Ayala bares P55.3-B investment program

Signifiying its confidence in the Philippine economy, conglomerate Ayala Corp. is embarking on a massive investment program this year with a capital budget of P55.28 billion, its highest by far and 41 percent higher than the amount spent in 2007.

Ayala chairman and chief executive officer Jaime Augusto Zobel de Ayala II said the bulk of the budget will go to the real estate development projects of Ayala Land, the expansion of Globe Telecom’s cellular network and broadband capacities, and the continued improvement of Manila Water’s distribution network. Other funds will be used for the establishment of a regional manufacturing and sales footprint of electronics unit IMI Inc.

Ayala Land has earmarked P24.3 billion for its capital expenditures this year while Globe Telecom is spending about $180 million to build greater network capacity to further expand its reach. 

“The past two years marked a period of value realization for Ayala as market prices became attractive for realizing gains from investments we have made the past decade.  This essentially completes the last phase of the business-building cycle we began in the nineties.  As we begin a new cycle, we shall focus on efforts to develop new platforms for future growth and once again plant the seeds for long-term value creation,” Zobel de Ayala said. 

“This, no doubt, will be very challenging amidst uncertaintines in the global economic environment and a more competitive market.  We can reasonably expect short-term value creation to proceed at a more subdued pace relative to what we have seen the past two years as we harvested the fruits of our past investments. Notwithstanding this, we as a group continue to increase our planned capital investments to its highest level in recent history in pursuit of growth initiatives at the parent company level and at the operating units.”

Among the high-growth sectors that the group has invested in include the offshore and outsourcing (D&O) market which is forecast to grow to $130 billion in 2010 from $46 billion in 2005.  Last year, the Philippine O & O industry registered revenues of $5 billion or an increase of more than 50 percent from the year earlier level and is seen to grow further to $13 billion by 2010.

Zobel de Ayala pointed out that the country “can significantly increase its share of the global outsourcing sector from five percent to 10 percent in the next few years given the country’s natural advantages.    

“We remain anchored and focused on the Philippines as we begin to develop new platforms for future growth.  Despite challenges typical to a developing economy with young democratic and political institutions, we continue to be optimistic about potential growth opportunities in the country, particularly in the services sector as we begin to develop our capabilities in business process outsourcing,” he said.

He added that the group, through IMI, has further strengthened its presence in the BPO industry with the expansion of the capacity of its newly-acquired companies and the increase of its stake in eTelecare Global Solutions to 22 percent.

As of end-Dec. 2007,  the group invested $122 million through LiveIt, a holding firm established by the group for its BPO investments.

Funding for the capital budget will come from internally-generated cash and borrowings.

“Our experience in Globe Telecom and Manila Water over the past decade not only underscores our confidence in our ability to embark on significant, scalable projects and investments, but also highlights our role in the private sector as a critical partner in the national development cycle of the country. We continue to monitor sectors that are beginning to open up to private sector participation and carefully consider opportunities in these areas,” Zobel De Ayala said.

He said the company, though, is not yet ready to venture into new areas even as it finds the mining and energy sectors lucrative. “The mining sector has potential.  At this point, however, we have no definite plans or projects.  Energy prices have gone up. We’d rather wait and focus on the long-term and developing new progressive ideas,” he said.

In its bid to fortify its presence overseas, the group has restructured its international arm and formed AG Holdings Ltd. to serve as the new offshore holding firm for its investments abroad. 

Fernando Zobel de Ayala, Ayala president and chief operating officer, said AG Holdings which folded in Ayala International as a 100-percent subsidiary, posted a net income of $12 million last year.

The group has invested in Arch Capital, a property fund focused in Asia where the group raised a total commitment of $330 million. Around $75 million of the funds raised has been earmarked for ongoing mixed-use projects particularly in Macau and Thailand. 

Arch Capital is eyeing high growth property markets around Asia, particularly in China, India and Vietnam.