JG Summit on expansion spree

Conglomerate JG Summit Holdings Inc. has budgeted P48.2 billion for capital spending this year as it begins to expand its pioneering petrochemical business.

JG Summit president Lance Gokongwei reported to stockholders in an annual meeting late Wednesday that this year’s capital outlays would be bigger than the P41.9 billion spent last year. JG Summit also invested an additional P33.4 billion last year with the acquisition of a 35-percent stake in Metro Pacific group’s power generation unit Global Business Power Corp. for P11.8 billion and the purchase by food unit Universal Robina Corp. (URC) of a 65-percent interest in leading Australian firm Snackbrands for P21.6 billion.

The budget this year covers only outlays for the expansion of existing businesses. It does not include any spending for prospective acquisitions.

Gokongwei estimated that the airline business under Cebu Air would account for P18-P20 billion of the budget this year while property arm Robinsons Land Corp. would likely spend P15 billion. URC has an estimated budget of P7 billion. The banking business under Robinsons Bank will spend a few hundred millions.

The rest of the budget is for petrochemicals, Gokongwei said. “We think we’ll be able to have a world-class cost structure to compete in this business,” he said.

The contract for the engineering, procurement and construction should be awarded before yearend, he added.

“With naptha prices low and oil prices relatively low, then Southeast Asia becomes more competitive with the US and other gas-based (naphta) crackers. Also, we’re in Asia, which is the fastest growing part of the world,” Gokongwei said, explaining why the group was upbeat on this business.

“Most people project that petrochemical demand will grow by about 1.5 times GDP (gross domestic product) demand so we’re hoping that polymer demand will continue to grow by 9-10 percent in the Philippines and the region,” he said.