Ramon Ang. File photo
MANILA, Philippines (UPDATE) - Ramon S. Ang is unfazed after offering 36 times more than Manuel V. Pangilinan to win the NAIA Expressway project, which has some financial professionals saying he bid too high, maybe to the point of making the project barely profitable.
"SMC has a good track record in bidding for good assets," the San Miguel president said in a text message. "Our bid is correct at 150,000 cars per day capacity. It's a good project."
San Miguel yesterday bid P11 billion for the public-private partnership project, compared with the P305 million of the only other bidder, Manuel Pangilinan's Metro Pacific. That money goes to the government. San Miguel foots the P16 billion cost of the tollway it will operate for 30 years.
"Obviously it is good for the government," a CEO said.
The government and the four casino resort operators in Pagcor City. They offered P6 billion to the winner when the project was extended from the original end-point to their area. Both bidders declined the offer, so the casino resorts are getting the extension for free.
“The winner in this case is the government and the locators in the Pagcor Entertainment City," DPWH Secretary Rogelio Singson said after the bidding.
"I guess SMC bid more as they saw more strategic value in ensuring a smooth flow from the airport since they own PAL," said Ed Francisco, president of BDO Capital, one of the country's biggest investment banks. They could have bid more to ensure air traffic would have more incentive to grow."
Most of the other financial professionals I spoke to were more dubious about the bid.
"It appears they are vastly overpaying," an analyst at a foreign stock brokerage said. "Our best guess is the return will be 5% assuming vehicular traffic is at the maximum 160,000 per day every single day. Someone should be canned."
He and the other financial professionals I spoke to spoke on condition they wouldn't be quoted by name, because San Miguel is a client or potential client.
Last year, Ayala Land outbid the Gokongweis' JG Summit P24 billion to P15 billion for the FTI complex and already there were off-the-record comments about whether it bid too high. But while that is also about a P10 billion gap, it's "just" 60 percent more.
One difference is that while the Ayala group has become much more aggressive in acquiring land and infrastructure projects in recent years, acquisitions are a relatively small part of the group's growth. Much or most of the growth is "organic," i.e., squeezing more out of long-standing assets and businesses.
Meanwhile, acquisitions have been THE growth story of San Miguel. NAIA Expressway is just its latest infra investment. It started with the Caticlan airport and MRT-7 project in 2010.
In 2011, it bought 35 percent of Tarlac-Pangasinan-La Union expressway project (TPLEX) in 2011 (with DMCI) and 46 percent of company that owns Skyway, where it's now partners with Indonesia's Citra. In 2012, that company bought 80 percent of South Luzon expressway, or SLEX. (Note that MRT-7 and TPLEX are or were acquired from original proponents who hadn't put much money in yet, and were probably therefore relatively cheap.)
In energy, it bought three power plant contracts from 2009 to 2010, making it one of the country's top three power suppliers alongside long-time giants Aboitiz and First Gen (controlled by the Lopez group, parent of ABS-CBN).
It was the lone bidder for the Limay power plant in 2010, which it flipped for an undisclosed amount the next year. (It also bought Bank of Commerce in 2007 and passed it on to its pension fund in 2010, which sold it to Malaysia's CIMB in 2012.)
In fuel and oil, it bought Petron in 2010, starting with an option in 2008, and Malaysia's Esso in 2011.
And of course it bought one third of Meralco in 2008 and 2009, before losing to Pangilinan in a battle for control, and half of PAL last year.
It's planning to bid for most of the public-private partnership projects the government is rolling out, many of them again against Pangilinan's Metro Pacific.
"SMC has been very aggressive and some investors are concerned not just with returns but also if it has too much on its plate, too much balance sheet risk," said an analyst at another foreign investment bank.
Most of the people I spoke to focused on the price and the returns, with one of the country's biggest fund managers saying he "can't understand where that bid amount came from."
"I suspect one side or the other misunderstood," said the president of a foreign bank. He said the situation reminded him of the bidding for Camp John Hay in the 1990s. Now Senator Manny Villar submitted the winning bid then walked away, amid disagreements with the Bases Conversion Development Authority that bidded it out.
Someone in SMC made a mistake or is not thinking like a shareholder, a veteran analyst said.
"I have never seen bids that are 30 times different from each other. It's like they were looking at different projects," another CEO said. "This is also surprising given the Metro Pac isn’t shy about bidding high in these situations. I think SMC is in for a big problem if they push through with the project. I think recovering their capital will be a difficult proposition."
"How San Miguel will recover (their capital) is a big question, considering that the road tariff is fixed," said the head of another of the country's biggest investment banks.
Another bank president took a broad view.
"The good news is that San Miguel remains committed to helping the country's infrastructure program," he said. "As always, the key question for any project proponent would be: do they have the expertise and the financial capability to perform if they win?"