Business in the eye of another storm

For First Philippine Holdings Corp. (FPHC) president Elpidio L. Ibañez, the current financial crisis is nothing new.

After 36 years in the work place, including a summer job in which he was paid the minimum wage of P6 a day in 1968, Ibañez believes the worst crisis for local business was when the country went into debt moratorium in 1983 due to the lack of foreign currency reserves.

FPHC, which he joined in 1979 as assistant manager, was in the middle of debt restructuring when the moratorium occurred. By 1986, the holding company was on the brink of bankruptcy and the work force had shrunk from 120 to 22.

“That was the situation when (FPHC chairman Oscar M. Lopez) came back (in 1986). We were preparing to fold up, but he decided that FPHC was worth saving. With a lot of hard work, the next five or six years became the most exciting for everybody as we tried to turn things around for the company and its subsidiaries,” he recalls.

Ibañez was vice president in charge of the debt management group when Lopez undertook to rehabilitate FPHC. He was promoted to executive vice president in 1987 and after successfully overseeing the financial restructuring of FPHC with Lopez, became president in 1994.

In the last decade and a half, FPHC’s business has grown robustly, with bulk of its income now coming from power generation and distribution, even as it maintains stakes in world-class manufacturing operations that produce distribution transformers, flexible printed circuits, and sliced solar power wafers.

Although he believes the country has not yet felt the full impact of the recession in the United States, and that the next 12 months will still be very difficult for business, Ibañez notes that there are major differences between 1983 and the current crisis.

“First, the country is nowhere near a debt moratorium. We have very healthy (foreign currency) reserves. Second, FPHC is nowhere near bankruptcy. Bankruptcy is when a company does not have enough assets to cover its liabilities. That is not our case. Ours is really a question of liquidity. Our assets have grown tremendously but they are not yet delivering the profits we expect going forward,” he says.

FPHC sold its toll road business last year to raise cash for debt service.

Ibañez acknowledges that the financial crisis makes it difficult to refinance maturing obligations. Nonetheless, he points out that affiliate First Gas Power Corp. did just that when it obtained a $544 million loan package from nine banks in November 2008. First Gas operates the natural gas-fired Sta. Rita power plant.

“The ability to refinance is anchored on having good operating assets. In the case of FPHC, our major assets are First Gen Corp. and Meralco. I think that for Meralco, what has been overlooked due to its regulatory problems is that it is a good company. Technically, it has improved service levels with IFR (Interruption Frequency Rate) and CIT (Cumulative Interruption Time) shrinking. Its system loss has come down from the high of 22 percent in 1986 to 9.5 percent.

It is the regulatory challenge, for example, the delayed recovery of purchased power costs, that has caused the unpredictability of Meralco’s performance. But despite abnormal regulatory conditions, our operating assets are providing excellent and valuable public services,” Ibañez says.

He notes that FPHC’s businesses are linked heavily to the economic performance of the country, and hence, expects a tough 2009. Still, he maintains that FPHC, as well as the country, is in a much better position today to survive the crisis.

The Lopez family has been in business for almost 200 years and they have been able to grow their investments with the help of professional managers. Political administrations have come and gone but the Lopez group of companies have continuously served fellow Filipinos and promoted the national interest.

“FPHC, in particular, has invested in good businesses to support the country’s development. I’ve seen so many ups and downs I’m used to them. This situation is nothing new for us. We’ve been through so many crises and we’ve weathered them all,” concludes Ibañez.