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Private Equity in the Philippines – The Time Has Come
Martin Lichauco
Managing Director
Fortman Cline Capital Markets
Asia Finance Summit
April 21, 2015
Makati Diamond Residences
Private & Confidential
Table of Contents
1
The Fast Growing Asian Economy
2
The Philippine Economy Today
3
Private Equity Opportunity in the Philippines
4
Fortman Cline Capital Markets
2
The Fast Growing Asian Economy
Private & Confidential
Asia-10: Key Drivers of Economic Growth
• Asia is both a phenomena and a paradox with vast
human and natural resources, home to more than half
of the world’s population.
• What is new: Globalization is a real revolution.
Historically inert, Asia’s rural areas are now being
transformed by urbanization, modernization,
interconnectedness and technology.
• Asia is shaping the world as the fastest growing
region. From 1980 to 2010, Asia’s GDP grew from
40% of U.S. GDP to 80%. By 2016, Asian GDP will
exceed that of the U.S.
• Rebalancing economic power to Asia is supported by
ample liquidity, strong fundamentals and growing
consumer power spurred by wealth creation.
Source: NSO, NSCB, DOT
4
Private & Confidential
Asia-10 Consumer Sector: The Right Sector at the Right Time
Why the Consumer sector?
• Asia is now large enough to drive its own growth led
by consumer driven countries such as China, India,
Indonesia, Korea and other Asian nations.
• Real consumption throughout Asia is sustained by per
capita income and population growth.
• Asian consumption has grown 25% year on year
compared to an average growth of 1% in U.S., Japan
and European countries.
• Consumption will grow to 80% that of U.S. GDP by
2020.
Why Invest now?
• Capital flows will continue to flow into Asia as investors
see where the growth is.
• Buyer’s market – Reasonable valuations, supported
by fundamentals and quantitative analysis, with
increasing number of assets coming to the market.
Source: World Bank, DBS Group, August 2014
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The Philippine Economy Today
Private & Confidential
Why Philippines? – Country Overview
Attractive Demographics and Resources
Population:
Pop. Growth:
Main Cities:
% Under 24yo:
Urban Pop:
Literacy Rate:
Languages:
108 mn population
1.8 % p.a.
Manila (11.5m), Davao (1.4m), Cebu (0.9m)
53% of population
49%
95%
English and Filipino (8 major dialects)
Japan
China
Taiwan
Hong Kong
GDP per Capita: USD 2,765
- 67mn middle income population (P60-250k annual income)
- Middle class income grew over 8% CAGR over last 5 years.
Thailand
Vietnam
Overseas Workforce: 10.5 million overseas workers globally
remitting over USD20bn in remittances annually.
- 2014 set an all-time high at USD 26.93bn in remittances
BPO Sector: Largest number of offshore call center agents in
the world, with 1mn workers employed in BPO sector and IT
sector, pegged to reach $25bn revenues in 2016 and $55bn by
2020.
Malaysia
Singapore
Natural Resources: Copper, gold, nickel, iron, cobalt and silver.
- USD840bn estimated total mineral deposits
Indonesia
Tourist Arrivals: 4.8mn in 2014.
- Over 8% p.a. growth in tourists for the last 5 years
Source: NSO, NSCB, DOT, World Bank
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Philippines
Private & Confidential
Why Philippines? – Strong Macro-Fundamentals
Strong & Favorable Investment Outlook
Robust GDP growth over last decade
 Philippines received its first ever Investment Grade rating this
year by credit rating agencies. Its credit rating was upgraded
to BBB- by Fitch last March 2013 and by S&P last May 2013.
Real GDP Growth
7.6%
8.0%
7.2%
6.6%
7.0%
6.6%
 S&P sees the country as having the capability to withstand
unfavorable developments in the global economy.
6.1%
6.0%
5.2%
5.0%
4.8%
4.2%
 Philippines is seen as one of Goldman Sachs’ “Next Eleven”
economies and Citi’s eleven “Global Growth Generators”.
3.9%
4.0%
 Projected by HSBC to be the 16th largest economy by 2050,
up 27 spots, driven by strong fundamentals and favorable
demographics.
3.0%
2.0%
1.1%
 Continuously improving fiscal position with diminished
chances of a sovereign debt crisis and less money being
used to repay debt
Source: CNBC
1.0%
0.0%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Highest projected GDP growth among Asian peers
 2013 record high of 7.2% GDP growth, second fastest in
Asia behind China
China
India
Indonesia
Malaysia
Philippines
Singapore
Thailand
Vietnam
 Q4 2014 GDP accelerated to 6.9%. Driven by
communications, construction, manufacturing, real estate,
transportation, etc.
