Unfolding agenda

The surprises seem to never cease.

Rumors have it that a leading financial institution, renowned for its astute business strategies that have earned for it unprecedented respect of local and international analysts alike, especially because of its industry leading performance in the area of returns on investors’ equity, has now shifted into acquisition mode.

We are surprised because whenever there was talk in the past of bank mergers and acquisitions this particular universal bank always succeeded in whetting the appetite of its larger peers.

Well it seems the tables are now turned for this particular universal bank which, we have learned from informed sources, is dead set on acquiring a Chinoy-owned bank that’s in desperate need of a white knight. More importantly, there are evidently strategic synergies that will benefit clients and shareholders of both institutions.

Distorted picture

A major telecom equipment manufacturer, which supplies network and IT equipment to major operators in the Philippines, is now the subject of criticism in China and Hong Kong for allegedly misrepresenting its revenues and underdeclaring its expenses.

Huawei Technologies, which is present in over 100 countries including the Philippines, is being questioned for its lack of transparency and the manner by which it presented its 2008 financial report.

There is no question that Huawei is big, even in the Philippines. Unknown to many Filipino broadband users, most of the mobile devices that the subscribers are using to connect to the Internet are supplied by Huawei.

Huawei, founded by a former officer in China’s People’s Liberation Army in 1988, is now one of the largest equipment suppliers in the world along with Alcatel-Lucent, Cisco Systems Inc., Ericsson, Nokia Siemens Networks, and even fellow Chinese firm ZTE Corp.

The problem is that a number of business media outfits in Hong Kong and China, along with several respected stock analysts are now raising doubts on the very rosy financial figures reported by the Shenzhen-based technology firm.

While the Chinese telecom-equipment supplier, being an unlisted company, is under no obligation to fully disclose its financial performance, analysts said its lack of transparency may alienate its clients around the world, particularly in the Philippines where all the four big operators are publicly listed or are subsidiaries of publicly listed companies.

There is no doubt that Huawei has already gained foothold in the Philippines, but some sectors have expressed doubt on the ability of the Chinese supplier to enter into long term contracts with Philippine companies that demand full disclosure of information.

As a multinational company with reported annual sales of $18.3 billion, of which 75 percent comes from overseas, Huawei has an obligation to its clients to tell the truth.

The fantastical 2008 profit reported by Huawei against the backdrop of global economic downturn creates a distortion on the real picture of the telecom industry, which may give false signals to telecom operators in terms of their business plans.

Ee chanced upon an article by stock analyst Huang Ke, writing for the China Business Times, which said Huawei may have underdeclared its expenses, by reporting just 11.51 million renminbi (RMB) under the “wage” item, when in fact it has 80,000 employees around the world.

At an average per capita salary of 6,000 RMB and 30,000 RMB per capita bonus, the “wage” item should have declared at least 3 billion RMB against the Huawei 2008 revenue.

Also notable were the discrepancies in the latest financial report of Huawei. A senior, analyst, Mr. Fu Daliang, said a strange gap of as many as five pages exists between the Chinese report and its English version.

Apparently, there were loopholes in the financial statement of Huawei, because the domestic annual report 2008 of Huawei was still prepared under the old accounting system.

In the 2008 report prepared by auditing firm KPMG, Huawei Technologies said its global sales increased 42.7 percent year-on-year to $18.33 billion last year (about 125 billion renminbi), while its net profit rose 20 percent to $1.15 billion (7.9 billion RMB). Of the total revenue, 75 percent came from the overseas market. The 42 percent revenue growth, the China Business Times article notes, is startling considering that global industry vendors are covered with heavy clouds.

An independent auditor who looked into the financial statement of Huawei, concluded that if the new accounting standards are to be strictly followed, Huawei may have in fact incurred an operating loss of between 5 and 7 billion RMB and its actual debt ratio may have hit 75 percent.

A report by another industry analyst described the Huawei corporate revenue report as “merely a foam bubble container actually made up from figures using special financial methodologies, as a result, creating too much false clues hidden behind the report.”

From the readers

“This is in reply to your column of June 24.

“I ‘am a professional manager, who has been in the coconut industry for more than 40 years. At present, I’ am a member of the board of the Phil. Coconut Authority (PCA), director of the United Coconut Association of the Phils. and the founding chair of the ASEAN Vegetable Oils Club.

“Records will show that I have been supportive of the coconut farmers and this is known to Danilo Coronacion, who also sits as PCA director.

“I regret that there are vested interest groups who have attacked my appointment as CIIF group president, replacing Coronacion. To them, I offer my hand of friendship for us to dialogue on how to serve the farmers better.

“I appeal to them not to pre-judge me, as goodness and kindness are not monopolies of anyone. 

“During my stint in the industry, I have represented the best interest of the coconut industry and the coconut farmers, producing and marketing the farmer-owned CIIF – Oil Mills’ consumer product, the top cooking oil brand, Minola, which dislodged Baguio Oil in sales in the 80’s.

“We have represented and defended the coconut industry versus a series of misleading massive propaganda against coco oil, terming it as a health risk. These were initiated by companies from the US and European countries which are producing alternative cooking oil products.

“Our position, was documented during the Beijing World Food Congress in the 80’s.

“On the point that Coronacion has assisted the coconut farmers, let’s give credit where credit is due. Let it be known that helping the farmers was the brain-child of President Arroyo years ago.

“The fund from this, as the President mandated, will come from the proceeds of the dividends of the CIIF equity in San Miguel Corp. (SMC), which amounts to roughly more than P1 billion a year.

“This was then initiated by the Department of Agriculture and vigorously pursued by Secretary Arthur Yap. This was started by Coronacion’s predecessesor, Rolando Golez and should be continued by whoever sits there as president.

“Hence, if there are people whom the farmers should thank, it is the President and Mr. Yap.

“The groups mentioned, as supporters of Coronacion, are the very groups who are the recipient of the funding from the SMC dividends. Because of this, it is unfair to use them. Also, this will create divisiveness that we want to avoid in the industry.

“There ought to be some semblance of civility among presidential appointees. One should have the delicadeza not to cling to his position and instead respect the wishes of the President.

“It will be recalled that when Coronacion replaced Golez, as president of CIIF more than four years ago, Golez, did not use the media to discredit Coronacion. As a gentleman and a good soldier, Golez quietly followed the President’s wishes and left. Coronacion, therefore, is a beneficiary of a peaceful turnover of command which he should also accord to whoever will replace him.

“The farmers should be very concern about the losses incurred by the CIIF group, which run into a billion or more pesos.

“It is lamentable that after four years, CIIF was not able to produce high-value coco products like biodiesel, which other smaller companies, like Chemrez Inc., are now producing and making profits.

“The CIIF also failed to produce higher value specialty fats and oils. The fact is, they already bought a $1 million (P48.5 million) machine for this purpose which arrived as early as August 2008. The unit purchased is of Italian made Crystallizer from Chemtech International. It should be operated and not stand idle, as this is a waste of coconut farmers’ money.” – Jesus L. Arranza, CIIF President

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