JG Summit to go on overseas expansion binge

MANILA, Philippines – Flush with cash from a recent deal and a public offering, Gokongwei-led JG Summit Holdings is ready to expand its footprint in South East Asia and beyond.

The company is gearing up to expand its “food and property and, to a limited extent, airline” businesses, said Senior Vice President and Chief Strategy Officer Bach Johann Sebastian at the COL Financial Group Inc. special customer briefing on October 22.

“Basically, I think that the philosophy behind it is that we try to focus on the industries that we are already good at… and have some scale,” he said.

Sebastian broke down the strategy in the interview below with COL Financial head of research April Lee-Tan.

The moves would build on JG Summit’s core business strengths.

The diversified conglomerate already holds:

• 67% of low-cost airline Cebu Pacific
• 61% of snack and beverage company Universal Robina Corporation (URC)
• 61% of local real estate firm Robinsons Land Corporation (RLC)
• 8% of leading telecommunications company Philippine Long Distance Telephone Company (PLDT)
• 36% of Singapore-listed real estate developer United Industrial Corporation (UIC)

Sebastian explained that JG Summit plans to go expand its food business within ASEAN. “We are looking at acquisitions in the same space, snack food and beverage companies around South East Asia that have strong brands and strong on the ground distribution,” he said.

In terms of property, the conglomerate has its eyes primarily on Singapore and China but is open to venturing out even further. “We are definitely looking out for real estate assets that we can develop elsewhere in the world, perhaps even outside of the ASEAN and the greater China arena,” said Sebastian.

Setting up new airports could stretch the company even farther outside of its home base in South East Asia. “Airlines to the extent that we fly internationally… there is opportunity to look at establishing bases outside of the Philippines,” he said.

Cash is King

The companies has been steadily making moves to strengthen its balance sheet and bolster its cash reserves.

“Cash has been ‘king’ in our group. And I think our cash flows have improved and have remained robust over the years,” said Sebastian.

One key move was the P69.2 billion share-swap between JG Summit’s Digital Telecommunications Philippines (Digitel) and PLDT in October 2011. Another was Cebu Air Inc’s $539 million initial public offering, which at the time was the biggest IPO ever in the country. 

“I think it’s mainly because of the recent deal that we did with PLDT that really introduced a lot of cash. The IPO that we did for Cebu Pacific also before introduced some cash and we were able to use these to really deleverage,” he said.

“The improvement in the cash flows of URC, RLC and Cebu Pacific and their dividend payments to us have also improved our cash balances and that has really deleveraged the company and improved our cash position at this point,” he added.

The company was already able to use some of its cash to pay down a $200 million bond at the beginning of the year, he said.  

Sebastian explained that JG Summit’s strategy is to have each arm of the conglomerate stand on its own and feed cash back into the parent company.

“Our core businesses are solidly cash generative. They are financially independent from the parent company, they’ve been raising their own money. And what’s more important they have been giving us cash dividends, which we intend to use as we enter newer businesses,” he said. – Rappler.com