The PLDT story is, so far, just noise

It is no doubt the most sensational local corporate story so far this year. But the headlines aside, the PLDT story is still just noise or more appropriately, static. What we are seeing is a war of press releases, designed to unnerve the other party. Recently it became a little more interesting with a suit in a New York court.

Who eventually wins control of PLDT is important for local investors and subscribers alike. Telecoms, as an industry, is in a precarious state worldwide. Big as PLDT is, it is not exempted from the financial and other problems of the industry as a whole. It is important that whoever eventually lands PLDT has what it takes to bring it to safe harbor.

There is, however, a side issue spawned by the recent events at PLDT which has nothing to do with the industry or the even the company. This issue is shareholder control over the management it has put in place. How this plays out with PLDT impacts on investor confidence, at least in the mid term.

Basically, the question I keep on hearing is, how can Manny Pangilinan get away with what he is doing to undermine his principals, the Salim family? He even sued them in New York. Lesser mortals have seen the end of their careers with less audacious behavior than what Manny P has shown. Then again, why is the Salim family letting him get away with it?

One cynical explanation I heard is that Manny can do as he pleases because he knows where the bodies are buried in the First Pacific Group. Another explanation is that Manny built First Pacific and the Salim family knows it. They are letting him get away with it out of good ol’ Asian utang na loob. Or maybe, Manny and the Salims are doing a moro moro of sorts to sucker in Tony Boy and company to bring in a better price.

I was reading a book on the aftermath of the Asian financial crisis written by a Hong Kong based writer of Fortune magazine. There is a two-page narrative on Manny P, First Pacific and PLDT. It was the only mention of the Philippines in the 408 page book. Starting on page 326, the book gives the reader an idea why Manny P can act as if he owns First Pacific. One thing is sure: The relationship between Manny P and the Salims runs deep.

It starts with the Salim family finding themselves in very dire straits, the end of the road, with the fall of Suharto. The only way they can escape a criminal rap is to pay off a $5-billion dosri loan the family enterprises got from the Bank Central Asia. Much of the obligation was paid to Indonesia’s equivalent of the PCGG/APT by giving stocks in some 150 companies in the Salim group for resale, mostly to foreign investors.

The big problem was Indo Food, which suffered a huge forex loss even if the business remains excellent. It seems Manny P helped save Indo Food for the Salim family by selling 40 percent of it to First Pacific, a Hong Kong-based conglomerate they also control. The Salims gave Manny P a free hand in First Pacific and the author wondered why. "Overseas Chinese are not known for giving professional managers a free hand... not to mention giving them a significant share of the equity as well."

When the 1997 crisis struck, First Pacific found itself cash poor in an environment where cash is king. Manny P, the book relates, "reacted with breathtaking aggressiveness and non-herd thinking." He lowered debts by selling some $2.7-billion worth of the group’s best performing assets – and the ones most sheltered from the Asian storm. He reasoned that he needed cash to pay off debts and buy undervalued assets cheaply. So far so good.

Then he spent good money to buy PLDT. He said he did it because stock markets don’t understand conglomerates. Manny is of the belief that holding companies don’t make sense. He wanted to be an operating company with some other assets in it. The book ended in a high note, and had no mention of the huge Piltel disaster that went with the PLDT purchase.

Neither did the book have any revelation on the role played by Erap and Mark Jimenez in the deal nor the magnitude of the goodwill costs as rumored in Manila coffee shops, if any. It also didn’t have anything to say about how Manny P used P3 billion of the PLDT employee pension fund to buy the still badly bleeding Home Cable. Nor of his attempt to buy GMA-7. Nor of the sharp fall in the stock market price of a PLDT share.

In short, PLDT was bad news to the Salims. So that now, the Salims want out and Manny P wants more time to again prove his worth. And Tony Boy Cojuangco wants to go back to the good old days when he was king at PLDT. That about sums it up on the PLDT side.

Will the Gokongweis be any better? They will improve efficiency and PLDT surely needs to have its fat trimmed. Hopefully, this brings about improved service to subscribers. But that cannot be simply assumed. There is also ground to worry that JG is too good a businessman of the old days not to take full advantage of his near monopoly advantage.

But you can expect PLDT earnings to improve under JG. That such improvement will benefit the investor, is another thing altogether. JG is known to be somewhat stingy with sharing profits. In PCIBank, he would rather park excess profits under reserves for bad debts (not a bad thing for a bank) than declare substantial dividends. This is why PCIBank got such a good price when it sold out to Equitable. But minority shareholders who were not bought out by Equitable didn’t benefit.

This is why the prospect of a JG takeover of PLDT isn’t exciting investors; in fact, the opposite is happening. But with Lance and the younger Gokongweis in control, maybe things will be different. Since the JG group is now a major player with proven financial muscle, it can afford to be friendlier to minority stockholders, if it wants to.

The bottom line, however, is the Salims want out of PLDT even at a loss. They should be able to get their money back, if not from the Gokongweis, from whoever can top the JG offer. All the legal and PR fireworks mean nothing good if an investor can’t even get his money back (less his losses) when he wants it. That’s basic. Our legal system and Manny P should assure that.

Phones

Speaking of telephones, and trying to be more positive as urged by Ate Glo, here’s something from Fe dela Cruz.

After digging to a depth of 100 m last year, Russian scientists found traces of copper wiring dating back 1,000 years, and came to the conclusion that their ancestors already had a telephone network one thousand years ago.

Not to be outdone, in the weeks that followed, American scientists dug 200 m, and headlines in the US newspapers read: "US scientists have found traces of 2,000-year-old optical fibers, and have their ancestors already had an advanced, high-tech digital telephone network 1,000 years earlier than the Russians."

One week later, the Filipino press reported the following: "After digging as deep as 500 m, Filipino mambubungkals have found absolutely nothing. They have concluded that 5,000 years ago, their ancestors were already using mobile phones."

(Boo Chanco’s e-mail address is [email protected])