Biz Buzz: Merger precondition

There seems to be no stopping the move to merge the Philippine Dealing System Holdings Corp. (PDS) with the Philippine Stock Exchange, with the latter as the surviving entity—a move that will create a unified bourse and allow fund managers, bankers and even retail investors to trade both stocks and bonds.

Nothing stands in the way, we’re told … except one minor detail.

According to our sources, the PSE leadership—which has agreed to acquire PDS through a share-swap agreement sometime soon—wanted one small issue resolved: They want a certain personality from the selling side out of the picture first.

Someone from the PSE side with knowledge of the deal said that apparently, PDS’ biggest shareholder—the Bankers Association of the Philippines—has been made aware of this condition and was now in a quandary as to how to satisfy the would-be buyers.

This is especially so because the official that the PSE insisted on being excluded from the merged entity was positioned relatively high up the other camp’s ladder. Because of this, “retiring” this person would entail a significant cost to the selling party (or in this case, the largest owner of the selling party, which is the BAP).

If this condition is met, and the merger does push through, the PSE will emerge as the surviving entity and will hold a majority stake in the newly unified bourse. PSE already owns 20 percent of PDS. Singapore Exchange Ltd. will also maintain a significant presence as will other existing shareholders like the San Miguel group and the government pension funds.

The BAP, for its part, is not about to leave this person in question hanging in thin air. “He deserves recognition for where [the bond exchange] is today,” said one banker, referring to the PDS official. So when will the merger happen? “It all depends on the BAP now,” the PSE-side source said. “They know what needs to be done.”—Daxim L. Lucas

SMC’s ‘bid to win’

It was the most mind-boggling bid for a public-private partnership (PPP) project that raised as many eyebrows as Ayala group’s aggressive bid for the FTI complex in Taguig City. San Miguel Corp.’s financial model was widely mocked as the group submitted a hefty upfront cash bid of P11 billion for a 7.15-kilometer Naia Expressway project against the Metro Pacific group’s bid of P305 million. The upfront cash is on top of the P15-billion projected construction cost of the new toll road.

SMC insiders, however, were not too bothered by all the criticism. The rationale for such a generous bid was apparently part of a holistic view, given that the Naia Expressway project is strategic to the conglomerate’s consolidation of southern toll road networks. According to our sources, SMC had indeed assumed a much lower internal rate of return from this project—7 percent against 11 to 15 percent for such kinds of projects—but it was deliberately done to win the project at all costs. Apparently, SMC felt it had become too conservative in the bidding war for Daang Hari —which was bagged by the Ayalas—but this time around, the project had to be won at any cost.

The project, which will be completed by 2015, is expected by SMC to deliver an annual cash flow of P1.5 billion. How so? This assumes a daily traffic volume of 103,000 and toll fees of P35 to P40. Also, SMC expects to generate revenues from advertising space in addition to toll road fees. SMC is also looking at the project as a package deal, with the Skyway and South Luzon Expressway generating sufficient traffic and revenues to compensate for the additional 30-year concession.

On the expenditure side, our sources explained that SMC expected the P15-billion construction cost to go down significantly using “value engineering.” At the same time, operation and maintenance cost is seen minimal given synergies from the existing network of southern tollroads.

SMC insiders felt that the “burden of proof” was indeed now on the conglomerate, but noted that just like how SMC had bought into Petron Corp. and Manila Electric Co. at bargain prices, the big premium paid for the toll road would be worth it in the long run.—Doris C. Dumlao

Enterprising

An enterprising lawmaker seems especially adamant in trying to derail the Philippine Amusement and Gaming Corp.’s (Pagcor) bidding process for slot machine paper, while Congress is on vacation and right smack in the middle of the campaign season. Well known in media circles, this lawmaker went to town recently questioning Pagcor about its pending tender for P1.8 billion worth of slot machine paper, which attracted two qualified bidders: Perception Gaming and Malaysia’s RGB International.

The media blitz apparently came after the lawmaker’s letters to Pagcor early this year (demanding full access to bid documents and threatening officials with a full congressional inquiry) were ignored mainly because the bidding process was still in progress. In fact, Pagcor gave the green light to proceed with the assessment of bids only last April 15, a few days before the lawmaker came out to oppose it. The million-dollar question is whether the lawmaker is really doing this for the “underprivileged” constituents he is supposed to represent in Congress.

Biz Buzz did some digging and heard that one contract aspirant—a perennial bidder for government contracts—was “disgruntled” and backed out at the last minute (a motive, perhaps?). This firm has been known to create a big howl through media every time it lost a government contract such as those for instant noodles, fire trucks or firearms.

Based on its modus operandi, the firm taps allies and media connections to expose alleged bidding scams that invariably turn out to be duds. In fact, attacks were made last year against a ranking official of the Department of the Interior and Local Government who was accused of smuggling firearms. (Was it a coincidence that, just a few weeks before that, the firm lost the bid for PNP firearms?) The charges turned out to be a dud as no proof could be produced that the firearms were smuggled in by the DILG official.

So you really don’t have to be a rocket scientist to see the end game in this attack against Pagcor this time around.—Daxim L. Lucas

Game changer, design changer

The Solaire Resort and Casino in Manila Bay promised to be a “game changer” but for at least one of its neighbors in the 120-hectare Entertainment City Manila, it is proving to be a “design changer” as well.

Our source tells us Macau’s Melco Crown Entertainment, the joint venture between Australian billionaire James Packer and Lawrence Ho, son of “king of gambling” Stanley Ho, is revising certain aspects of the interior design and fit-out for the Belle Grande Manila Bay casino following the opening of Solaire last March 16.

To be fair, Belle Grande, being developed by Henry Sy’s Belle Corp., was expected to undergo design changes since the former tapped Melco Crown, which runs the City of Dreams casino resort in Macau, as operating partner last year. But our source says the current redesign phase was prompted by Solaire’s amenities and stunning design, described to be at par with the very best in Macau and Las Vegas.

“They wanted to redo the finishes and fit-out at least to be at par or better than Solaire. Of course, if you are Melco you don’t want players to say Solaire looks more elegant. It’s just normal,” our source said.

Willy Ocier, president of Belle, however, was more willing and readily admitted the design revisions. “We definitely will improve on Solaire’s standards of design, operations and service quality. They have changed the game indeed. We will change the game further in 2014,” Ocier said.

Excited gamers will have to wait a little longer for Belle Grande’s grand launch as the casino could open slightly later than the previous first half of 2014 target. “We are on track for July 2014,” Ocier said.—Miguel Camus

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