Veto power up for grabs

So San Miguel Corp. has finally decided that it was open to suitors wanting to acquire its 32.8-percent stake in Manila Electric Co. Given that the share price of the country’s biggest electricity distributor is now P384, such a sale makes a lot of sense for SMC head honcho Ramon Ang.

Recall that the bulk of the conglomerate’s Meralco shares were acquired at an average of P90 apiece during a bruising battle for control with the PLDT group. (The Lopez family eventually decided to side with the latter, of course, handing control of Meralco to businessman Manuel Pangilinan.)

As it stands, San Miguel has already earned—on paper, at least—a return of 327 percent on its initial investment, or roughly 82 percent a year since its stake was built up in 2009. It may be time to cash in.

But what advantage will any potential buyer get, especially since control of Meralco is firmly in the hands of the PLDT group?

Biz Buzz learned that—apart from the share price appreciation and the substantial dividend play—the San Miguel-held bloc is also tied firmly (thanks to an earlier deal) with another 4-percent stake in Meralco held by Land Bank of the Philippines, which San Miguel is paying for in installments.

The resulting combined stake of almost 38 percent puts any prospective buyer over the 33-percent threshold required to have veto power over the decisions of Meralco’s board of directors (something that San Miguel’s Ang has not used despite his “friendly rivalry” with his “frenemy”).

Now this is the kind of stake (and resulting influence) a major investor will find really attractive. Daxim L. Lucas

License plates power play

The crisis over the lack (or total absence) of license plates for new motor vehicles in the country continues, with at least one bidder for the multibillion-peso contract crying foul over what it believed was the questionable methods by which it was disqualified.

In fact, one source familiar with the bidding conducted by the Department of Transportation and Communications and the Land Transportation Office pointed out that the government panel chose two bidders (JKG of the Netherlands and Spanish-led consortium Power Plates Development Concepts) despite their prices being a lot higher than those of the other bidders.

One such bidder—RNA Holdings and its Polish partner, Utal —claimed that it could supply the same specification plates for motor vehicles and motorcycles at levels that would save the government and taxpayers at least P2 billion. But no, apparently the government wanted the more expensive contracts.

We heard that one reason RNA was disqualified (apart from the official reasons given, like supposed noncompliance with the requirements—something that RNA denied) was that it had ties with a businessman and campaign donor to the current administration. Unfortunately for him, someone close to the President was no longer happy with him and had pushed him out of the inner circle. Daxim L. Lucas

Naia Expressway blues

As the June 19 deadline draws near for San Miguel Corp. to hand over to the state the P11-billion upfront cash committed for the Naia (Ninoy Aquino International Airport) Expressway project, the conglomerate affirmed that it was all set to deliver the money. However, company sources said there were a few things that SMC sought to sort out with the project’s implementing agency, the Department of Public Works and Highways (DPWH).

They said SMC was now negotiating the project terms with the DPWH, seeking assurance that the government unit would first deliver the right-of-way requirements and address traffic management issues that could affect the public-private partnership (PPP)-funded toll road. From SMC’s point of view, it could not start work on the toll road without the right-of-way clearance, particularly on the interchanges. Also, there was a new flyover project along the Edsa-Taft intersection recently put on the pipeline, which might affect traffic flow to Naia. SMC, which has won the project through a very big bid (36 times bigger than the rival bidder), did not want such huge cash tied up without the issues being resolved, our sources explained.

One option was to stagger the cash payment in three installments, with each tranche to be paid upon the DPWH’s delivery of the right-of-way clearance over the next six or nine months. Another option was for SMC to remit the entire amount but put the cash payment in escrow and could be transferred to state coffers only until such time that the DPWH has delivered on its end of the deal.  At the end of the day, SMC affirmed its commitment to the project, seen as part of the consolidation of its portfolio of toll roads south of the metropolis. Doris C. Dumlao

LR’s fund-raising

Gaming firm Leisure and Resorts World Corp. (LR) has done the rounds with institutional investors in relation to a P1.75-billion preferred shares offering. From what we gathered, LR has obtained commitments on this requirement, particularly from state-controlled pension fund Government Service Insurance System, which is keen on investing P750 million or half of the fresh equity needed by LR. GSIS president Robert Vergara confirmed to Biz Buzz the agency’s plans to invest in LR, citing attractive interest rates that could help boost the pension fund’s asset yield in this record-low interest environment. LR’s perpetual bonds have an indicative yield of 8.5 percent a year.

The offering has been approved by shareholders and now needs registration at the Securities and Exchange Commission. LR earlier obtained authority to offer 1.75 billion perpetual preferred shares and warrants equivalent to 87.5 million common shares, beefing up its capital for its expansion plans.

Industry sources said that other investor groups with existing interest in LR have also committed to subscribe to the new preferred shares, including businessman Eusebio Tanco (through Philplans) and the Vantage group.

LR, through wholly owned AB Leisure Global, recently remitted its P4-billion contribution to the Belle Grande project, the next integrated gaming facility that will open at Pagcor’s Entertainment City.

In exchange for this contribution, AB Leisure will be entitled to 30 percent of the fixed yearly income to be generated from the lease of all commercial spaces in the project, including the hotel, retail and casino premises. If Belle had an estimated $35 million in annual rental earnings, this suggested a share of $10.5 million for LR.

LR will also be paid fees equivalent to 30 percent of Belle’s share in the casino cash flow that, in turn, is split between Belle and Melco Crown of Macau, or 30 percent of Belle’s share of net winnings, whichever is higher (after deducting the royalties based on gross winnings, which the SM-led Belle group is entitled to through gaming unit Premium Leisure and Amusement Inc. Doris C. Dumlao

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