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Salim brought in zero funds to capture Meralco

Second of a series on the Salim Empire in the Philippines

ONE compelling economic justification for foreign investments is that a capital-deficient developing country like ours needs capital from abroad, which developed countries with capital-surpluses can provide.

This is not the case, though, in the accumulation of the controlling stocks in Manila Electric Co. by firms controlled by the Indonesian magnate Anthoni Salim.  It is a cautionary tale proving that the presence of foreign business does not necessarily entail capital inflows into the country.

According to publicly available data, Salim’s firms acquired what now makes up the 50 percent controlling stocks of   Meralco —now under the corporate vehicle Beacon Electric Assets Holdings— through the following two main avenues.

First, was a clever, but I would say questionable, scheme that involved the funds of the Beneficial Trust Fund of Philippine Long Distance Telephone Co., the giant telephone firm which Salim also got to control in 1998.

The Fund was used in 2009 to purchase 10 percent of Meralco shares —which made up, as it were, the Indonesian tycoon’s first beachhead in this capture of Meralco.

And second, domestic borrowings, both short- and long-term, from local banks totalling at least P30 billion, financed the rest of the purchase of the Meralco shares, collateralized by those very stocks.

In effect the savings of thousands of Filipinos, both small depositors and corporate investors. financed the acquisition by an Indonesian magnate of our biggest power firm.

PLDT Beneficial Trust Fund

PLDT’s Beneficial Trust Fund in February and March of 2009 had quietly bought Meralco shares totaling for 10 percent of its shares.  To this day, the cost to the Trust Fund of its purchases had not been disclosed, as the price during that period ranged from a low of P90 per share to a high of P123.

However, PLDT’s 2009 reports to the Philippines Securities and Exchange Commission as well as to its US counterpart, did not report the Fund’s purchases of  Meralco shares. The Fund had assets of over P20 billion at that time, accumulated through contributions both by the company and its staff, as required by various agreements with its labor unions and as part of its compensation scheme.

It is run by a board of trustees, which although theoretically independent, has been controlled by PLDT management, which is in turn is appointed by its controlling stockholders—since 1998, Salim’s firms.

The fund’s chairman when it bought the Meralco shares was now Foreign Secretary Albert del Rosario, who had been a board member of the PLDT ever since the Salim Empire got to control it in 1998.  He was also a director of First Pacific, Salim’s flagship for his Asian empire since 2003—even when he was Philippine Ambassador to the US from 2001 to 2006—until 2011, when he was appointed Foreign Affairs Secretary.

“Del Rosario is not MVP’s man, but Salim’s,” an investment banker explained. “He opened the doors in Manila’s business world for MVP, who then was an obscure investment banker in Hong Kong.”

“MVP” is Salim’s chief executive in Manila, the face of his empire here, who chairs most of the Indonesian magnate’s main companies here. “That’s how well connected the Salim Empire here has been,” the banker said.

One of Pangilinan’s top executives, Ray Espinosa, who has been vice chairman of the fund from that time until now, claimed then that the fund’s Meralco shares were merely portfolio investments it bought just like shares of other listed firms.

However, seven months later, in October 2009, Salim’s holding firm in the Philippines, Metro Pacific Investments, bought all of PLDT Beneficial Trust Fund’s Meralco shares, for a purchase price of P14.2 billion, or P126 per share.

But Metro Pacific didn’t pay the pension fund cash.

Metro Pacific swap

Payment was in the form of new shares in Salim’s flagship in the Philippines, Metro Pacific Investments Corp, which it issued and valued at P9.5 billion.  It cannot be determined how much the Fund gained or lost, since it had not disclosed how much it spent in buying the shares in the market early in October.

The Fund though got to turn those shares into cash only a year later, when it sold these in the stock market, in tranches in April and October for a total of P12.9 billion—lower than the P14.2 billion sale price of its Meralco shares.

final image for col 209 Salim and Del Rosario


Apparently encouraged by the role of PLDT Beneficial Trust Fund in acquiring Meralco shares for the Salim group, and with nobody opposing such utilization of a pension fund, his executives have used it to the hilt, by using its funds to organize what would be a very aggressive MediaQuest Holdings.

If you’ve never heard of it, its investments are in firms that you would certainly know unless you are a hermit.

MediaQuest wholly owns Channel 5 together its website interaskyon.com; 80 percent of the Business World newspaper (whose editors it will soon replace); 20 percent of Philippine Star (which it plans to completely control soon by buying the shares of Speaker Feliciano Belmonte’s family); and 18 percent of the Philippine Daily Inquirer.

Business sources say that Salim’s media holdings could explain why he has been able to remain virtually invisible to the public here, while Mr. Pangilinan, who has only microscopic shares in Salim’s firms, has been the conglomerate’s face.

The use of the PLDT Beneficial Trust Fund was a brilliant, though controversial, financial maneuver, and one would have to give a lot of credit to Pangilinan.

Sources claim though that it was the brainchild of two British First Pacific executives who control tightly the conglomerate’s finances and who report directly to Salim: Christopher Young, PLDT’s “Financial Advisor” since 1998, and Metro Pacific’s Chief Financial Officer David Nicol.

The bottom-line of it all: It was the thousands of stock market investors who bought those MPIC shares held by PLDT Beneficial Trust Fund that were exchanged for the Meralco stocks. They financed Salim’s Metro Pacific acquisition of that 10 percent bloc in the power firm.

Cash-out: Zero

How much therefore did Metro Pacific in effect spend for that block of shares now valued at a mind-boggling P31 billion?


The financing for the purchase of the rest of 40 percent of Salim’s Meralco shares also came not from fresh capital from Hong Kong or Indonesia, or the British Virgin Islands, but from our country’s financial system.

The P21.4 billion that financed the July 2009 purchase of 20 percent of Meralco shares by PLDT subsidiary Piltel  (later renamed PLDT Communications and Energy Ventures, or PCEV), according to PLDT’s report to the US SEC, came from the telephone company’s   “cash flows from operations and borrowings.”

The rest of the Meralco shares which the umbrella firm Beacon Electric Assets Holdings in 2012 bought were financed first through bridge-financing facilities and then through Corporate Notes with 5 to10 years’ maturity all totaling P30 billion, mostly arranged by the investment banking units of Metro Bank and the Philippine National Bank.

And the collateral used for these borrowings?

The very Meralco shares Salim firms had bought with the money they borrowed.
And how would the Salim firms pay these loans?

With Meralco dividends.

Since the advent in late 2009 of the Salim-picked management of Meralco, the firm’s dividends have rocketed, from just P2.8 billion in 2009 to P9.4 billion yearly from 2010 to 2013.

Because Salim’s firms are the 50 percent owners, they got half of that bonanza or P18.8 billion in the last four years.

That would be more than enough for the Salim firms to pay off in the coming two to three years the debts they incurred to buy the Meralco shares.

And they would have still billions of pesos, first, to remit to Salim’s investment company First Pacific in Hong Kong, and then to his offshore firms in the  tax havens in the British Virgin Islands and Liberia.