SM Prime eyes Thailand, Malaysia, other Asean markets for expansion

PROPERTY conglomerate SM Prime Holdings Inc. plans to expand into Southeast Asian markets like Thailand and Malaysia to seize the opportunities offered by the forthcoming Association of Southeast Asian Nations (Asean) economic integration.

SM Prime chief financial officer John Ong announced plans to expand outside the Philippines and China during an investors’ conference organized by the Bank of Philippine Islands (BPI).

APART from China, because there is certain affiliation in China, but we continue to accept, we continue to receive invitations in other Asean countries like Thailand and Malaysia. So we continue to entertain those opportunities and we look at synergy,” Ong said.

He said they are looking to expand within the business segments the conglomerate is engaged in, particularly malls and residences.

“We continue to entertain those opportunities. We would definitely entertain [these] and we would be glad to go to other areas in Asean region,” he added.

With the establishment of an Asean Economic Community (AEC), Asean will be characterized by free movement of goods, services and investments as well as freer flow of capital and skills.

Asean groups Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei Darussalam, Vietnam, Laos, Myanmar and Cambodia.

Ong stressed that the expansion plan is not yet factored in SM Prime’s five-year roadmap to double its income to P32 billion by 2018.

The conglomerate allotted P400 billion in capital expenditures until 2018 to grow its office, mall, leisure,HOTEL and residential portfolio by two-fold.

It will construct 26 new SM malls and 20 residential projects in the Philippines and six malls in China. SM Prime will also expand its offices,HOTELS and leisure businesses.

Ong said he expects no change in terms of revenue mix from the current levels, as SM Prime works to double its income.

“We expect that we will continue with the 60 percent revenue contribution coming from our malls, 30 percent coming from our residential and the rest should be coming from our commercial and the hotel and convention centers. In the next four years leading to 2018, we are looking at the same trend in terms of revenues,” he added.

source:  Manila Times

AEC and foreign direct investment

ASEAN received a total of $122 billion in foreign direct investments (FDI) in 2013. The Philippines received $4 billion, or 3 percent.

The European Chamber of Commerce of the Philippines (ECCP) seeks and promotes open international trade, and the creation of an investor-friendly environment in the Philippines as a means to achieve inclusive growth, more specifically, to move to a higher level of sustainable growth through higher local and foreign investments, create more and better jobs and make growth inclusive.

A sustained, major increase in FDI is needed and can only be achieved through economic liberalization policies, lifting of restrictions on foreign investment with the aim of increasing competition, and measures to make it easier to do business.

In this context, two issues were high on our agenda:

1. A less negative Foreign Investment Negative List (FINL); and

2. Amending the restrictive provisions of the 1978 Philippine
Constitution.

Unfortunately, we were recently defeated twice:

1. Malacañang issued the new FINL and, after two years of debate with the National Economic and Development Authority and the Economic Cluster and making recommendations how and where changes could be introduced, administratively and through legislation, it is disappointing to find out that the new FINL is basically as restrictive as the previous one.

2. Speaker Feliciano Belmonte Jr. has been driving Resolution of Both Houses 1 (RBH 1)  for a long time, and local and foreign businesses have supported this important move to amend the restrictive provisions of the Constitution, and to allow more foreign investment to come into the country, needed to create more competition which is good for Juan de la Cruz who will get better products and services at a better price. However, in the last session of Congress before recess, leaders of the House were able to muster 267 lawmakers to attend—needing 217 affirmative votes to approve RBH 1, or the economic Charter change (economic Cha-cha)—but the vote never happened. The question remains whether there was a Palace hand or a lack of affirmative numbers. What is sure is that Belmonte has given up on the economic Cha-cha.

In other words: A bad week for business, a bad week for potential foreign investment, coming at a time where the FDI numbers for the first quarter of 2015 in terms of actual inflows and registration look pretty bad, both falling by about 50 percent.

Given these defeats, what is business now hoping for?

We sincerely trust that the President will finally sign the following
legislation:

• Philippine Competition Act—legislation that will create a level playing field, that is a requirement for potential free-trade agreements with Europe and the Trans-Pacific Cooperation, pushed by the US, and an expected measure for Asean integration;

• Amended cabotage law—we are happy that the Senate version won in the bicam; the legislation will allow foreign ships to transport cargo (containers and bulk) directly to ports in the country, including Cebu, and accept cargo destined for foreign countries;

• Department of Information Communications Technology (DICT)—badly needed to create the required infrastructure for the more and more important BPM/KPM sector, which is also growing fast in Cebu; we are all aware how slow broadband is in this country and how expensive it is compared to competing countries around us; the DICT is also needed to finally get the Data Security Act implemented through the creation of the Data Security Commission, which will create the needed IRR; another  task of the DICT will be to raise the level of protection against cybercrime.

