A question of value

Manuel L. Quezon III
9 min readSep 23, 2023

Does a GFI have a broader responsibility?

This week’s column is on the big Metro Pacific buyback and the GSIS.

This week’s The Long View

THE LONG VIEW

Philippine Daily Inquirer / 05:10 AM September 20, 2023

In January of this year, news came that Japanese conglomerate Mitsui was interested in acquiring up to 20 percent of the Metro Pacific Investments Corp. (MPIC), the holding company whose basket of goodies includes the Manila Electric Company (Meralco), Metro Pacific Tollways Corp., Maynilad Water Holdings Company, Inc., and Metro Pacific Light Rail Corp. The reason given was that the MIPC shares have long been undervalued though not of its own doing. Last year’s yearender was the reputational blowup of PLDT which disclosed a budget overrun almost equal to its 2020 and 2021 income combined. Few CEOs would have survived such a revelation but Manuel V. Pangilinan did; still, something had to be done.

Soon after, the papers started reporting that a scheme was mulled over by Metro Pacific to delist from the stock market and go private. A Bilyonaryo report at the time quoted one analyst: “Stock is super cheap, trading below the value of MER (Meralco) shares that it owns (implying all other subsidiaries are free). Price has also failed to go up despite share buybacks and other efforts to (increase) shareholder value.”

In late April of this year, as this paper reported, the goal became to buy back 36.6 percent of the company at P4.63 per share, a P48.6 billion tender, although an analyst quoted in the same report said, “The tender offer price represents a steep 54 percent discount to our [net asset value] estimate for MPI and 47 percent discount to our fair value estimate for the stock,” which they pegged at P8.79 a share.

In July, the offer had to be raised by 12 percent and now totaled P54.8 billion or P5.20 per share. Rappler quoted an investment house advisory: “The tender offer price is just at a 4-percent premium to the market value of MPI’s 47.5-percent stake in [Meralco] of P5 per share. As such, from a valuation perspective, we deem the tender offer price of P5.20 per share to be too low,” adding that the firm’s advice was for those “who could not afford to risk their investments getting delisted” to take the offer anyway. Still, it was finally approved by “ more than 77 percent of shareholders” on Aug. 8 and made official by the consortium composed of Anthoni Salim’s First Pacific Group, the Ty family conglomerate GT Capital Holdings, Japan’s Mitsui, and a private company owned by Manuel V. Pangilinan, starting on Aug. 9. The tender offer would expire on Sept. 7.

What the bigger chunk means is a board seat. In the end, the GSIS announced it would play ball: It would neither oppose the buyout nor sell its shares. What the buyout seems to have achieved is, first, a glowing PR opportunity for the GSIS boss, Jose Arnulfo Veloso, former head of PNB. The Ken in a report went as far as saying, “It is rare for a government institution to display such prowess in the realm of strategic market trading,” while Bilyonaryo had an unnamed source enthusing, “It’s a gutsy and costly move for GSIS. However, when all is said and done, Veloso remained true to his mandate of safeguarding shareholder value, transitioning from a position of vulnerability to one of strength.”

Of course, not everyone agrees. Stepping gingerly around the possibility of antagonizing GSIS can punish brokers who state inconvenient truths. To be sure, it’s puzzling that if the name of the game was a buyback offer by a consortium, then why would a government financial institution (GFI) up its stake only to decline the buyback offer, leaving it with one seat in a 15-person board, which seems slim leverage overall although such a seat would be a plum post?

Market watchers themselves made sense of the move in terms of it being a bold one, threatening to torpedo the scheme unless those being bought out would be given a price more closely reflecting the real value of the stock. After all, as a GFI, the GSIS not only represents its members’ pensions-to-come, but arguably it can, and should, play a role in the broader public interest-in this case, the other shareholders, big but particularly the small, who would otherwise be “forced to leave money on the table,” as one broker (privately) put it. The Philippine Stock Exchange’s rules put the threshold for the bidders at 95 percent of shares and what GSIS did was get the consortium that much closer to its goal that much faster.

GSIS can, of course, sell off its chunk to the consortium not only at a later date, but at a higher price, and with much less in the way of public attention. One could only fault such a development, whether agreed upon privately beforehand or as circumstances play out, if one is convinced the GFI could have used its clout to help all minority shareholders if it believed the buyback offer was undervalued.

Wick!

Why, hello there

PNB said it booked a total of P19 billion in total provision for bad loans in the first half of 2021, P16.9 billion of which was chalked up in the second quarter.

Aside from its mounting bad loans, PNB also saw its net interest income drop by three percent to P16.85 billion and trading and foreign exchange gains tanked by 57 percent to P1.58 billion.

Despite the woeful figures, PNB president Wick Veloso claimed that his management delivered “excellent results” during the period.

Veloso said PNB was able to “monetize its low-income generating assets” with a paper gain of P33.6 billion from the increase in fair market values of the bank’s three prime real estate properties transferred to PNB Holdings Corporation in exchange for shares.

In contrast to PNB’s poor results, LTG’s other subsidiaries were excellent…

The chart below shows that during his time at the helm of PNB, the bank was the worst performing among its peers.

Read ’em and weep

The other showpiece of the new regime is his claim to have expanded the actuarial life of the GSIS. There are those who doubt it got extended that long because of anything he did. Privately, one broker believes it’s only because interest rates are so much higher today than in mid-2022 which increases the earnings of the fund’s assets.

