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McDonald’s Japan slices fries to small size as it faces shipping snags

POLINA TANKILEVITCH/PEXELS

TOKYO — Japanese customers will have to settle for a small serving of McDonald’s fries for the next month or so after the fast-food chain said it was limiting portions due to shipping problems.

McDonald’s Holdings Company Japan said in a statement on Friday that the impact of flood damage on the port of Vancouver and other disruptions since last year would delay an expected shipment of potatoes from North America.

Global shipping operations continue to be severely affected by a mix of factors including coronavirus disease 2019 (COVID-19) pandemic lockdowns, extreme weather and a rapid recovery in demand.

As a result, McDonald’s said that from Sunday it would sell only S-sized fries for about a month “to make sure we have plenty of inventory and our customers can enjoy McDonald’s fries without interruption.”

The fast-food chain took the same step for a week at the end of December at its roughly 2,900 branches in Japan. — Reuters

Yields on government debt end mixed

YIELDS on government securities (GS) ended mixed last week following slower-than-expected inflation in December and the Treasury’s rejection of bids for its offer of reissued seven-year papers.

Bond yields, which move opposite to prices, declined by an average of 4.35 basis points (bps) week on week, based on PHP Bloomberg Valuation Service Reference Rates as of Jan. 7 published on the Philippine Dealing System’s website.

The short end of the curve saw rates fall from their close on Dec. 31. Yields on 91- , 182- and 364-day papers went down by 8.72 bps, 10.7 bps, and 9.71 bps to fetch 1.0073%, 1.1623%, and 1.5626%, respectively.

The belly of the curve was mixed as the rates of two- and three-year Treasury bonds (T-bonds) also declined by 7.69 bps and 1.71 bps to 2.6012% and 3.234%, respectively.

Meanwhile, the four-, five-, and seven-year T-bonds increased by 3.53 bps, 5.48 bps, and 6.9 bps to yield 3.8043%, 4.2514%, and 4.7001%, respectively.

Yields on long-dated papers were likewise mixed. The 10-year paper inched up by 0.35 bps (4.8257%), while 20-year and 25-year notes went down by 12.64 bps (4.9644%) and 12.95 bps (4.9545%).

“Bulk of recent trading activity was concentrated on the front end (one- to three-year tenors) and the liquid on-the-run five-year RTB (retail Treasury bond),” ATRAM Trust Corp. Head of Fixed Income Jose Miguel B. Liboro said in an e-mail interview.

The bond market was “initially more defensive” as the Bureau of the Treasury (BTr) rejected all bids for the reissued seven-year papers earlier last week, he said.

“Continued deceleration in inflation for December 2021…fed buying sentiment which focused on the five-year [bond] despite a move higher in global rates,” Mr. Liboro added.

In a separate e-mail interview, a bond trader noted that government yields fell last week as local participants “generally remained cautious” amid the rising local coronavirus disease 2019 (COVID-19) cases and the threat of the Omicron variant.

The trader added that aside from the lower-than-expected December inflation print, the BTR’s bid rejection “minimized activity in the domestic bond market” last week.

On Tuesday, The Treasury did not accept any tenders for the reissued seven-year bonds, which have a remaining life of six years and seven months, as asking rates became “unreasonably high” despite slower inflation. 

Offers for the paper amounted to P41.42 billion, lower than the P52.267 billion when the bond series was last offered on Dec. 14 which also got rejected during that period.

Had the Treasury fully awarded the bonds, the average yield would have fetched 4.814%, higher by 34.6 bps from 4.468% at the previous offering.

Meanwhile, headline inflation for the month of December eased to its lowest in a year to 3.6% in December from the recorded 4.2% in November as food and transport costs slowed.

Inflation that month was lower than the median 3.9% forecast in a BusinessWorld poll.

The December print brought the full-year average to a three-year high of 4.5%, breaching the 2-4% central bank target band as well as the revised 4.4% forecast.