• Tax Incentives and Management and Transparency Act—we still have a number of recommendations that will hopefully be accepted by the bicameral committee; we agree that more transparency is needed but—at the same time—do not want fiscal incentives touched which are badly needed by new investors as the cost of doing business in the Philippines is higher than in competing countries.

As ECCP, we will continue to fight for a level playing field and a competitive business environment, following the battle cry of the Philippine Economic Zone Authority: Red Carpet—No Red Tape!

source:  Business Mirror

Regional integration, capital requirements drive insurance mergers

Mergers and consolidations are becoming a key item to consider for senior insurance executives. According to data from the Insurance Commission, the number of life insurance players has decreased to 31 in 2014 from 33 in 2011. In nonlife, the decline is more apparent, with 70 firms last year compared with 83 in 2011.

One of the major reasons why insurance companies pursue such deals is the higher capital requirement imposed by the Insurance Commission. Currently, a domestic insurer is required to have a net worth of P250 million, which is due to be increased to P1.3 billion by 2022.

This higher capitalization requirement is happening against the backdrop of Association of Southeast Asian Nations (ASEAN) economic integration, were barriers to trade and investment are expected to be liberalized to facilitate entry of investment, improve the competitiveness of insurance companies, and boost economic activity within the region. This is in line with the ASEAN Economic Community’s aim to have a semi-integrated financial market by 2020.

As a result, small insurance companies may not be able to compete with the well-established local insurance firms and the foreseeable entry of more foreign insurance companies. Hence, small players are now encouraged to merge and consolidate in order to meet the minimum capitalization requirement and to sustain their respective businesses.

The Insurance Commission issued Circular Letter No. 2015-11 in March to clarify the rules and regulations covering merger deals. The salient features of the circular are provided below:

1. Domestic insurance companies that are planning to merge or consolidate are required to notify the Commission in writing at least 30 days prior to any board action to approve any Plan of Merger/Consolidation. The Plan must be submitted to the stockholders or members for their approval. Once approved, all policyholders and creditors must be notified within 20 days from the execution of the agreement.

2. The company to be dissolved or absorbed must discharge all its accrued liabilities; otherwise, such liabilities (with the consent of creditors) will be assumed by the absorbing or acquiring company. For policies that are subject to cancellation by the company to be absorbed, the same must be cancelled pursuant to the terms of such policies. Such proof of discharge must be in writing and submitted to the Insurance Commission for review.

3. The Commissioner shall approve or deny the Plan and Articles of Merger/Consolidation based on his assessment of the financial condition of the concerned insurance companies. Once approved, the insurance companies must submit the Articles, including the endorsement of the Commissioner, to the Securities and Exchange Commission (SEC).

4. Once the approval of the SEC is secured, the constituent insurance companies must surrender their certificates of authority to transact insurance business, and the surviving entity (or the newly-formed company in case of consolidations) must secure a new certificate of authority to transact insurance business.

5. All proposed mergers and consolidations must be completed within 12 months from the time of notice to the Insurance Commission. However, requests for extension may be granted if filed before the end of the 12-month period.

The circular highlights the responsibility of insurance firms to inform their policyholders and creditors of any merger or consolidation plan. Policyholders and creditors will this be well-informed of developments, thereby ensuring transparency and protection of public interest. Further, a two-tiered review and approval process by the Insurance Commission and SEC must be undertaken before the unification can take effect.

With ASEAN integration and higher capital requirements looming, it makes sense for small insurance players to combine their resources for sustainability, especially since the insurance industry is considered one of the pillars of our financial system and national development. In addition, the prospect of an expanded cross-border market likewise makes mergers and consolidations attractive for insurance companies seeking a competitive position. This approach enhances the competitiveness of the industry and helps to ensure sufficient protections for the insuring public.

In the race to the finish line, insurance companies do understand that synergy of resources is the way to go. Indeed, size does matter.

Diberjohn P. Balinas is an Assistant Manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

source:  Businessworld