Conglomerate Ayala Corp. is raising nearly $400 million from the sale of its stake in the Light Rail Transit (LRT) Line 1, coal power plants and smaller business to fund new investments and reduce debt.
This forms the remainder a $1 billion “value realization” program that would allow the 188-year-old business group to double down on on its core property, telecommunications, banking and energy segments alongside its younger healthcare and logistics units.
Led by the Zobel family’s seventh-generation, the conglomerate is also making key strategic pivots amid perceived political risks ahead of the May 9 presidential elections.
During the company’s annual meeting on Friday, Ayala chair Jaime Augusto Zobel de Ayala assured stockholders the group was primed for growth even as geopolitical and inflationary pressures emerge during the postpandemic period.
“Despite the headwinds of the past two years, the Ayala group remains fundamentally strong and poised to build on the momentum of the country’s recovery,” he said on Friday.
During the meeting, Ayala president and CEO Fernando Zobel de Ayala said they had successfully raised $614 million of the targeted $1 billion in asset sales. He added the exercise would be completed in 2023.
The program included the sale of shares in renewable power-focused AC Energy Corp. to a foreign strategic partner and a share swap deal with property arm Ayala Land Inc.
Sale to the Villars
Another deal was their group’s exit from the toll road segment after selling interests in the 4-kilometer Muntinlupa Cavite Expressway (MCX)—one of the Aquino administration’s Public Private Partnership (PPP) projects—to the influential Villar business and political clan.
Fernando Zobel said they would unload other assets that were “no longer strategic to our portfolio or do not meet the desired scale and profitability.”
These were the LRT 1, which is another Aquino-era PPP that Ayala won in partnership with Manuel V. Pangilian-led Metro Pacific Investment Corp.; its coal power plants; and “passive investments” in AC Ventures, which owns stakes in e-commerce platform Zalora Philippines and Mynt, the operator of GCash.
“It looks like Ayala is refocusing investments into the power sector especially with growing interest in ESG (environment, social and governance) metrics,” BDO Unibank Inc. chief strategist Jonathan Ravelas told the Inquirer.
“For the Philippine economy to grow beyond 6 to 7 percent, you need power investments to attract businesses like manufacturing,” he added.
Reducing exposure
Ayala was also reducing its exposure in certain businesses ahead of the elections, with presidential candidate and dictator’s son, Ferdinand “Bongbong” Marcos Jr., consistently leading major opinion polls, another analyst said.
The Zobels are perceived to be allies of the Aquino family, which played a central role in the 1986 people power revolution that toppled Ferdinand Marcos Sr.’s regime and installed the late Corazon “Cory” Aquino as president.
“There’s that reality of political risk for the group,” the trader, who requested anonymity, told the Inquirer.
The Zobels had dropped risky businesses in the past but also embraced political uncertainty in other situations.
In 2021, the group ceded control of a core businesses, Manila Water Co. Inc., to tycoon Enrique Razon Jr. after President Duterte earlier threatened to jail executives of Metro Manila’s water concessionaires for supposedly onerous provisions in the original contract.
Days after selling the MCX project to the Villars last March, Ayala signed final agreements to buy stakes in Myanmar companies Yoma Strategic Holdings Inc. and First Myanmar Investment Public Co. Ltd. for $237.5 million despite the country remaining under military rule after a coup last year.
During the company’s annual meeting on Friday, however, Ayala made it clear it would continue investments in the Philippines.
It also plans to achieve profitability for its health-care group by 2022 and reach a net income of P1 billion by 2025, Fernando Zobel said, adding the P6-billion acquisition of logistics firm Air21 will be completed soon.