SM open to taking in foreign strategic partners

The group of tycoon Henry Sy may take in foreign partners in its key banking, property and retail units—all market leaders in the Philippines—to prepare for stiffer competition as well as greater opportunities arising from the integration of Southeast Asian economies.

In a recent Chartered Financial Analyst (CFA) Summit, SM Investments Corp. chief finance officer Jose Sio said that to prepare for the integration of the Association of Southeast Asian Nation (Asean) economies starting 2015, the SM group was willing to partner with foreign groups with the same philosophy in key businesses like banking, property and retailing.

On the sidelines of the forum, Sio said forging partnerships was part of thinking long-term, but he could not say yet the size of the stake the SM group was willing to give up in case it takes in a foreign partner in each business.

He said it was up to the interested suitor to make the proposal.

The Asean Economic Community, which covers the 10-member Asean, is envisioned to be a single market and production base, a “highly competitive” economic region, a region of “equitable” economic development and a region fully integrated into the global economy.

It is envisioned to be a region where there will be free movement of goods, services, investment, skilled labor as well as freer flow of capital—thereby creating a new economic powerhouse with 600 million people and combined gross domestic product (GDP) of close to $2 trillion.

“One Asean,” which is scheduled for implementation by 2015, will be third most populous region and seventh largest economy in the world.

Ahead of Asean integration, the SM Group has consolidated all property units into a single publicly listed entity under SM Prime Holdings Inc., which is estimated to have a combined market capitalization of about $14 billion or the largest among Southeast Asian property companies.

In the property segment, Sio said malls would continue to be the attraction in the Philippines while “gaming” would still be the “cream of the day.”

This December, the SM group’s integrated gaming venture with Macau’s Melco Crown group, is set to open its doors at the Pagcor City.

This gaming business, however, is under Belle Corp. which has not been not consolidated into flagship holding firm SM Investments.

The SM group is likewise investing in more hotels, although Sio said this business was dependent on the economy and the government’s policy direction.

For housing, Sio said, “we recognized from the start that it’s an up and down industry.” Given the run-up in the last four to five years, some correction was bound to happen.”

To minimize the impact of a potential reversal in housing, Sio said the debt levels of property companies must be reduced relative to equity.

“If that happens, we’re ready and it’s an opportunity for us to grow if we have a strong balance sheet,” Sio said.