Kapitan’s P15 billion PAL infusion

There’s a crash landing happening in Lucio Tan-owned Philippine Airlines (PAL), but it’s the craze over the romantically addictive Netflix series Crash Landing On You that is sweeping PAL employees, so says PAL’s wingwoman Cielo Villaluna.

It’s not the flag carrier, says she, echoing PAL president Gilbert “GSM” Santa Maria’s assurance to stakeholders. 

PAL isn’t about to go bankrupt despite the challenging business environment, GSM says.

After all, he says, Lucio “El Kapitan” Tan, PAL’s 85-year old chairman, has so far infused P15 billion to save the beleaguered carrier. 

But as an economic journalist, I couldn’t help but wonder – where did the money come from?

Of course, Kapitan, one of the country’s richest men with a net worth of $2 billion, according to Forbes, has deep pockets. I shouldn’t be surprised that he can easily shell out P15 billion.

But I’m just curious from which among his many businesses did he get the infusion from. It’s worth asking about this if only to know if it’s sustainable.

I combed through some of the latest available documents about Tan’s multibillion empire including PAL’s 235-page and LT Group’s 342-page 2019 annual reports. 

Logic dictates that Kapitan’s infusion would come from his businesses that are making money.

LT Group

His listed holding company, LT Group Inc., is one such company. Last year, the sprawling conglomerate, headed by his son Michael as president and COO, made a whopping P23.12 billion, marking the highest income the company has achieved since its re-IPO in 2013. 

LTG is in a wide array of investments with its tobacco business – through PMFTC – among its strongest legs of growth. Last year, the tobacco business accounted for P15.50 billion or 67 percent of the total attributable income of LTG. 

“Kapitan is cash-rich now (because of tobacco),” says an analyst.

In the first quarter of 2020 alone, LTG grew its attributable net income to P6.21 billion, up 41 percent from a year ago. Its earnings from tobacco reached P5.02 billion during the period or 86 percent more than a year ago.

That could be one possible source – earnings from the tobacco business. It’s a good guess, but since I’m not Kapitan, I can’t really be sure.

Another possible source is Kapitan’s early equity infusion in LTG, which is technically debt owed by the company to him.

And then, of course, there are the dividends paid by LTG to its ultimate parent company Tangent Holdings which owns 74.36 percent of LTG and chaired by the taipan himself. 

On April 10, 2019 and March 13, 2018, LTG declared cash dividends of P0.30 and P0.20 per share to all stockholders of record as of April 29, 2019 and March 28, 2018, respectively, of which P2.4 billion in 2019 and P1.6 billion in 2018 were paid to Tangent. That’s a total of P4 billion for Tangent as of end-2019, according to LTG’s annual report. 

LTG also issued redeemable preferred shares to Tangent. This amounted to P18.1 billion as of end-2018.

Richest man

Of course, Kapitan has several other businesses abroad, including real estate assets which make his pockets really deep. 

His Hong Kong-listed Dynamic Holdings’ signature project, for instance, is an upscale residential and office development called the Chaoyang Garden in Beijing which enjoys 90 percent occupancy.

In Shanghai, his Eton Place mixed-use development on the bank of the Huangpu River is also doing well.

It’s possible he got the infusion from these different businesses.

It’s no secret that Kapitan’s pocket is a bottomless well. For years, he’s been touted as the richest man in the country – with an estimated net worth ranging between $1 billion and $8 billion – until the late Henry Sy dislodged him from the top position.

Government bailout

How the P15 billion infusion will play out amid the move of the country’s airlines to seek a government bailout is another story.

This could go either way. The government may realize that since Kapitan has the money, PAL doesn’t need a taxpayers-funded bailout. Or, the government will agree to help because the owners are doing what they can to save the flag carrier.

The question now for all the airlines is whether their owners are willing to put in more equity and whether creditors are willing to support restructuring. Airlines are private companies, but imbued with huge public interest. 

One thing is clear. Given PAL’s losses – now at a whopping P10 billion as of end-2019 or its pre-COVID-19 life – P15 billion is a drop in the bucket. Kapitan will need to infuse more. 

I’m sure he has enough money for more than one lifetime, but would he be willing to continue pumping in his billions to save his beloved flag carrier? Only the taipan knows for sure.

Oh, how I wish I could stake out by the bibingka stall inside the Tan-owned Century Hotel in Manila, wait for him to pass by and ask him this nagging question. He will probably just smile, shrug off my question and then outpace me because he walks fast. Or I could keep on asking until he gives in.

But then I’ll never know because the hotel is closed, my favorite bibingkas are probably gone and the taipan is definitely not roaming around.

Iris Gonzales’ email address is [email protected]. Follow her on Twitter @eyesgonzales. Column archives at eyesgonzales.com