Bullish on infrastructure

Cito Beltran and I dropped in on Ramon S. Ang for lunch last Thursday at his invitation. We were surprised to see other guests including Jean Todt, a French motor sport executive better known hereabouts as the husband of Malaysian actress, the Bond Girl Michelle Yeoh.

Todt, now the president of the Fédération Internationale de l’Automobile met RSA by chance at the Diamond Hotel. Being a car aficionado himself, RSA and Todt got famously comfortable with each other as if long lost friends. When RSA found out Todt’s Malaysian Airlines flight to Kuala Lumpur was cancelled, he offered to have him flown there on his private plane.

I imagine that’s the nature of RSA… a readiness to go out all the way for friends, even a newly found one. I suppose too that in his mind, friends are like investments. 

Once the other guests were ushered out for the limousine ride to the San Miguel hangar, we moved to another room for an after lunch conversation that took three hours. We started off talking about friendships, his friends not ours.

Friendships matter in business, RSA declared. He explained that his philosophy that has served him well is to nurture friendships and never do anything that will give anyone reason to be his enemy.

For example, RSA said he could have bought Benpres and Bayantel debt papers cheap and then squeezed the Lopezes for more under threat of losing control of their companies. Avenue Asia, an American vulture fund that held a sizable chunk of the Lopezes debt offered the debt papers to RSA. But RSA said he can’t imagine himself creating such powerful enemies. So he declined the offer.

RSA also said he does not force himself on people. Apparently, that’s why he decided to sell San Miguel’s Meralco holdings. RSA confessed he didn’t feel at home and felt left out during board meetings. He crunched his numbers and he said it made sense to leave when he did.

We asked him if his friendship has ever been betrayed. Sometimes, he said, people he considered and treated as friends disappointed him. He cited a columnist who came to him many years ago asking for a retainer to keep his PR agency afloat. After doing just that for many years this same person, RSA lamented, attacked him just because he was trying to win the favor of another prominent business personality.

RSA was not too happy with a recent rehashed column of his former friend that suggested in a not very well concealed blind item that a conglomerate may have money problems due to its ambitious expansion. That sounded too much like a reference to San Miguel based on old cocktail party conversations going on for years now.

So we asked RSA if he has enough to fund his many big ticket infra projects that are now getting approved by government one after the  other.

Of course RSA insisted San Miguel is more than capable of seeing their projects through. In fact, he said they are putting together a $4 billion war chest to acquire more companies, preferably in infrastructure. He is bullish on infrastructure also because he said, it helps the country develop. He insisted they are very liquid now specially after he sold San Miguel’s Meralco shares to the Gokongwei group at a good profit.

What about San Miguel’s legendary debts? RSA said they are more than capable of servicing their debts from the cash flow of the now diversified San Miguel. RSA was talking of net income in the range of P40 billion last year, assuming his auditors agree to their proposed revenue recognition. He isn’t worried that the stock market doesn’t seem to share his optimism about San Miguel, judging from the current stock price.

RSA said he will deliver the NLEX/SLEX connector road before P-Noy leaves office. They broke ground the other week and they will work from both ends, Makati and A. Bonifacio near Balintawak.

As for the NAIA expressway, RSA said they are ready to work as soon as DPWH delivers the right of way and gives them the go signal. They have already paid the P11 billion bid price just for the right to build this expressway.

RSA is disappointed with MRT 7. The project had been going through the bureaucratic wringer for years.

MRT 7 was resubmitted to NEDA for another approval which it got last year. But the bureaucratic hurdle is not over. I texted DOTC Sec Jun Abaya about it but he did not respond.

San Miguel is still waiting for the issuance of the performance undertaking by the DOF. It is also at this same point where the project got mired in bureaucratic stalemate in the past. A DOTC usec was quoted in another newspaper saying MRT 7 may not get going this year.

I asked RSA about his proposed international airport as an alternative to NAIA. It seems he has dropped the idea.

I asked him why the loss of enthusiasm for such a needed infra project? He said he got the feeling people in government do not want it… that they want to do the project themselves.

I pointed out that based on my last conversation with DOTC Sec. Jun Abaya, I was told RSA never submitted any proposal or even talked to them about it. RSA was adamant that it is not a project that will win him friends in the bureaucracy and that’s important for an infra company like San Miguel.

Maybe he was told in so many words to drop it but he won’t confirm that either. Given how driven RSA was on the project just a year ago, there has to be a story there on why he just as quickly dropped it.

On everything else that San Miguel is involved in, RSA is a bundle of optimism and enthusiasm. One can’t help wonder if he is being gutsy or foolhardy in making such big bets specially in seemingly difficult business problem companies like Philippine Airlines.

RSA is making bets before the weather clears. The big bet on PAL, for example, came before that Category 1 upgrade from FAA. And PAL went back to Europe as soon as the ban on Philippine carriers was lifted. He was not even fazed by competition from government subsidized Middle Eastern carriers that forced PAL under Lucio Tan to retreat.

Indeed, RSA had PAL start flights to the Middle East. New Airbus 330-300s were ordered and the seats configured to be a kind of OFW Express… no first and business class seats… all economy with a row of premium economy seats.

The acquisition RSA seems quite proud of is Petron. He talked to us about Petron completing a $2-billion upgrade of its refinery to produce 99 percent white products like jet fuel, gasoline and diesel. Since the old refinery produces 40 percent fuel oil, this upgrade will substantially improve margins as it eliminates the production of low-value fuel oil, converting it to high-value gasoline, diesel and petrochemicals instead. It will also narrow the country’s supply-demand gap to less than a third.

Best of all, RSA said, Petron’s revitalized refinery will be able to produce products to meet the more stringent and environment-friendly Euro-4 standard. Petron will also have the flexibility to refine crude from a variety of sources, thus enhancing the country’s supply security. 

The former auto mechanic from Tondo makes everything seem so easy and logical. He thinks big and implements big. But the proof of his ability to profitably transform San Miguel from a respected beer and food conglomerate to a highly profitable infrastructure conglomerate can’t be seen for some more years.

Economic crisis? RSA is not afraid of those either. He told us his best buys like Petron and some of the power plants were made during a period of economic crisis.

Economic climate? RSA loves the local economic climate, whoever is in power. He thinks foreign investors who are waiting for a better time to come in are losing their chance, to the advantage of locals like San Miguel.

I have to admit all that talk, including one I heard from an IMF official about San Miguel’s finances, can be worrisome. For now, all I know is that I have lost some 30 percent of my small bet in San Miguel shares. But if I were to believe RSA, I need to be patient and share his long term perspective.

I am glad he took time to talk to me and Cito for an opportunity to figure him out face-to-face. It isn’t always we get to share a lunch of pritong tiyan ng bangus, pinakbet and garlicky salpicao from the friendliest upstart taipan in town. Until results are delivered, that will have to do for now.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco