ôQuite. But it helps when youÆre sitting on top,ö he says, laughing. ôI donÆt mean to disparage American Express, but I donÆt like the politics of big organisations. You just get swallowed û youÆre one of 10 million people. I prefer to be in a more manageable setting.ö
Pangilinan is indirectly the boss of thousands, but First Pacific itself is just the kind of small organisation that he obviously likes to work at. In the investment companyÆs deathly quiet office in Hong Kong, where he spends about a third of his time, he is the boss of fewer than 20 people, but oversees operations at Smart Communications, PilTel, Maynilad Water, North Luzon Expressway, Landco Pacific and Makati Medical, all in the Philippines, and Indofood in Indonesia.
That is barely enough to keep him busy for half the average work day (not that there is very much that is average about PangilinanÆs work day, or his $6 million pay cheque). ôLooking at the operations of the existing businesses takes quite a bit of my time on a daily basis, just making sure everything is OK,ö he says. ôThatÆs the boring part of my job. The more exciting part is the rainmaking part: originating deals and managing them to conclusion.ö
Pangilinan has been a prolific dealmaker since he left the investment banking arm of American Express rather than accept a fast-track posting to London. That decision led him to set up First Pacific in 1981 with friend and one-time client, Anthoni Salim, of IndonesiaÆs Salim Group. They remain business partners to this day û Salim has been chairman of First Pacific since day one.
Their latest deal was to buy a controlling stake in the PhilippinesÆ longest toll road û the North Luzon Expressway û for $278 million through Metro Pacific, the companyÆs Philippines arm. Earlier this year, Metro Pacific upped its stake in water monopolies in Manila. This investment in heavily regulated industries in a country such as the Philippines might frighten other investors, but this is not PangilinanÆs first time round the block.
ôItÆs not a deterrent to us as perhaps others might see it,ö he says. ôItÆs a country we know reasonably well, so weÆre quite comfortable. The investment in the toll road is basically infrastructure-driven û itÆs all about delivery of services by way of platforms that are unique to you or in a way monopolistic. It provides steady cash flows.ö And Pangilinan would like to invest in more infrastructure assets û ports and harbours, more toll roads, airports and the railway system are all potential targets, he says.
First PacificÆs portfolio in the Philippines looks strong today, but things were not always so comfortable. When it bought PLDT, the biggest telecoms company in the Philippines, in 1998, Pangilinan was pilloried and the criticism continued for years as PLDT struggled to reorganise û by 2002, with the Salim family heavily indebted and hounded by the Indonesian government, First Pacific was torn in opposite directions: Anthoni Salim needed to sell the companyÆs Philippines assets to pay off his debts at home, but, as chairman of PLDT, Pangilinan put the companyÆs interests ahead of his friendÆs.
Pangilinan won that battle and today PLDT is widely considered one of the best companies in the Philippines, and compares well against most telcos in the region. Margins are high, free cash flows are significant and the dividend yield is good. The company expects the third quarter to be affected by inflation, but still aims to meets its profit target of Ps37 billion ($795 million) û a small improvement over 2007.
ôWeÆre more mass based, so our customersÆ spending priorities must be on food and rent and tuition for the kids, so we expect that inflation will cut into minutes of use and to some degree texting,ö he says. ôThatÆs the reality, although the effect has been more on net subscriber take-up rather than revenue, which is not such a bad thing.ö
Rising prices have hit the Philippines particularly hard and have helped to make President Gloria Macapagal Arroyo more unpopular than ever. Opponents routinely call for her resignation, for any number of reasons, and the newspapers are scathing of her record, but Pangilinan says her treatment has been harsh, at least when it comes to her management of the economy.
ôOverall, the economy has been reasonably well managed,ö he says. ôThe second-quarter numbers in GDP growth rates are obviously down and IÆm sure it will have a carry-on effect in terms of the third quarter numbers, but many of the reasons for the hold-back in growth have been exogenous to the economy and public sector debt has been on the downtrend, so on the whole I think itÆs been okay.ö
Cultural cure
Indeed, Pangilinan suspects that much of the post-World War II decline in the Philippines is explained by the countryÆs ôdamaged cultureö. ôWe just donÆt know how to run our affairs well enough,ö he says. ôWhen you get down to it, itÆs really quite simple. I saw it at PLDT in the early days and again now at Makati Med. The underlying procedures and practices are just not there. IÆve always had the belief that if the average ordinary Filipino would just do his job I think weÆd be much better off.ö
When we meet, Pangilinan has just got back from a trip to the Olympics in Beijing, where the Philippines won no medals. He is president of the national basketball association and a proud patron of sports, both personally and through PLDT and Smart. The Philippines had hoped for medals in boxing and taekwondo at the Olympics but their fancied athletes all fell in the early stages, which was also blamed in many newspaper articles on the essential character of the Filipino û if only there could be more like Manny Pacquiao, the boxer who is considered by many in the fight game to be the best pound-for-pound fighter in the world.
To Pangilinan, failure at sports is symbolic of a greater failing in society and heÆs keen to help redress both aspects in the Philippines. ôA professor at Wharton once said to me that economic poverty is directly correlated to moral and sporting poverty, and I think that correlation is probably true.ö
On the sporting front, Pangilinan is involved in the countryÆs post-Olympics reassessment and on the economic front, although First Pacific is no charity, its focus on infrastructure spending, primarily through Metro Pacific, is just the kind of investment that the Philippines needs a lot more of û which is exactly what Pangilinan is planning.
This story first appeared in the September issue of FinanceAsia magazine.
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