Friday, 27 April 2012

What the Luisita farmers could be worth

Business Mirror

A COUPLE walked into my office in 1998, introducing themselves as being from Negros Occidental. They were leaving for abroad for good but wanted to share their story about land reform.
During the prior three years, their “hacienda” had been distributed to tenant farmers through the Department of Agrarian Reform (DAR). This property had been in the family for three generations, purchased for the family by the American married to the gentleman’s grandmother.

Granted that their view was biased, there was no anger but a profound sense of disappointment. The government had not paid them for their land in cash but had given them a promissory note, which would be honored over time.

Being law-abiding citizens, they complied with all of the legal requirements that the government laid down.

However, there was a deep sadness about the lands and the farms that were passed down to them and the responsibility that they felt toward the agricultural heritage they had been given.

The family had built and funded over long years a medical clinic as well as recreational and educational facilities for the tenant farmers. Of course, this was a good business decision, perhaps more than good social behavior. But already that infrastructure had fallen into disrepair because there were no funds for maintenance and repair.

The farmlands produced a variety of crops. The economy of scale of large production allowed for a continuing profitable operation as production could be changed as prices and weather conditions changed. The gentleman was most upset that hectares of copra-producing coconut palms, many over 50 years old, were cut down for lumber because the new landowners needed quick money to survive. He knew that these would never be replaced.

The global performance of agrarian-land reform in the last 100 years is not good. It is difficult to find a single example of land distribution to the landless that has achieved large-scale success. However, the successes have come in those countries where the clear and stated purpose was to benefit the nation’s economy as a whole, rather than to benefit the landless. While much of Taiwan’s land reform was the distribution of lands owned or taken by the Japanese during the occupation, it was more of a success because the purpose was to get under-used economic assets into production.

Large landowners were given compensation that could only be used in Taiwan. Many were given, in return, for their land. Japanese built factories that then produced goods. Any cash paid had to be kept in the country and invested in local business.

The Hacienda Luisita decision marks a Philippine agrarian-reform program milestone. And in sense, shows all that is right and wrong with this decades-old policy.

While the tenants cheer their success in gaining land distribution, it is unlikely that more than a few will become rich or that agricultural production will significantly improve, benefiting the nation.

However, if anyone writing or implementing the land-reform laws had known anything about the capital markets, all of the current Luisita farmers could be millionaires today.

The stock-option plan could have provided for 500,000,000 shares to be listed on the Philippine Stock Exchange in 1989. With the value of the land at P196 million, each share would have had a value of P0.40. If the land’s fair market value was P5 billion in 2006, each share would have been worth P10. Or if the land was worth P10 billion, each would have been priced at P20.

Assuming 80 percent of the total shares were distributed to 6,000 tenants, each would have received 64,000 shares, which by 2006 would be worth at least P640,000.

In 1989 the government could have paid the hacienda owners 20 percent of the shares in lieu of P196 million, which would have been backed by the farmers’ stock. But that 20 percent would have been worth P1 billion in 2006 and more than paid off the farmers’ acquisition debt.

Had the Luisita shares performed in the stock market even as well at Cojuangco listed sugar mill Central Azucarera de Tarlac, each farmer’s 64,000 shares would now be worth at least P1.3 million or worth P3 million or more, depending on the land value and stock price.

Further, the benefits of a majority ownership of a public company whose land assets would have been available for full development since 1989 are immense. Neither group—farmers or landowners—has fully benefited from that underdeveloped asset.

The phrase “just compensation” is being used to describe the recent legal decision. Nonsense. Each farmer gets a three-hectare piece of a property that could hold and perhaps be worth the equivalent of one city of Makati, plus 60 Malls of Asia, all of which might have been built over the years at Hacienda Luisita.

E-mail to, Website is and Twitter @mangunonmarkets. PSE stock market information and technical analysis tools provided by COL Financial Group Inc.

Journey to the heart of the Philippines

Wednesday, 25 April 2012

MVP, Ayalas link up on government projects

Business Mirror

THE group of businessman Manuel V. Pangilinan and conglomerate Ayala Corp. are once again setting aside their rivalry, announcing on Tuesday the formation of an alliance to bid for government railway infrastructure projects.

The agreement between the two players, which are competitors in the telecommunications sector, is their second partnership since a three-way agreement with the Lopez family in 2010 for a failed bid to acquire the Angat hydroelectric plant in Bulacan province.

The alliance is seen to boost their efforts to enter the railways segment while countering aggressive players, including conglomerate San Miguel Corp. (SMC), which is making a strong push into transport infrastructure, snapping up various toll-road assets and, most recently, a minority stake in flag carrier Philippine Airlines Inc.

“It makes strategic sense as it takes out a potential competitor. Ayala also has experience on how to manage this type of asset,” Joseph Roxas, president of Eagle Equities Inc., said in a phone interview on Tuesday.

Ayala Corp. and Pangilinan-led Metro Pacific Investments Corp. (MPIC) on Tuesday signed a memorandum of agreement to jointly pursue and develop light- rail projects in Metro Manila, a Philippine Stock Exchange filing showed.

Under the agreement, each of the parties will own 50-percent interest in the light-rail projects and related real-estate development undertakings.

 The partnership is initially eyeing to bid for the light-rail transit projects identified under the government’s Public-Private Partnership (PPP) Program. However, it is also open to work together on other rail-related opportunities, the companies’ joint statement read.

