(First of two parts)
Ramon Ang, president of San Miguel Corp., greets visitors to his eighth-floor conference room wearing a plain black suit, white shirt, red tie and $200 Seiko titanium watch.
A billionaire who has diversified the 121-year-old brewer into the country’s largest publicly traded company by revenue, Ang can afford a flashier timepiece. Yet the Seiko serves a purpose, Bloomberg Markets magazine reports in its December issue. Ang says he has a dozen of them so he can give away the one on his wrist.
“It’s very memorable for them if I take off my watch and give it to them,” he says of the recipients. “They will keep it for a long time and say, ‘This watch was given to me by my good friend Ramon.’”
Ang, 57, has always found ways to make an impression—and a profit. At age 13, he was repairing Japanese auto engines and selling them for a 150-percent markup.
He won the trust of San Miguel Chairman Eduardo “Danding” Cojuangco Jr. after meeting Cojuangco’s son, Mark, in Manila’s auto-racing circles in the early 1980s.
Today, Ang owns more than 100 cars in one of Asia’s best collections. His favorite: a 1964 two-door roadster called an AC Cobra 289 FIA made by AC Cars that was restored by American racecar specialist Carroll Shelby.
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“It’s the fastest muscle car,” says Ang, adding that the Cobra was once inexpensive as he jots down his top 10 list.
Buy-and-improve
Ang is on a similar tear with his buy-and-improve approach at San Miguel, as President Aquino primes the country for growth. Mr. Aquino wants to expand the economy as much as 8 percent annually. Gross domestic product surged 7.6 percent in 2010, the fastest pace since at least 1999.
San Miguel, which reported revenue equivalent to 5.4 percent of the Philippines’s GDP in 2010, is key to meeting Mr. Aquino’s target. The company has already spent more than $4.8 billion on 24 acquisitions since the beginning of 2007, according to data compiled by Bloomberg.
San Miguel bought control of the nation’s top oil refiner, Petron Corp., from Ashmore Group Plc., a London-based fund manager. In 2008, it took a 27-percent stake in Manila Electric Co., the nation’s biggest power retailer.
Last year it paid $40 million for 10.1 percent of Australia’s Indophil Resources NL, which owns a 37.5-percent stake in the Tampakan project, one of the largest known untapped gold and copper deposits in the world. Ang also added three coal-mining companies.
The mining foray bodes especially well for the country, says Mark Mobius, who oversees about $50 billion as executive chairman of Franklin Templeton Investments’ Emerging Markets Group.
“We believe in commodities, whether nickel, iron ore or coal,” Mobius says. “That’s where the Philippines’s potential is.”
Ang has had run-ins with authorities during the pedal-to-the-metal expansion.
The Philippine Stock Exchange dropped San Miguel from its benchmark index in November 2010, saying the firm wasn’t meeting the requirement of publicly trading more than 10 percent of its shares.
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San Miguel returned to the main index on September 12 after it sold stock and convertible bonds. It has a 4.3-percent weighting. The shares, which have more than doubled in price since Ang became president in March 2002, traded at P112 on November 2 after peaking at P185 on January 3.
The exchange has also questioned San Miguel’s public releases. Officials wrote to the company 32 times in the first nine months of this year, asking it to clarify information about acquisitions and other matters published in the media.
Philippine Long Distance Telephone Co., the nation’s biggest company by market capitalization and a San Miguel rival, received six inquiries in the same time.
The stock exchange didn’t impose any penalties on San Miguel during the period. It requires listed companies to disclose information to the exchange before releasing it to the media or to disclose the information simultaneously to the public.
Top Frontier
San Miguel’s change in corporate ownership may further cloud investors’ ability to assess the company, says Christopher Leahy, a member of the secretariat of the Hong Kong-based Asian Corporate Governance Association, which represents investors who manage about $12 trillion of assets.
Last year San Miguel agreed to be taken over by Top Frontier Investment Holdings Inc., where Ang is chairman.
The holding company is controlled by San Miguel directors, including Roberto V. Ongpin and Inigo Zobel. Both have ties to the Marcos era: Ongpin was the dictator’s trade minister from 1979 to 1986; Zobel’s father sold his family’s San Miguel stake to Eduardo Cojuangco in the 1980s.
In last year’s deal, San Miguel bought 49 percent of Top Frontier. As of March 31, Top Frontier owned 67.2 percent of San Miguel common shares, according to the company’s share-sale prospectus in April.
“This is not a structure that lends itself necessarily to transparency and good corporate governance,” Leahy says. “While they are good at running their business, they are not running it with the interest of minority shareholders at heart. If they were, they’d be more transparent.”
Ang says cross-ownership ensures San Miguel’s businesses and strategic undertakings continue according to management’s plan. In 1986 the government of President Corazon Aquino took control of the company as part of an effort to recover the assets of Marcos and his associates.
For Leahy, San Miguel’s limited transparency points up a larger concern: The Philippines has the worst governance scores among 11 Asian nations, according to a September 2010 report called “CG Watch 2010” by his association and Hong Kong-based brokerage CLSA Asia-Pacific Markets.
“The issues of governance break down in the Philippines sometimes,” Leahy says.
Many securities laws in the Philippines lag behind international and regional best practices, according to the report.
For instance, under the Philippine Securities and Exchange Commission’s revised corporate governance code, companies are required to appoint two independent directors, or a number that represents at least 20 percent of their board.
Most Asian countries require three independent directors, or a number that represents a third of their board.
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“Regulators and companies seem unaware of the problem,” the report says.
Ang says San Miguel complies with the regulations of his country’s stock exchange and securities and exchange commission. “We always follow the rules,” he says.
San Miguel’s 2010 annual report states the firm’s view: “The company recognizes that the most cogent proof of good corporate governance is that which is visible to the eyes of its investors,” it says.
Debt ratio
Standard & Poor’s has had its own beefs with San Miguel. It downgraded the firm’s debt-rating outlook to negative from stable in May. The rating company said San Miguel underestimated debt by not adequately reflecting the financial lease payments of its new power business, SMC Global Power Holdings Corp. San Miguel also counted some preferred shares as equity, rather than debt, S&P said.
Taking the financial lease payments and preferred shares into consideration, debt was more than eight times earnings before interest, taxes, depreciation and amortization, or Ebitda, according to S&P.
Ang says S&P’s numbers are exaggerated: Debt is about $5 billion, and Ebitda, about $2 billion, for a ratio of 2.5 times. Ang says the ratio can comfortably increase to six times.
Ang says rivals are pressing for greater disclosure because they want San Miguel to divulge its finances and acquisition plans to gain an advantage.
“People keep on shouting the transparency issue because our competitors and copycats keep pushing us to divulge what we will buy and what we will do,” he says. “It’s driven by envies.”
Ang is so concerned that competitors may be spying that he distributes new mobile phones and SIM cards to top deputies when he starts a project. To prevent leaks, they change the cards, which provide user information, every month and discard them and the phones when work on the project ends.
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