Meanwhile, Metro Manila and other areas are currently under stricter Alert Level 3 to contain the surge of new infections amid the threat of the highly mutated Omicron variant of the disease.

For this week, the bond trader expects local yields to fetch higher as market waits for the results on the inflation data in the United States, which might bolster for a faster US Federal Reserve tightening with the possible policy rate hike in March.

For his part, Mr. Liboro said market players will take their cues from local catalysts.

“Although we expect global rates to continue to climb gradually higher — impact on local rates is likely to be minimal unless we see sharp spikes higher over the short term,” he said.

As market remains wary of the domestic inflation over the medium term, the December data has calmed sentiment for now, Mr. Liboro said. He added that the market will be focusing on the upcoming auction for the four-year bonds.

“We expect there to be decent interest on the four-year [bonds] with investors opting to focus on five-year and shorter tenors for now.”

The Treasury will offer on Tuesday the reissued five-year papers, with remaining life of four years and two months, worth P35 billion. — Abigail Marie P. Yraola

Trading to be volatile as cases continue to climb

BW FILE PHOTO

LOCAL stocks are seen to be volatile this week amid rising cases of the coronavirus disease 2019 (COVID-19).

The 30-member Philippine Stocks Exchange index (PSEi) dropped 74.41 points or 1.05% to close at 7,011.11 on Friday, while the broader all shares index fell 31.97 points or 0.84% to 3,745.61.

Week on week, the index fell 111.52 points from its 7,122.63 close on Dec. 31.

“The year opened with muted trades as uncertainties loom over swiftly rising of COVID-19 in the country,” online brokerage 2TradeASia.com said in an e-mail sent over the weekend.

For this week, 2TradeAsia.com said inflation data released last week could help boost the index.

“The December 2020 inflation figure can offer some near-term relief, although we caution that Typhoon Odette’s impact may have not been fully baked in yet, plus there will be some seasonality factors as we approach the summer and election months,” the online brokerage said.

Inflation in December eased to its lowest in 12 months, due to the slower increase in the prices of food and transport, but the full-year inflation still exceeded the central bank’s 2-4% target band.

Preliminary data from the Philippine Statistics Authority showed headline inflation slowed to 3.6% in December from 4.2% in November.

December’s inflation print was the slowest reading in 12 months or since the 3.5% reading in December 2020.

This brought the full-year inflation average to 4.5%, higher than the 2.6% recorded in 2020. This was the highest print in three years or since the 5.2% logged in 2018.

It also breached the central bank’s 2-4% target band as well as the revised 4.4% forecast for the year.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the country’s coronavirus situation will continue to affect the market in the coming week.

“Market will continue to be volatile as infection rates rise with the big possibility of increasing the level of restrictions to other areas including the National Capital Region,” Diversified Securities, Inc. Equity Trade Aniceto K. Pangan said in a text message over the weekend.

Daily infections climbed by 21,819 on Friday, based on data from the Department of Health. On Saturday, infections jumped by 26,458 to bring the active case tally to 102,017.

Metro Manila, Bulacan, Cavite, Rizal, as well as other cities and provinces across the country experiencing an infection spike are under the tighter Alert Level 3 until Jan. 15, Friday to curb the spread of the virus.

Mr. Pangan said the PSEi could range within 6,900 to 7,250 this week, while 2TradeAsia.com put immediate support at 6,950-7,000 and resistance at 7,200-7,300. — MCL

Globe dips after surge in coronavirus cases

RENEWED movement restrictions as the country sees a spike in new coronavirus infections derailed market sentiment last week that affected local stocks including Globe Telecom, Inc.

Analysts point to the surging coronavirus disease 2019 (COVID-19) cases as what dragged the stocks to fall across the market on the first trading week of the year, including Globe Telecom, Inc.

Data from the Philippine Stock Exchange (PSE) showed 164,780 Globe shares worth P537.70 million were traded from Jan. 3 to 7. The PSE canceled trading on Jan. 4 due to technical problems in the bourse’s trading engine.

