Month: October 2002

Ayala Corporation and Central Equity Ventures, Inc. signed an agreement with the Municipality of Carmen as a first step in realizing an undertaking that will increase the water supply of Metro Cebu Water District (MCWD) by 35 percent.

Ayala Corporation executive managing director Fernando Zobel de Ayala, CEVI chairman Sabino R. Padilla Jr., and Carmen Mayor Amytis de Dios Batao today formalized their support for the Carmen Water Supply Project. The project involves the development, financing, design, construction, operation and maintenance of a water facility that will extract, treat, and deliver water from the Cantumog-Luyang River in Carmen to meet the needs of Metro Cebu households.

Cebu currently consumes 280,000 cubic meters of water per day, 50 percent of which is supplied by MCWD. The rest is provided by privately-owned deepwells. However, studies indicate that Cebu’s aquifer is now overdrawn by two or three times its sustainable capacity. Meanwhile, businesses have noted the effect of a water supply shortage to Cebu’s economic development.

The proposed project seeks to address this need by adding 50,000 cubic meters of water per day to MCWD’s current capacity. An increase of 35 percent in the supply of MCWD will address 20 percent of the total water requirements of Metro Cebu.

CEVI, which has rights to abstract water from the Luyang River, invited Ayala as a partner in the Carmen Water Supply Project. CEVI is involved in special projects in water, power, mass transportation, and rural financial intermediaries.

Components of the proposed project include the construction of a rubber dam, a water treatment plant, booster pumping stations, reservoirs and a 27-km transmission line that will deliver potable water to MCWD’s distribution network. The Department of Environment and Natural Resources has issued CEVI an Environmental Compliance Certificate for the Carmen Water Supply Project upon evaluation of its environmental impact assessment as required by P.D. 1586 (Environmental Impact Statement System).

Other government agencies including NEDA and the Local Water Utilities Administration are yet to evaluate, review, and approve the proposal. The project will then be opened for public bidding as required by the Build-Operate-Transfer Law for unsolicited proposals. The Ayala-CEVI consortium has the right to match the most attractive offer received by MCWD as the original proponent of the project. The winning bidder will be awarded a 25-year water concession in Cebu.

The Bases Conversion Development Authority (BCDA) has issued Ayala Land a Notice of Award to cover Lot B,an 8.5 hectare lot which BCDA had bid out initially in 2000 for disposition, among other lots, under its Asset Disposition Program Phase I. BCDA had declared a failure of bidding of Lot B in 2000, but allowed new proposals to be submitted this year for the acquisition of Lot B pursuant to the procedure agreed upon in the Terms of Reference and Bid Bulletins adopted by BCDA for its Asset Disposition Program Phase I. Ayala Land, together with several other interested parties, submitted new proposals for the acquisition of Lot B. The Notice of Award stated that the Board of Directors of BCDA found the proposal submitted by Ayala Land as the most favorable to BCDA.

The bid of Ayala Land for Lot B was made on the basis of a joint development structure, and subject to the terms and conditions stated in its bid, includes an upfront cash payment of P700,000,000.00 and a guaranteed annual revenue stream totaling P1.1 billion over an 8-year period. The execution of the joint development agreement between Ayala Land and BCDA remains subject to Ayala Land and BCDA agreeing on certain issues.

Lot B is adjacent to Lot C, a 9.9 hectare parcel which was also bid out in 2000 under BCDA’s Asset Disposition Program and was awarded to Ayala Land under a leasehold structure. Lot C which is located adjacent to C-5 is the site of Market! Market!, a regional mall development being constructed by Ayala Land.

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Statement issued by Ayala Land, Inc. on October 21, 2002

Integrated Microelectronics, Inc. (IMI), Ayala Corporation’s electronics flagship company, recently announced that it would merge its subsidiary, Electronic Assemblies Inc. (EAI), into IMI effective January 1, 2003 to be more globally competitive. The decision was made by the stockholders of both companies during their meeting held on September 17, 2002.

The merger represents the best strategic alternative for delivering increased value to both companies stockholders in addressing the challenges and opportunities in a fast changing global market.

IMI president and CEO Arthur R. Tan said,“The merger allows IMI to create a stronger and more efficient operating model which translates to improved earnings. It will also position IMI to attract and retain the best employees who will be working in boundary-less collaboration.

Tan added,“We believe that quick and decisive action is needed to address the business opportunities and challenges facing our business operation. The merger provides stronger partnerships with both our customers and suppliers. The focus is not just cost reduction synergies, but also synergies that will generate revenues.

The merger is expected to effectively sustain IMI capital requirements and improve its positioning for future public listing plans.

Dominic Barton, co-author of Dangerous Markets: Managing in Financial Crises and director and managing partner of McKinsey & Company, said that financial crises are not as unpredictable as believed to be and chief executives must be constantly aware of such threats.

Barton recently spoke before senior executives and members of the Makati Business Club and the Banking Association of the Philippines to share successful strategies in managing companies during a financial crisis.

According to Barton, global players such as Johnson & Johnson, Citigroup, Unilever, Lafarge, and GE Capital have the benefit of a diverse financial net but domestic companies are no less capable of turnaround success. He mentioned “local champions” in companies that recognized the opportunity for change in times of crises. These include Banco Itau in Brazil, Ramayana in Indonesia, Kookmin Bank in Korea, the Ayala Group in the Philippines, Alfa Bank and Roust in Russia, and the North Carolina National Bank (now BankAmerica) in the USA.

The key is in leaders that have the vision, strategy, courage and operational and financial capabilities to minimize the costs of crises and recognize opportunities for growth.

“Through a combination of insightful understanding of the environment in which they operate, winning strategies, and the ability to seize major discontinuities, these companies ended up winning significant market share and successfully expanding into new business lines in the wake of financial crises,” observed Barton.

Barton referred to Ayala Corporation’s visionary management for using the 1998 Asian financial crisis to transform itself from a property developer to a diversified conglomerate with key investments in telecommunication and financial services as well as property. It was during the crisis that Ayala convinced partner Singapore Telecom to continue investing in Globe Telecom digital wireless business, allowing Globe to establish itself as “the top wireless company in the Philippines.

Another Ayala-owned company, the Bank of the Philippines Islands, used cash reserves and leverage afforded by its parent to acquire competitor Far East Bank & Trust Company. As profits in the banking industry declined sharply, BPI emerged as the second-largest bank in the country.

Explained Jaime Augusto Zobel de Ayala, president and CEO of Ayala Corporation in an earlier McKinsey interview:“We are a 165-year old company accustomed to being prepared and taking advantage of crises. That is why we have survived and thrived.