“We each have unique strengths and capabilities that, when combined, create a unique value proposition in rail development. We hope to contribute meaningfully in helping raise the standards of our public utilities,” Ayala Corp. Chairman and Chief Executive Officer Jaime Augusto Zobel de Ayala said in the statement.

“This strategic alliance will create integrated solutions that will improve public transportation through our vision to transform the country’s light-rail transit system into a network very much like those in Hong Kong, Singapore, Kuala Lumpur and Osaka,” Pangilinan said in the same statement.

“The existing system is overcapacity and under invested—the need to improve the existing rail systems now cannot be overemphasized,” he added.

Ayala, the country’s oldest conglomerate and the more conservative of the two partners, has been expanding outside its core water utility, telco, real estate and banking businesses into power and transportation.

It recently won the bid for the government’s first and smallest PPP project: the 4-kilometer toll road that will link Daang Hari Road in Cavite to the South Luzon Expressway. It said last week it is looking to bid for the contract to extend and manage the Light Rail Transit Line 1 (LRT 1).

MPIC, which has water utility, power distribution, toll road and hospitals assets, is keen on the operation and expansion of Metro Rail  Transit 3 (MRT 3).

This, after losing several bids to SMC to acquire toll roads in southern Metro Manila, including South Luzon Expressway, which would have complemented MPIC’s North Luzon Expressway.

MPIC is a unit of Hong Kong-based First Pacific Co. Ltd., which is part owner of Philippine Long Distance Telephone Co., the country’s largest telecommunications company followed by the Ayala Group’s Globe Telecom Inc.

 The announcement came after the Philippine stock market closed. MPIC shares declined 0.94 percent to P4.23 each, giving it a market value of P104 billion.

 Ayala Corp. added half a percent to P419 per share, giving it a market value of P241.9 billion.

Island mentality

 John Mangun

THE Philippines follows the show business/sports happenings in the US as if it were her own. Yet the average Filipino and the “above-average” media and press pundits virtually ignore what is going on in the backyard.
Are you aware of the unprecedented events transpiring on the political front in China? Read any commentary lately about Bo Xilai who was recently ousted as Chongqing party chief. Bo Xilai is the son of Bo Yibo, one of the Eight Elders of the Communist Party of China who overthrew the government in 1948.

Look around the newspapers today and see if there is any comment about North Korea yesterday calling for the assassination of South Korean President Lee Myung-bak and threatening to launch a “Sacred War”?

We often hear of colonial mentality or crab mentality but I think the actual mentality is “island mentality.”

The classical definition of this type of thinking is a feeling of being “superior or exceptional to the rest of the world.” As someone who has lived in many island-countries (Bahamas, Fiji, Samoa, Vanuatu, and Hawaii before PHL), I completely disagree.

I know what I am about to say are generalizations. You cannot apply a generalization to one person but you can often apply it to a group.

My experience has been that “island people” tend to be less concerned about trash and waste. Coming from a time and culture where improper disposal was a legal and moral crime, it took me some getting used to. But dump the trash down the road and by next week the jungle has covered it up. Or wait for the next big storm and it is gone entirely. There might be some generational logic to that.

Island mentality also might mean that time takes on a new meaning. Preparing for the annual Junkanoo celebration between Christmas and New Year’s takes months of preparation in the Bahamas and Jamaica. This is a highlight of the year and requires long planning, perhaps like Christmas in the Philippines.

And like the Philippines, on most of these islands I have lived, you can find fiesta after fiesta, all taking weeks to prepare.

There is another side to island time that is not as pleasant. There is a strong tendency to never have a sense of urgency. The fence does not really need to be fixed right now. And by the time someone gets to it, the brush has grown around, it creating a natural barricade to keep the goats in or out, as the case may be.

The shed for the animals or the house for the humans is started with the foundation laid and a wall or two put up. But some other project comes along and the completed construction is put aside until later.

This lack of a sense of urgency is not something that islanders always ignore. They understand that certain situations are urgent but rather than taking action, they move their “urgency” to some other point of focus. Or they deflect the urgency by concluding that the problem needs more consideration. But the most damaging situation is when the sense of urgency is rationalized away in the belief or hope that no immediate action is necessary.

Asia, primarily because of China, is in a tenuous situation right now. North Korea does not saber-rattle without China’s actual or tacit approval. Relations between Japan and China are not good because of some supposedly “disputed” islands. The Chinese economic situation is far from stable and will affect all the surrounding countries one way or another.

The territorial issues that the Philippines faces with China are monumentally important and critical.

Yet, it would seem that there is not enough urgency for this problem. While the trees of Baguio that SM Corp. is removing is important, perhaps right now that concern is a luxury not vital to the nation’s interest.

Regardless of the official and unofficial spin, the Philippines and China are in a state of war. That is what happens when one nation invades another’s territory. Either China has invaded PHL, or the President sent a Philippine warship and invaded Chinese territory.

While many are calling for diplomacy, there had better be a Plan B. The cyber attacks on the UP web site may seem juvenile and unimportant, but an attack on the communications system or the banks would not be trivial.

“Let’s be friends with everyone.” “Let’s be peacemakers.” Nice thoughts but even the Lord overturned the tables of the moneychangers in the temple and I would imagine those people did not think his actions very peaceful.

As much as we would prefer win-win situations, thinking adults know that sometimes we are presented with win-lose scenarios. This may be one of those, I fear.