Shares in the Ayala-led telecommunications company ended the year down by 1.6% to P3,270 apiece on Friday from its P3,322 finish on Dec. 31, 2021. Compared with the first trading day on Jan. 3, Globe shares inched down by 0.2%.

Regina Capital Development Corp. Equity Analyst Anna Corenne M. Agravio said that investors are “slightly anxious” with the possibility of putting Metro Manila in a higher alert level.

“Therefore, there weren’t any significant movements in GLO’s share price as the market was taking a wait-and-see stance,” she said in an e-mail interview, referring to the ticker symbol of Globe.

In a separate e-mail interview, Philippine National Bank (PNB) Senior Equity Research Analyst Jonathan J. Latuja shared the same sentiment, adding that the anticipation of renewed lockdowns “may dampen the country’s reopening momentum.”

“I believe this anxiety is observed across all segments and not just the telco sector or Globe,” he added.

New cases of the coronavirus disease 2019 started increasing on the last days of 2021 as the more transmissible Omicron variant started to spread in the country.

Metro Manila and other areas are currently under Alert Level 3 until Jan. 15 to curb the spike of new COVID-19 infections. More movement restrictions and lower operating capacity up to 30% for some commercial establishments were put in place.

Total COVID-19 cases in the country reached 2.97 million after recording 28,707 new infections on Jan. 9. Active cases stood at 128,114.

Meanwhile, Globe said on last Thursday that COVID-19 experimental drug molnupiravir is now available to prescribe via its HealthNow app.

HealthNow app — developed by Ayala Healthcare Holdings, Inc. (AC Health) and Globe’s 917Ventures — is a mobile application that helps patients consult with a doctor virtually and offers delivery of medicines and scheduling appointments while at home. 

The antiviral pill has been approved by the Food and Drug Administration in December as treatment for mild to moderate COVID-19 cases, and may only be given to patients 18 years old and above with “risk factors for developing severe illness” such as senior citizens and those with comorbidities.

“This move likely gives investors the impression that GLO is indeed a defensive stock amid the pandemic, confirming what the market has thought since the beginning. Therefore, some would likely rotate their funds out of other blue chips and into GLO,” Ms. Agravio said, referring to Globe’s stock symbol.

For Mr. Latuja, this initiative showcases Globe’s good corporate governance, but he sees no significant impact on its stock price.

He expects the telco to net P5 billion in the final three months of 2021, driven by sustained growth in fixed data revenues.

“At its current price, we think Globe is already trading at a premium compared to its peers,” Mr. Latuja said. “This might provide scope for investors to sell the stock if earnings expectations are not met.”

Ms. Agravio, meanwhile, sees Globe’s top line sustaining a single-digit growth, while the bottom line in the fourth quarter could have increased by “at least high single digits” amid sustained demand for data-related services.

Globe revenues rose by 2.5% year on year to P125.61 billion in the nine months to September. Its attributable net income likewise increased by 12.8% to P17.90 billion during the same period.

For this week, Ms. Agravio placed Globe’s support and resistance levels at P3,200 and P3,600, respectively. — Bernadette Therese M. Gadon

PSC has no funds for sorties outside of SEAG, AG

PSC COMMISSIONER RAMON FERNANDEZ

DUE to budgetary constraints, the Philippine Sports Commission (PSC) will not be able to fund international sorties outside the Hanoi Southeast Asian (SEA) Games and the Hangzhou Asian Games (AG) this year.

PSC commissioner Ramon Fernandez, the country’s chef de mission to the Hanoi tilt set May 12-23, said they have only enough money to bankroll the Southeast Asian Games and the Asiad slated Sept. 10-25.

To date, the country has only P121 million — P71 million from what was left last year and P50 million allotted by the Department of Budget and Management this year — to fuel the country’s Hanoi campaign.

“Based on experience, I think it will not be enough to shoulder the 626 athletes and hundreds more coaches and officials the POC (Philippine Olympic Committee) has recommended to send to Hanoi,” said Mr. Fernandez.

