Published October 9th, three listed companies announced the completion sale of the FamilyMart chain three Mondays later or on October 30, subject to the approval of the government’s Philippine Competition Commission (PCC).
Didn’t I say that the news was, in reality, a corporate press release which implicitly advertised the sale of FamilyMart?
Though presented as news, another way to read the article is to construe it as an advertisement in favor of the sellers.
Ayala Land-SSI Group’s FamilyMart For Sale? Media Expert Utters an Economic Taboo: OVERSUPPLY! October 9, 2017
Wow, what a fast break; three weeks to sell a business worth hundreds of millions of pesos!
Isn’t this (press release cum news) a very effective advertisement medium?
I purposely labeled the FamilyMart sale a ‘bailout’. The buyer, Phoenix Petroleum essentially bailed out, the sellers, the Ayala Land and the SSI Group consortium, from their miseries in the convenient chain sphere. (I discussed the convenient store predicament then)
Why? Because the disclosures of the Ayala Land [PSE: ALI], the SSI Group [PSE: SSI], and Phoenix Petroleum [PSE: PNX] hardly mentioned any conduct of due diligence in the transaction process. Also, there had barely been clues, even from media, of preliminary discussions by the transacting parties, antecedent to the October news broadcast.
Mr. Dennis Uy led Phoenix Petroleum bought the company with seemingly scanty information!
It would appear that there had been little haggling or bargaining in the transaction.
Moreover, the buyer’s complete confidence and trust in the sellers could have been a factor in deal’s closing.
Or maybe the self-assurance displayed by Phoenix was due to its political backing.
Technically, because the approval of the government is required, the deal was reportedly completed through a Memorandum of Understanding. Perhaps, PNX would use the waiting period for the necessary due diligence. But then again the deal supposedly had been finalized.
As a side note, since the government arbitrarily defines of competition, which consequently means establishing which deal or deals falls within its allowable parameters, being a favorite of the administration assures a luscious payoff.
Moreover, stringently regulated competition hardly represents free market competition at all. Instead, it works as a protective wall favoring cronies against the free market competition. If I had been a part of PCC, I’d work to emasculate such legal barriers and promote genuine competition.
Of course, who else can afford to make such expeditious decision?
The buyer, a close ally of the administration, as I previously noted, seems on a grand buying spree.
Mr. Uy’s fortune is on a roll. The Duterte government’s Philippine Amusement and Gaming Corp. have reportedly awarded the businessman’s consortium a gaming license to operate an integrated casino in Cebu. Perhaps the firm will get listed too. This means more transfers from the public’s savings to Mr. Uy’s businesses. Of course, the BSP’s easy money policies will facilitate for such implicit subsidies.
The PSE’s Jinx, Political Entrepreneurship as a Winning Formula and Banking Fraud as Symptom of Market Tops, July 24, 2017
Mr. Uy’s flagship Udenna acquired listed logistic company 2GO early this year, which it tacked into its recently listed subsidiary Chelsea Logistics [PSE: CLC].
Mr. Uy’s Udenna also reportedly finalized a deal to acquire a company developing a $1-billion 177-hectare logistics hub called Global Gateway Logistics City in Clark City, just two weeks ago!
Bear in mind, because of its intricate process, Mergers & Acquisitions are a complex dynamic. But, Mr. Uy has strikingly truncated and simplified them. As testament, these mammoth deals were concluded in about 8 months! Ain’t these signs of ingenuity?!
Yet, one would have to wonder from whence the wherewithal of these deals has been sourced?!
So the acquisition of FamilyMart would most likely be financed by MORE debt or possibly by political money looking for legitimacy and or partly through public listings.
And according to the grapevine, the Sys have cozied up to Mr. Uy; BDO has accommodated a credit facility worth $300 million to Mr. Uy’s firms.
Yet, who among the establishment outfits would refuse to partake of freebies from politically erected financial moats? Of course, such opportunities would signify more than just about easy profits. Of greater importance would be access to political power.
Put differently, in a statist political economy, the privilege of the being close to the political leadership would be about access to rent-seeking economic opportunities and its protection.
Therefore, under these circumstances, wouldn’t it be intuitive that Mr. Uy should receive an avalanche of offers from various sources, a greater amount of credit and equity money?
To reemphasize what I wrote last July
This means more transfers from the public’s savings to Mr. Uy’s businesses. Of course, the BSP’s easy money policies will facilitate for such implicit subsidies
So have I not been validated?
The rapidity of the deal should likely benefit Ayala Land and the SSI group more than PNX.
Since there could have been little bargaining involved, ALI and SSI could have gotten more in value than had it sold to other buyers. Or, PNX bought FamilyMart with a lot less discount from the sellers. Prices are likely less elastic (or price sensitive) for politically motivated buyers.
Importantly, the ALI-SSI consortium sold at the top of the present business cycle.
Finally, with the majors giving up on the retail convenient chain sector, this should be a momentous (tipping point) event for the industry!
Why Have Consumer Loans Been Weakening?
On a related note, the Bangko Sentral ng Pilipinas published last Monday, the monthly loan activities of the banking system
While the rate of growth of industry loans (+20.68%) jumped to its highest level since November 2011, the rate of growth of consumer loans significantly weakened (20.05% in September, 22.76% in August, 22.3% in July and 22.54% in June)
Consumer loans had been plagued mainly by the declining rate of auto loans (24.47% in September, 30.22% in August and 28.14% in July) and by the plunging rate in payroll loans (15.3% in September, 18.85% in August and 23.52% in July) which had a 44% share and 13.23% in September, respectively.
Meanwhile, the growth rates of credit cards have rocketed to its highest level in the last 5 years.
The decline in auto bank loan portfolio dovetails with the substantially slowing rate of sales growth in units registered by the car industry as reported by CAMPI auto since mid-2016.
Payroll loans, which constitute the lower segment of the income group, have significantly slowed since July of 2016.
And customers of retail convenient chains have likely constituted this sector of bank borrowers.
On the other hand, raging growth in credit cards could signify two things; financial inclusion- more unbanked consumers seeking the access of formal credit - or consumers with bank accounts now tapping increased credit lines to expand their spending capacity.
The plummeting payroll loan growth rate has hardly supported the former. However, the latter could extrapolate to inadequate income growth in support of present lifestyle.
With spiraling real economy prices (upper window*), such lifestyle may now be under duress. Hence, to cover shortfalls in income growth consumers have now used credit cards.
*I am assuming here that government’s data is accurate.
Nevertheless, higher CPI leads to lower headline GDP. (middle window) That’s because Real GDP is derived from nominal GDP (NGDP) deflated by the PSA’s measure of inflation.
And as of the 3Q, the government’s CPI remains lofty.
Finally, the government’s measure of consumer spending seen via the national accounts or the Household Final Consumption Expenditure (HFCE) appears to lead the rate of change in the BSP’s consumer loans (lower window)
If the government data has some accuracy to the real world, then ALI-SSI’s exit makes them a genius!
And pressure on the consumer won’t be limited to convenient chain stores, there will be spillover effects.
At the end of the day, there is no such thing as a free lunch – forever.
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