 Although decreased due to government underspending, PH
remains second fastest GDP growth in Asia behind China
(7.4%)
2010-2020
6.7%
5.7%
4.3%
7.1%
8.4%
3.7%
4.0%
5.7%
2020-2030
5.5%
5.6%
4.3%
5.7%
7.3%
2.1%
3.8%
5.3%
Source: HSBC Global Research, January 2012
Source: NSCB, World Bank
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2030-2040
4.4%
5.5%
4.3%
4.7%
6.6%
2.0%
3.8%
5.1%
2040-2050
4.1%
5.2%
4.5%
3.8%
5.8%
2.1%
4.0%
4.8%
Private & Confidential
Why Philippines? – Strong Macro-Fundamentals
Steadily declining external debt levels
Low inflation and interest rate environment
YoY Headline Inflation
External Debt to GDP
9.0%
8.0%
70.0%
59.7%
8.2%
60.0%
7.7%
50.2%
7.0%
50.0%
6.3%
6.0%
44.5%
37.6% 38.4% 36.9%
40.0%
5.0%
4.7%
4.2%
4.0%
4.1%
3.8%
3.0%
30.0%
3.0%
2.9%
33.7% 31.9%
28.8% 27.3%
20.0%
3.1%
2.0%
10.0%
1.0%
0.0%
0.0%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2005
2014
2006
2007
2008
2009
2010
2011
2012
2013
2014
 External debt to GDP down from 59.7% in 2005 to 27.3% in
2014.
 2014 yoy headline Inflation at 4.1%, below government’s
target of 4.48%.
 2014 budget deficit of P73bn, well below deficit cap of
P266bn, due to government’s push for responsible
spending.
 Inflation has been around 4% in the last 5 years.
 Bangko Sentral ng Pilipinas (central bank) policy rates
steady 4% for overnight borrowing and 6% for overnight
lending. BSP has kept rates steady since October 2014.
 Government achieved 0.6% GDP deficit in 2014; target was
2%. This indicates easier management of government’s
funding shortfall, reducing borrowing pressure which inflates
the country’s debt.
 10-year Peso-denominated government bond yields at 4.1%
falling at steady average levels.
 Gross International Reserves at a sustained high of
USD80bn as of end-2014, representing over 10x import
cover and over 450% short-term external debt cover
Source: BSP, World Bank
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Private Equity Opportunity in the Philippines
Private & Confidential
In the Philippines – PSE at record high and at a rather rich valuation
above 21x PE
PSE Index
PSE Index
8,000
7,000
PSE Index
P/E:
1-year return:
3-year return:
7,815 (04/20/15)
21.2x
29%
148%
20.0x PE
17.5x PE
6,000
15.0x PE
5,000
12.5x PE
4,000
10.0x PE
3,000
2,000
1,000
Source: Bloomberg, April 2015
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Private & Confidential
Private unlisted entities account for over 78% of Philippine economy
Philippine GNI Breakdown – Private vs. Listed
Philippine GNI vs. Revenues of Listed Equities
Php
Trillions
16
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Publicly Listed
Entities
13.9
22.0%
12
10
8
6
78.0%
3.1
4
2.1
Private
Non-listed
Entities / SMEs
2
0
Philippine GNI
All Publicly Listed
Revenues
PSE Index
Revenues
 All publicly-listed companies account for only 22% of
Philippine economy (GNI).
 Public markets provide limited access for investors to
participate in broader and fastest growing portion of
Philippine economy.
 PSE index account for 15% of GNI.
 PE funds can serve as a managed vehicle to access this
major economic growth segment.
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Private & Confidential
Consumer related sectors particularly compelling for Private Equity investors
 73% of GDP driven by private consumption
 USD20bn OFW remittances growing 12% p.a.
 94 million population growing 2% p.a.
 Median population age 23yo lowest in ASEAN
 8% p.a. growth in middle-class income / increased discretionary spending
 Target consumer-related sectors: F&B, Retail, FMCG, Business Services, Pharma / Healthcare,
Tourism, Education
 Only ~15% of listed companies have predominant exposure to these sectors
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Private & Confidential
Select Foreign Private Equity Investments in the Philippines
• In 2013, CVC Capital Partners paid $300 million for 80% of SPI Global Holdings, the
BPO business unit of the Philippine Long Distance Telephone (PLDT)
• In 2013, Chandler Corporation, the Singapore-based family office of Richard Chandler
made an investment in The Medical City, a leading integrated network of hospitals in
the country
• In early 2014, GIC Private, Singapore government’s sovereign wealth fund, acquired
14.4 % of the hospital unit of conglomerate Metro Pacific for PHP 3.7 billion
($85million)
• In May 2014, GIC Private invested PHP 3.4 billion ($76 million)for 11% of Century
Canning
• In November 2014, GIC Private agreed to pay PHP17.6 billion ($391 million) for a
9.64% stake in Emperador (EMP), a Philippines-based liquor producer
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Fortman Cline Capital Markets
Private & Confidential
About Fortman Cline Capital Markets
Founded in 2007, Fortman Cline Capital Markets is a Hong Kong based
Investment advisory firm with offices in Manila, Singapore, Jakarta and
New York. represents professionals with decades of experience in Global
Capital Markets, Investment Banking and Asset Management.