The Asian Games has been allotted P70 million by the Department of Budget and Management (DBM) while P50 million have been given for Asian Indoor and Martial Arts Games, which was reset next year.

The DBM had given the PSC P200 million for SEA Games use last year, but P139 million were already spent in training and uniforms among others, leaving it with just P71 million.

But the SEA Games was eventually rescheduled.

“That’s why we have to sit down with the POC to discuss the matter and what should be done,” said Mr. Fernandez. — Joey Villar

Philippines 13th globally in organized crime list

Philippines 13<sup>th</sup> globally in organized crime list

How PSEi member stocks performed — January 7, 2022

Here’s a quick glance at how PSEi stocks fared on Friday, January 7, 2022.


Farmers say cash assistance not enough amid import competition

THE Federation of Free Farmers (FFF) said in a statement that the government’s decision to provide cash assistance to farmers affected by the typhoon will not offset the losses they have sustained due to competition from imports.

“Studies by the FFF indicate that rice farmers lost an average of P6,000 per hectare harvested in 2019 and 2020. This was due to the drop in farmgate prices, following the enactment of Republic Act (RA) 11203 or the Rice Tariffication Law (RTL) in March 2019 and the ensuing inflow of large volumes of imported rice,” FFF National Manager Raul Q. Montemayor said.

On Dec. 10, President Rodrigo R. Duterte signed into law RA 11589, which gives monetary assistance to farmers from provinces hit by Typhoon Odette (international name: Rai).

The law will support rice farmers tilling land two hectares or below until 2024. Funds will be sourced from rice import tariff collections in excess of P10 billion annually.

“Assuming a farmer has two hectares of land and harvests two times in a year, his losses in 2019 and 2020 would total P24,000. Last year, the Department of Agriculture (DA) started giving cash assistance of only P5,000 per farmer, using some P7 billion in excess tariff collections in 2019 and 2020. This is equivalent to only 20% of the farmers’ losses during the two-year period,” Mr. Montemayor said.

The FFF said that the cash transfer program is “discriminatory,” as it excludes farmers tilling land more than two hectares who are still affected by the drop in the price of palay, or unmilled rice.

“This subsidy would be negated by higher farm production costs resulting from the recent spike in fertilizer prices, even as palay prices have continued to decline due to the unimpeded arrival of rice imports particularly during peak harvest periods,” the FFF said.

 The FFF proposed to allocate some of the excess tariffs to other key programs, such as crop insurance and crop diversification.

“These programs can provide more significant, cost-effective and longer-lasting benefits to rice farmers who have to grapple with recurrent typhoons and price fluctuations. However, they will now lose their funding, because RA 11589 allocates all excess tariffs exclusively to cash transfers,” said Mr. Montemayor.

The organization urged the DA to manage the inflow of imports to prevent the fall of palay prices and avail of trade remedies, such as safeguard duties.

“Safeguard duties can temporarily increase rice tariffs, if imports are found to be excessive and seriously hurting local farmers. The DA has refused to use this remedy and has instead resorted to suspending the issuance of rice import clearances from time to time despite the absence of clear quarantine risks,” the FFF said.

“It does not make sense for the DA to entice farmers with seed and fertilizer subsidies to increase their production while, at the same time, allowing excessive importation. This is a recipe for disaster. It will only cause a supply glut and plunging palay prices, which the DA will now try to offset partially through cash transfers,” Mr. Montemayor added. — Luisa Maria Jacinta C. Jocson

Open-pit mining environment impact seen outweighing economic benefits

By Luisa Maria Jacinta C. Jocson

THE return of open-pit mining promises a boost to the economy, possibly at the expense of degrading the environment and living conditions for residents near the mines, a University of the Philippines (UP) academic said.

“From the view of sustainable development, the decision might not be right considering the impact of large-scale mining on local communities. While there might be economic benefits that can be gained from implementing this liberal policy on mining and granting new permits, these benefits, however, have to be weighed against the long-term impact of mining activities on the environment and the lives of the people,” according to political scientist Ruth R. Lusterio-Rico, associate dean of UP Diliman’s College of Social Sciences and Philosophy, who studies environmental politics.

