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SM Investments keen on gov’t infra projects

Lists 3 criteria for portfolio investments
/ 12:03 AM August 08, 2016

LEADING conglomerate SM Investments Corp. is keen on investing in high-priority infrastructure projects of the Duterte administration such as the massive Mindanao railway system that seeks to boost connectivity and stimulate growth in southern Philippines.

In an interview last week, SMIC chief finance officer Jose Sio said the SM group was interested in the Mindanao railway project either by providing funding through banking arm BDO Unibank or taking equity as part of SMIC’s investment portfolio.

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Although the Sy family’s core businesses are in banking, property and retailing—all of which it has a market-leading position—the group has also invested in new areas like mining, integrated gaming and energy sectors.

For new areas where the group has no expertise yet, like theoretically a railway system, Sio explained that SMIC could also participate as a portfolio investor for as long as three criteria were met. “One, we should invest with a good management. Two, there is growth. Three, there is an exit clause,” Sio said.

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Other groups earlier reported to be interested in the proposed Mindanao railway project included San Miguel Corp., Malaysia’s MTD Group and the group of businessman Manuel V. Pangilinan.

The Department of Transportation (DOTr) has announced it was open to accepting unsolicited proposals for the Mindanao railway project. Unsolicited proposals are still subject to a Swiss challenge on pricing, where rival offers are sought but the original proponent still gets a chance to match the most competitive offer.

The Mindanao railway project is envisioned to link Cagayan de Oro, Iligan, Zamboanga City, Butuan, Surigao, Davao and General Santos, spanning a total of 2,000 kilometers. This railway system is seen to play a major role to improve Mindanao’s intra-island accessibility, linkages and seamless multimodal transport networks.

In a briefing on SMIC’s financial results last week, Sio also said the group was keeping a lot of cash in its balance sheet to be always ready to undertake big-ticket projects anytime. If, for instance, SM gets the go-ahead to begin the 600-hectare reclamation project along Manila Bay, Sio said it was ready to do so.

The group’s property arm SM Prime signed a deal with the Pasay City government to reclaim and develop 300 hectares of property and a separate deal of the same size was signed with Parañaque City in 2014.

“We’re still waiting for the new administration in appointing heads for PRA (Philippine Reclamation Authority). We still have that contract with LGUs (local government units) and we have to wait. We’re doing some studies. We’ve hired some consultants to start the technical aspect of reclamation but have to wait,” said SM Prime’s incoming president Jeffrey Lim.

As of end-June, SMIC’s total assets grew by 7 percent to P770.2 billion. It maintains a conservative gearing ratio of 39 percent net debt to 61 percent equity.

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As a philosophy of business, Sio said any businessman should protect himself against volatility, not only those arising from internal policies but also those triggered by developments in the US and Europe.

“We should be liquid. In the Philippines, if you have cash, you can demand, you can negotiate. Let’s say in a property bidding and we say tomorrow we can give you the cash, so we win right away,” Sio said.

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