US-based AES' $453-million sale of the
Masinloc coal-fired power plant to Thailand's EGAT is one of the cross-border
deals last year.
MANILA
– The Philippines may see a flurry of
cross-border mergers and acquisitions (M&As), as regional firms want to
take a piece of one of Southeast Asia's fastest-growing economies, according to
the investment banking arm of the Metrobank group.
In a
briefing, First Metro Investment Corp (FMIC) senior vice president Justin
Ocampo said corporate deals involving divestment from local owners have
attracted "quite a bit of interest" from regional players.
"We
have live transactions," said Ocampo, who also heads the George Ty-led
firm’s investment banking group.
"In
the past prior years, we would have interested buyers from the local market,
but in recent transactions, we have seen buyers from regional as well as Asian
companies. We anticipate quite a bit more action in terms of cross-border both
outbound and inbound," Ocampo said.
Last
week, AES Corp of the United States sold its 41 percent stake in the
630-megawatt Masinloc power plant in Zambales to Electricity Generating Public
Co Ltd of Thailand for $453 million.
"As
an offshoot of global realignment, we expect quite a bit of domestic
realignment as well," Ocampo said, adding that banking and consumer are
sectors that may see a flurry of M&As.
One key
driver of M&As in the Philippines is the Asean Economic Cooperation, which
aims to attract foreign direct investments (FDI) through the reduction of
business costs associated with multinational activities in the region.
The
Asean integration will create a European Union-style single market that aims to
ease cross-border trade through lower tariffs. It will liberalize areas such as
air transport, business services, construction, financial services, maritime
transport, telecommunications and tourism.
Despite
a slowdown in growth to 5.7 percent in the first quarter, the Philippines, once
dubbed as the Sick Man of Asia, remains one of the fastest-growing economies in
the region, behind only Malaysia and China.
"This
is not just a consumer-based expansion of the economy. Investments in the last
5 or 6 quarters were growing by double digits. The first quarter of the year
was no exception," said University of Asia and the Pacific economist
Victor Abola.
The
Philippines is about to enter the demographic sweet spot, a period where
majority of the population will be joining the work force, thus fuelling
spending power and providing the opportunity for accelerated economic growth
rates, the economist said.
As
foreign firms invade the Philippine market, Filipino companies are also
spreading their wings and looking at opportunities overseas.
"The
Filipino companies, their balance sheets are healthy and the cost of borrowing
is low. The market here is becoming small and anticipating AFTA, a lot of them
are looking at newer markets," Ocampo said, referring to the Asean Free
Trade Agreement.
In
their first overseas investments, Manila Electric Co bought into a 2-by-400
megawatt liquefied natural gas plant in Singapore, while Aboitiz Equity
Ventures Inc purchased a controlling stake in one of the biggest aqua feed
producers in Vietnam. Metro Pacific Investments Corp acquired a stake in Thai
tollroad operator Don Muang Tollway.
"Even
small companies are looking at buying," Ocampo said.
Corporate
deal making paved the way for an active pipeline of corporate bond issuances,
hitting P115 billion in the first 6 months of the year to surpass the P83.5
billion raised for the entire 2013. However, debt issuances may slow down in
the second half as most companies have locked in their funding requirements.
"The
sideways expectation in terms of interest rates provides a window for issuers
to continue to tap the bond market for their financing needs. The market
continues to be liquid. Investors are becoming more selective in terms of
pricing and structure," Ocampo said.
Likewise,
a handful of firms are rushing to tap the equity market in the second half
after missing out on the stock market's 16 percent rally in the first half.
Equity-raising fell by nearly a third in the first semester to P76 million from
P111 million a year ago, as issuers expected volatility in the stock market.
"The
economic outlook for the Philippine economy remains favorable despite a slower
than expected GDP growth in the first quarter. Heightened government spending,
strong consumer demand and remittances from the over 2 million OFWs will
continue to drive growth. Confidence in the real economy remains high given the
country's strong external liquidity and investment position and effective
monetary policy," said FMIC president Roberto Juanchito Dispo.
Business & Investment Opportunities
Saigon Business Corporation Pte Ltd (SBC) is incorporated
in Singapore since 1994.
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