“Some sectors have openly questioned and criticized this shift in policy particularly in light of the recent natural disaster experiences that are already considered to be related to climate change. Thus, for advocates of environmental protection, the economic benefits that could be gained now would not outweigh the consequences on the environment for the future generations,” she added.

On Dec. 23, the government lifted the four-year ban on open-pit mining, which superseded an earlier order issued by the late Environment Secretary Regina L. Lopez.

In April, President Rodrigo R. Duterte lifted the nine-year moratorium on granting mining permits.

“There were indications that the administration has softened on its stance on mining. As everyone knows, in the early period of the Duterte administration, the position of the administration, particularly the President, was strongly against mining. Evidence of this (included) his strong statements against mining and mining companies in his State of the Nation Addresses (SONAs) in 2016 and 2017,” Ms. Lusterio-Rico said.

“Mr. Duterte even directed the (Department of Environment and Natural resources) to review all mining permits and ensure compliance of mining companies to all government standards and regulations. It would be recalled that this strong position against mining was implemented by Ms. Regina L. Lopez,” she added.  “After Ms. Lopez’s exit from the DENR, the position on mining gradually shifted. In his later SONAs, Mr. Duterte no longer talked about mining. The focus shifted to cleaning up Boracay and Manila Bay.”

Ms. Lusterio-Rico said the government and miners must ensure that the lives of those in mining communities are not disrupted.

“I think the government must very carefully study the situation in the communities that would potentially be affected by mining activities, on a case-to-case basis. To be fair, there were also mining companies that practiced what may be considered ‘responsible mining.’ But definitely, knowing how communities would be affected by mining activities is very important. Aside from the long-term impact on the environment, let us not forget the consequences of mining activities on people and their communities,” she said.

“There have been several studies made on the consequences of mining on people’s lives as well as on the environment. There are communities that have been divided because of the issue of mining, primarily because there are people who gain and there are those who lose,” she added.

However, she called the consequences of open-pit mining inevitable in the event of mining accidents.

“In other words, even if the mining company can be a potential provider of employment, not everyone in the community can be hired by the mining company. There are also heavy consequences on communities, such as loss of livelihood, poor health conditions, etc. when accidents happen in mining areas,” Ms. Lusterio-Rico said.

“I suppose that the risks involved in revitalizing the mining industry cannot be overemphasized. It is very clear based on past experience and the current challenges posed by climate change that the Philippines has to be vigilant and ready to face the possible consequences of irresponsible action,” she added.

Pambansang Lakas ng Kilusang Mamamalakaya ng Pilipinas (PAMALAKAYA), an organization of small fishermen, called the job creation benefits minor compared to the potential costs.

Open-pit “only creates very small number of jobs and a paltry amount of value to the Philippine economy” at the expense of degrading the environment, PAMALAKAYA National Charmain Fernando L.  Hicap said in a statement.

“The resumption of open-pit mining spells greater environmental destruction and disaster for farmers, indigenous peoples, and fisherfolk. We do not buy the pretext that inviting more mining companies into our land will help revive the pandemic-battered economy… There are more sustainable ways to restore the economy (than) exposing our natural resources and sacrificing our national patrimony to big mining interests,” Mr. Hicap added.

The mining industry welcomed the lifting of the ban, taking the position that the practice can be made environmentally sustainable.

“The mining method is dependent on the location and configuration of the ore body. Open-pit mining is employed for shallow or near-surface mineral deposits, where underground operations are impractical. There are sufficient safeguards to ensure that all mining operations including open-pit are done safely and with due consideration to the environment and host communities,” the Philippine Mining and Exploration Association (PMEA) said in a statement.

“We hope that this will encourage investment in mining in the future and that the government will facilitate and expedite the permitting process. This will allow the mining industry to contribute more to the country’s economic recovery from the disastrous effects of the pandemic,” PMEA added.