Map matters

A whole new world…

A couple of interesting articles

2023 edition of national map released:

The 2023 edition of the standard map of China was released by the Ministry of Natural Resources during the celebration of Surveying and Mapping Publicity Day and the National Mapping Awareness Publicity Week on Monday in Deqing county, Zhejiang province.

The standard map service system operates on the official website of the Ministry of Natural Resources…

Wu Wenzhong, chief planner of the ministry, said surveying, mapping and geographic information play an important role in boosting the development of the nation, meeting the needs of all walks of life, supporting the management of natural resources, and helping the construction of ecology and civilization.

The national map is an annual production that could be released any time, and China knows well that its claims are contentious, even though they are not new.

It seems significant, then, that Beijing chose to release the map on the heels of a late August meeting of the BRICS nations — Brazil, Russia, India, China and South Africa — and just before China is to participate in top-level meetings of the Association of Southeast Asian Nations and the Group of 20 rich and developing nations.

Beijing’s recent publication of a new, standard map, its so-called ‘10-dash line’ extending its claim over most of the South China Sea beyond its internationally recognized Exclusive Economic Zone (EEZ), may just be the opportunity hitherto missing for the US in its long-running mission to contain China. The map has effectively revealed where China stands vis-à-vis the dispute: it sees even more of the entire sea as its own, and it extends its hegemony into Indian territory as well.

The map not only rejects the 2016 international court ruling that its so-called ‘nine-dash line’ was without merit and superseded by the 1982 United Nations Convention on the Law of the Sea (UNCLOS) but extends it unto new territory. In effect, the message Beijing has sent is this: China does not respect a rules-based international order. The message becomes even clearer considering its timing. In July, China and the ASEAN states reached agreement on guidelines to accelerate negotiations for developing and implementing a new Code of Conduct on the South China Sea. While efforts for such a code remain underway, the map shows Beijing’s active attempts at presenting the relevant states with a fait accompli and its refusal to respect other states’ interests…

No wonder all ASEAN states have rejected the new map…

The new map affects India as well. In addition to the territorial dispute China is already negotiating in Ladakh, the map has started a new dispute as the ‘dashes’ extend to the water around the Indian states of Arunachal Pradesh and the Aksai Chin plateau…

With Beijing now acting as a regional hegemon not interested in consensus-based frameworks and with regional states unable, or not strong enough, to tackle it on their own, security arrangements that involve the US become a logical policy option.

With an eye on China, Washington recently found success with Japan and South Korea in forming a security pact. Many saw this, in addition to the Quad, as a step towards an eventual ‘Asian NATO’ and a bid at successfully containing Beijing.

Earlier, many regional countries were sensitive to the possibility of Washington provoking China. But with Beijing unilaterally publishing its sovereignty claims, Washington doesn’t really have to be the provocateur.

The Chinese most recently demonstrated their disdain for Russia, for instance, with the release earlier this month of the China Standard Map 2023, which in addition to claiming larger bits of Southeast Asian waters and a chunk of India, claimed all of the 350 sq km. Bolshoi Ussuriysky Island, which sits at the confluence of the Ussuri and Amur border rivers, and whose ownership has heretofore been legally shared between China and Russia, without notifying Moscow.

(Some background readings and collected links: The Explainer: Russia’s pivot to Tokyo courtesy of Trump from 2016; and from 2017, The Russian Dilemma and The Long View Context: China, Russia, Washington (and the Marcoses too).

I beg to differ department

So, Viswa Nathan recently wrote,

A scheme to bring down Vice President Sara Duterte and secure the 2028 electoral prospects of House Speaker Ferdinand Martin Romualdez (and Marcos cousin) that began soon after the 2022 presidential election and caused friction in the team that helped Ferdinand Marcos Jr. to power, is still simmering.

What former President (and former Speaker) Arroyo was supposedly up to, was trundling around a proposed Marcos impeachment. It was this, and not a bid to potentially wrest the speakership from Romualdez, that caused the rupture earlier this year.

All ahead of the 2024 midterms and the 2028 national elections, of course. The dilemma of the ruling coalition is best laid out in Nathan’s concluding paragraph:

…the smartest choice for Romualdez is to make peace with her and agree to run as her vice president in the 2028 election with a guarantee that she will back him as the presidential candidate in 2034. Romualdez will then be 77 years old as Rodrigo Duterte was when he ran for president in 2016. With such a deal, Sandro Marcos could aim to succeed Romualdez and, hopefully, become the youngest president of the Philippines after Emilio Aguinaldo. The critical question is whether do Romualdez and Sandro Marcos have the patience to wait.

Eighteen years between Ferdinand II and Ferdinand III, even including a Ferdinand Martin, is an eternity. This early, the expected Anointed One of the administration is Speaker Romualdez, but then there is Vice President Duterte, her alliance with former President Arroyo, and the question of the President’s sister, Sen. Imee Marcos, who is closer to the two than she is to her brother. A strong contender for the vice presidency is Senator Tulfo.

An interesting episode of Christian Esguerra’s YouTube show tackled Imee Marcos: Kritiko o kakampi ni BBM?It provides a useful overview of both political scuttlebutt about ruling coalition dynamics.

Originally published at https://mlq3.substack.com.

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Manuel L. Quezon III

Columnist, Philippine Daily Inquirer. Editor-at-large Spot.ph. Views strictly mine. I have a newsletter, blog, podcast, and Patreon.