained intact. Now, even Petron's tanker-hauler contractors have upgraded their truck fleet to EU standards just like Chevron. With Qatar's Q-tel, San Miguel is reconciling the technology and marketing challenges of taking over Liberty Telecom.
There will be missteps in timing, leading to truly colorful and malicious conspiracy theories about the "exercise" or practice in the shortfall in power generation in preparation for the country's 1st electronic elections. Theories, that no amount of explanation about the drought and the declining balance of hydro electric power can ever dispel. And the obvious baby steps, like the crash course in toll way O&M via Northlink-STAR Tollway, and the crash course in funding and building the PIDCo's TPLEx, which is not yet anywhere near Gerona. Then there are the projects, like Laiban Dam and the NLEE that, in its zeal, has ruffled government's ways in bureaucracy, procedure and accountability.
San Miguel's rush to acquire established top tier utilities and infrastructure mirrors what First Pacific has been strategically doing in this country for over 15 years. Even if SMC is cash rich, it will still need funding for the projects it is getting into. The sheer size of the mega projects already taxes local banks' single borrower's limits and crowds out medium scale borrowers. Our banking industry just does not have the meat and the stamina for long term mega-projects like 30 year build-operate-transfer 300km long expressways.
What San Miguel Corporation has done is shine a spotlight on the weakness of financing long term infrastructure projects in the country. SMC is depending on its reputation to sell shares of stock with a promised return. The limited size of national savings in the banking industry made it difficult for the Lopez family to continue to invest in several facets of nation building.
Today, not too many infrastructure intensive Philippine companies can match the global credit reputation and financial muscle of the First Pacific group. Nor are they as reputed like the BCDA in having strong links with generous project financiers like the JBIC [Japan Bank for International Cooperation].
Which all the more highlights the need for a change in the Constitution that limits participation/ownership of foreign companies of local infrastructure and utilities. To the Nationalists who are always against any form of foreign ownership, they should study the behavior of all these big global energy, public transport, highway and utilities conglomerates. They always take on reliable local partners and are not averse from transferring the latest technology.
MTD, the Malaysian financiers, restorers and builders of the South Luzon Tollway, partnered with PNCC. At the Skyway Stage 2, Citra Metro Manila Skyway with PNCC, introduced novel rotating beam technology and two giant girder launchers that are laying beams from North to South and South to North. The SCTEx benefitted from Japanese technology in building flyover cast-in-place spread footings for the overpasses built on marsh land.
Like any group dedicated to nation building, San Miguel Corporation, will still need to find global sources of mega project finance and world class partners for mega project know-how if they want to be taken seriously. Even as they cram from beer to highways, they should not tarry in establishing a track record to show if they are wisely utilizing the money of a skeptical investing public.