Corporate News

By Keith Richard D. Mariano,

Ayala looking to retain capital spending budget

Posted on January 20, 2017

AYALA Corp. is looking at a capital expenditure program of around P170 billion, as it expands further in the power, infrastructure, industrial, health care and education sectors.

The country’s oldest conglomerate will embark on the same magnitude of capital spending as last year, Chief Sustainability Officer and Finance Group Head Jose Teodoro K. Limcaoco told reporters late Wednesday.

“It’s in the same vicinity as last year,” Mr. Limcaoco said, without going into details pending the approval of the spending budget by Ayala’s board of directors.

For 2016, the Ayala group had allocated P174 billion in capital expenditures. The amount was divided among Ayala Land, Inc. (49%), Globe Telecom, Inc. (21%), the parent (13%), Manila Water Co., Inc. (9%) and other businesses (9%).

At the parent level, P22.4 billion was allotted to support AC Energy Holdings, Inc. (50%), Bank of the Philippine Islands (BPI) (14%) and AC Infrastructure Holdings Corp. (5%), to take advantage of strategic opportunities (22%) and other purposes (9%).

“If I remember correctly, [we spent] about P160 billion or P180 billion across the group [last year], so roughly we will also end up with that amount this year,” Ayala Corporate Strategy and Development Group Head Paolo Maximo F. Borromeo noted separately.

“The conglomerate aims to expand particularly its power, infrastructure, industrial, health care and education businesses in the next few years,” Mr. Borromeo said.

In its five-year plan unveiled last year, Ayala targets to increase the equity earnings contribution of non-listed businesses -- AC Energy, AC Infrastructure, AC Industrial Technology Holdings, Inc., Ayala health care Holdings, Inc. and Ayala Education, Inc. -- while growing its net income to P50 billion.

The conglomerate seeks to expand equity earnings outside Bank of the Philippine Islands, Globe Telecom, Inc., Manila Water Company, Inc. and Integrated Micro-Electronics, Inc. (IMI) to 20% under the “Ayala 2020” road map.

Alongside, the group targets to improve shareholder return on common equity to 15% and increase Southeast Asian operations’ share in equity earnings to 10% toward 2020.

In the first nine months of 2016, Ayala booked an 11% year-on-year increase in attributable net income to P19.6 billion from P17.70 billion, as equity earnings contribution from its business units rose 10% to P23.6 billion.

The listed businesses continued to deliver bulk of Ayala’s earnings during the period. BPI, Ayala Land, Globe Telecom, Manila Water and IMI netted P17.4 billion, P15.1 billion, P11.7 billion, P4.9 billion and $20.8 million, respectively. To sustain its growth, the conglomerate intends to sustain its aggressive capital spending, particularly in the emerging businesses.

“Ayala has sufficient cash and financing available to meet its capital spending for the year,” Mr. Borromeo said, as the conglomerate moves to exercise the final tranche of a shelf offering amounting to P20 billion.

Ayala targets to issue P10 billion worth of bonds, representing the second and final tranche of its shelf offering, within the first two weeks of February.

“Hopefully, first week or second week of February. That’s the target. It depends on how quickly the SEC (Securities and Exchange Commission) approves it. It should be fast because its shelf,” Mr. Limcaoco said.

Philippine Rating Services Corp. (PhilRatings) has assigned a “PRS Aaa” rating with a stable outlook to the proposed bonds, which Ayala intends to issue to refinance an outstanding obligation due April 30.

The conglomerate issued the first tranche of the shelf offering, comprising seven-year retail bonds cumulatively worth P10 billion, in 2016. The securities likewise received the highest score given by PhilRatings.

“That should do us for the year, unless there’s something special that will happen within the year, but we’re trying to be regular with one issue a year -- one regular domestic issuance hopefully [within the] first half of the year,” Mr. Limcaoco noted.

Mr. Limcaoco noted that Ayala will depend on foreign financing for the acquisition of the geothermal operations of Chevron Global Energy, Inc. in Indonesia and the Philippines. Hence, the conglomerate managed to keep its capital expenditures at year-ago levels.

Ayala announced last month that AC Energy signed agreements with Chevron, Union Oil Co. of California and their relevant affiliates for the acquisition of the geothermal assets at an undisclosed price.

“Chevron is actually quite interesting because, while it looks big on the surface, we have been able to get financing but, of course, we have partners -- that’s not all ours. Our share in Indonesian and Philippine assets is a manageable amount for us,” Mr. Limcaoco said.

Shares in Ayala closed P15.50 or 1.98% higher at P800 apiece on the Philippine Stock Exchange on Thursday.