FCCM grows dynamic growth growth oriented middle market companies in the Asia-10 who seek access to the Global
Markets. We help our clients identify and pursue strategic alliances, enhance shareholder value and raise capital to
meet growth objectives. FCCM is ranked the number one M&A firm in the Philippines with $9.8 Billion in completed
transactions since its inception.
At FCCM, we are driving synergies between our investment advisory and banking teams; distribution and proprietary
co-investments. We are devoted to assisting small to middle market companies that are helping to reshape the
consumer, energy and water services throughout Asia.
Mergers and Acquisitions
We assist companies with strategic asset acquisitions,
evaluate potential targets and identify optimal financial
and strategic alternatives. We advise in the structuring,
financing and growth prospects of proposed acquisition
and negotiate optimal outcomes.
Effective Syndicate Loan Advisory
With over a decade experience in the expansive
syndicated loan market, FCCM is exceptionally qualified
to advise Asia based clients on how to access the
offshore loan market in order to achieve the lowest cost
of funding and best terms.
Co-Investment Opportunities
FCCM is building a community of investors to share in
our success. Our model capitalizes on the increasing
interest in direct investing from institutions and family
offices by offering co-investment opportunities with the
launch of FCCM McEnergy Partners. We create
alignment by investing with our investors.
Divestments
Clients contemplating the sale of certain business
assets or their company engage FCCM to evaluate and
recommend financial and strategic alternatives.
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Private & Confidential
Fortman Cline has been ranked as the top M&A firm in the Philippines by
Bloomberg
Bloomberg 2009-2014 Rankings – Top Philippine M&A Financial Advisers
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Private & Confidential
The only Philippine firm to make it to the Top 25 M&A Advisors in
Southeast Asia
Bloomberg 2009-2014 Rankings – Top 25 Southeast Asia M&A Financial Advisors
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Private & Confidential
FCCM’s Co-Investing Partners LP: Themes and Forecasted Opportunities
The Global Market is upon us. We are in a world where assets have no borders. The new global options bring
new challenges which radically alter the fundamental basis for our investment thinking with new trends and
investment themes.
Trends
•
•
•
•
•
•
•
Shifting Global Growth from West to
East
Structural changes to Consumer
driven Economies
Demographic windows of growth with
rising domestic consumption
Energy and infrastructure is central to
Asian growth and Development
Aging Societies in Japan, Europe and
China
Increasing demand for resources
Innovations in Digital Revolution and
Social Media
FCCM Opportunities and
Strategies
Investment Themes
•
•
•
•
•
The rise of China, India, Indonesia and
other Asian markets and economies
Consumers in China, India, and rest of
Asia
Food, Beverages, Retailing,
Knowledge Drive
New Energy Technology and
Renewables
Demand for healthcare and medical
technology
•
Clean water
•
Smart phones, smart homes, smart
machines
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•
Co-investments in Asian
Entrepeneurial Mid-Market Companies
•
Co-investments in FCCM Consumer
deals
•
Co-investments in FCCM Energy
deals
•
Co-investments in FCCM Healthcare
deals
•
Co-Investments in FCCM
Infrastructure deals
•
Co-investments in FCCM Tech deals
Private & Confidential
Fund’s Co-Investment Strategy – USD5-10 mm investments in growing,
mid-sized companies in focus sectors (around USD25 mm market cap)
Proven Business Models
and Cash Flows
 Seek out companies w/ great management, brands and products in respective
sectors looking to catapult to next level.
 Companies w/ proven and growing cash flows lowers performance and exit risk.
Higher Growth Potential
 Higher expected growth for mid-caps over well-established large caps.
 Focus sector-space can achieve target returns >25% IRR over 3-5 years via
IPO or strategic trade exit.
 Looking to fund next generation Mang Inasals / future Jollibees and SM.
Cheaper Valuations in
Mid-Cap Market
 Little investor competition, no established PE fund currently focused on midsized space.
 More receptive to PE funds due to limited-access to growth funding options.
More Opportunities
to Add Value
 Significant opportunities to add value via (1) strategic partners, (2) corporate
governance / managerial improvements, and (3) operational efficiencies.
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Thank you!
[email protected]