The Philippine Stock Exchange can boast a handful of companies that international investors are comfortable with — the biggest banks, telcos and conglomerates. But there are also a handful of companies in foods, pharmaceuticals and services that are well-run, growing businesses.
In an exclusive interview with FinanceAsia, Cesar Purisima, secretary of the Philippine department of finance, said that he hopes these dynamic firms will become future corporate champions through initiatives such as Asean Exchanges — a collaboration of seven exchanges from Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
“We’ve been trying to encourage more of these start-ups and family-owned companies to come to the capital markets,” said Purisima. “It is important that Asean develops a deeper capital market that attracts investors from both within the region and outside. The problem for most of the exchanges right now is that it is simply not deep enough, not big enough. The Asean Exchanges will help us address that problem.”
A deeper pool of liquidity could make it more worthwhile for start-ups and other growing businesses to consider listing, but would also help bigger firms with international ambitions.
“We have companies that are starting to go beyond the boundaries of the Philippines,” said Purisima, “Getting funding from outside is crucial not just from a capital perspective, but also in terms of matching risk.”
Take San Miguel. It announced on May 23 that it expects to hit its $20 billion revenue target for 2015 this year on increased contributions from new acquisitions. In April, it bought a 49% stake in national flag carrier Philippine Airlines. The food and beverage giant’s other acquisitions include Petron, the country’s biggest oil refiner, US giant Exxon Mobil’s refinery and petrol stations in Malaysia, and a third of Manila Electric.
Jollibee is another company that has been growing overseas at a fast clip. It started as a two-branch ice cream parlour in 1975 offering hot meals and sandwiches. It now has 2,469 stores — under various brands — ranging from the Philippines to Qatar. In March, it disclosed to the Philippine Stock Exchange that it had set aside Ps5.8 billion for its 2012 capital investment programme and earmarked half of this budget “to increase its store count by 125 stores in the Philippines and 100 stores in China”.
And ports operator International Container Terminal Services is the sort of corporate champion that Purisima would like the world to hear more about. It reported a net income of $35.4 million during the first three months of the year on the back of growth in volume and revenues, and lower financing charges. This was 24% higher than the $28.5 million net income during the same period in 2011. It has terminals in Manila, Brazil, Poland, Ecuador, Madagascar and China — a truly global company.
Opportunity knocks
“Asean is home to the second-largest population in Asia — and the youngest,” pointed out Purisima. “There is a lot of opportunity here, but with it comes expanded responsibility.”
That means companies below the top tier are going to have to step-up their game in corporate governance and understanding of not just the regulatory requirements in the Philippines but globally as well, said Purisima.
This, of course, has been Purisima’s mantra — and President Benigno Aquino’s —for some time. They preach good corporate governance and have promised to reduce graft and corruption. The recent decision by the Philippines Senate to dismiss the chief of the country’s Supreme Court for hiding millions of dollars in assets is one example of the two-year anti-corruption campaign’s efforts.
At the Asian Development Bank board of governors meeting held in Manila during early May, Aquino said in a speech: “[These efforts] have boosted confidence in our country, restored the citizenry’s morale and are reaping dividends on the economic front. Investors and Filipinos alike are seeing what is happening.”
Purisima said evidence that this is paying off could be found in the nation’s cost of borrowing. In January, the Republic of the Philippines priced a $1.5 billion 25-year global bond at the lowest coupon it has ever achieved for a long-dated bond.
“We finally have a president who walks the talk of better governance; now we need this to be sustained beyond just one term,” said Purisima, in an obvious campaign pitch.
But his point is fair: the more the Philippines gets the word out that it means business about good corporate governance, the better it is for the nation — and, by extension, the region. Asean Exchanges will help the Philippines. But good corporate leaders from the Philippines will also help Asean Exchanges.
Stay tuned for our upcoming supplement to FinanceAsia on Asean Exchanges in September.