DoE endorsed 279 power projects seeking ERC clearance in 2021

EIA.EMB.GOV.PH

THE Department of Energy (DoE) said it endorsed 279 power generation facilities applying to be certified by the Energy Regulatory Commission (ERC) in 2021.

In the list released by the DoE on Friday, 213 of the facilities were diesel-powered, with the biggest being the Ingrid Pililla Diesel Power Plant Project of Ingrid Power Holdings, Inc. with capacity of 179.824 megawatts (MW).

Meanwhile, 27 facilities are hydro-powered, led by Pulangi IV Hydroelectric Power Plant in Bukidnon at 255.15 MW.

Solar-powered facilities accounted for 16 endorsed plants led by Belgrove Power Corp.’s Malaya Thermal Power Plant Unit 2 in Rizal at 394.2 MW.

Ten coal-fired power plants were on the list, clearing up the backlog of pending coal-fired projects. No further approvals of new projects are expected after a ban on such approvals by the DoE. GNPower Dinginin Ltd. Co.’s GNPower Dinginin supercritical coal-fired power plant was the largest of these at 1,449.93 MW.

Of the 279 facilities, 34 new facilities received endorsements.

CoCs (certificates of compliance) are issued by the ERC to clear the way for five more years of commercial operations. Certification indicates compliance with government standards. — Marielle C. Lucenio

Legislators tout open access bill as recovery driver

BW FILE PHOTO

LEGISLATORS said they expect a bill which they co-authored to improve competition in the digital services industry, helping propel the economy’s recovery, ultimately reducing poverty.

House Bill No. 8910, also known as the Open Access in Data Transmission Act, hopes to promote fair and open competition by lowering barriers to entry for the telecommunications industry, in the process lowering the cost of such services. 

“By reducing the costs of internet access, (the bill) greatly reduces the transaction costs of search, transportation, tracking, and verification in conducting economic activity,” Quezon City Rep. Jesus C. Suntay told BusinessWorld in an e-mail.

“For developing countries like ours, it is important to possess a more inclusive digital economy to prevent the widening gap between the rich and the poor by increasing the efficiency of the economy,” he added.

He cited a study from the Inter-American Development Bank which found that investing in technology can democratize access to technology, improving user access to jobs and education.

Parañaque Rep. Joy S. Tambunting said that building better digital infrastructure will help support the development of e-commerce.

“E-commerce contributed 3.4% to GDP (gross domestic product) in 2020,” Ms. Tambunting said. “(It) also has the capacity to alleviate poverty as it allows small and micro businesses to enter the market.”

She noted that more digital awareness would “(better) equip Filipinos to do business.”

Marikina Rep. Stella Luz A. Quimbo cited a 2020 study conducted by the United Nations Economic and Social Commission for Asia and the Pacific which found that the advantages of better digital infrastructure include “access to wider international markets, improvement and efficiency in operations through digitally-enabled services, reduction of trading costs… and wider access to the financial sector.”

Surigao del Sur Rep. Johnny T. Pimentel said that in India and parts of sub-Saharan Africa which are largely agricultural, are using digital technology to help lift up their farmers.

Mr. Pimentel said that “those countries’ ministers are encouraging the use of digital infrastructure to promote agribusiness and agricultural development by setting up mobile-based apps for market selling and buying and transport mediation.”

The legislators acknowledged that the spread of COVID-19 has helped speed up the digitalization process and cashless transactions due to the restrictions on movement imposed by the pandemic.

They also noted that the sector lacks established rules, while those that exist are outdated.

Various surveys like a poll conducted by Tech in Asia indicate reveal that the Philippines has some of the slowest and most expensive internet services. — Jaspearl Emerald G. Tan 

Accelerating growth in the post-pandemic world

As the pandemic continues to impact businesses across global economies, it has also fueled a reset in strategy for many organizations who now place focus on thriving instead of merely surviving. More than half of the respondents surveyed in the latest EY Global Capital Confidence Barometer, which gathered insights from more than 2,400 C-Suite executives globally, even expect a recovery in profitability that matches pre-pandemic levels by 2022. Most of these executives share satisfaction with their performance in response to the pandemic in comparison to their competitors, with more than half of the Southeast Asian respondents (which include Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam) believing that their organizations outperformed their competitors in engaging with local communities, operational stability, and digital performance.

However, this progress does not change the reality that disruption will continue at an accelerated pace not seen before the pandemic. Startups are rewriting the rules of the game, challenging business models in all industries as products and services enter markets much faster.

This makes it imperative for companies to continuously review how they can future-proof their strategy and business fundamentals. They must also critically review their portfolio to determine if it will remain relevant and profitable in the long term. A constant strategic and portfolio review process will allow companies to identify areas of growth at the earliest opportunity, as well as more quickly address areas of underperformance. To take advantage of opportunities to drive transformation for success beyond the crisis, executives will need to make bold moves and act with urgency.

DIVESTING UNDERPERFORMING ASSETS
The act of divesting distressed and underperforming assets is a conventional trend during a crisis — and it should also be expected to continue beyond the pandemic. It should be noted, however, that if it does not fit with an organization’s strategy, then even a strong-performing business might be tying down capital that can be better deployed in investments that deliver higher impact.

While business unit management bias is understandable, it can obscure the holistic view of the business that the review process should yield. Top-down assessments by the management and board can sometimes conflict with a bottom-up review process, especially when it comes to assessing synergies and the value of business units as stand-alone entities or potential divestitures. Companies will need to consider their divestiture by identifying assets at the risk of disruption as well as those that are facing future growth challenges.

MAKING TRANSFORMATIVE, STRATEGIC ACQUISITIONS
The survey revealed that over half of the Southeast Asian respondents at 56% seek to actively pursue mergers and acquisitions (M&A) in the next 12 months. This beats the average of 44% in the previous 11 years, and has been the highest number since 2012. Some of the drivers that increased this appetite for M&A include issues relating to regulations, the strengthening of technology, tariffs and trade flows, talent and new capabilities, and growth into adjacent business sectors or activities.

Most of the deals that survey respondents intend to pursue this year target the acquisition of specific capabilities as well as bolt-on deals, where smaller companies are acquired and added to an existing business. Many Southeast Asian corporate M&A deals tend to have bolt-on characteristics due to them being easier to execute. However, it remains to be seen if these smaller acquisitions will be sufficient for companies seeking growth in an environment that may look very different in the wake of the pandemic. Some companies also attempted roll ups, which consolidates multiple small companies so that the resulting larger entity can take advantage of economies of scale, but it should be noted that these transactions hold a much greater risk and a higher degree of difficulty to execute.

The success of the M&A approach depends on several factors. This includes ensuring that the acquisition is part of the business strategy, adequately considering and mitigating transaction risks, having a deep and well-structured analysis of the market and target, and securing correct financing of the acquisition. The extent of a detailed value-creation thesis with proper ownership and implementation actions will also make a difference between success and failure.

SUSTAINABILITY AS A CORE CONSIDERATION
Management and the board will also need to be strong stewards of the community as companies acquire and grow, making environmental, social and governance (ESG) considerations an important component of the corporate acquisition playbook.

Companies will need to update their ESG and acquisition frameworks to reflect various topics, with examples that include sustainable practices, environmental compliance, and operating with integrity from the perspective of all stakeholders.

TRANSFORMING AND TRANSACTING TO EMERGE STRONGER
It has been established that companies capable of transforming and transacting in previous crises have emerged stronger than their competitors. This means that embracing transformation accelerated by the right acquisitions will be key now and beyond the pandemic.

In this time of rapid disruption, boards must ask themselves whether their business strategy helps maintain market leadership and growth, and if their current portfolio strategy is sound or needs to be reshaped through divestments and investments. By taking advantage of the right M&A opportunities, organization will be able to drive long-term success beyond the COVID-19 crisis.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.

 

Smith C. Lim is a strategy and transactions partner of SGV & Co.