Indonesia's Barito Group's $5 Billion Offer to Buy EDC isn't an Trojan Horse for Invasion, It's an INVESTMENT

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Some time ago, I remember writing about Jollibee's acquisition of Shabu All Day and Compose Coffee. It might be easy to scream to the top of one's lungs, "Pinoy pride! The Philippines is taking over the world! However, when news like the recent plan of the Barito Group from Indonesia to purchase the Energy Development Corporation of the Lopezes for $5 Billion (which might be in USD) arrived, I'm getting comments like:
  • "This should be blocked by the Philippine Competition Commission!"
  • "Foreign ownership of such a big percentage of our electrical generating capacity might have national security implications."
  • "What does this mean for the Philippines' energy future? Maybe a higher price increase? The Philippines is selling everything!
  • "The Philippines has its own but keeps selling everything."
I wonder if the same people who are writing their comments danced, thinking that the Philippines was "conquering the world" through Jollibee, all the while they may be crying ever since the news came out yesterday? 

I'd like to share this excerpt from the Philippine Star to show the business opportunity:
If the deal pushes through, the sale of EDC could hand First Gen a significant windfall to fund its growth and expansion.

China Bank Capital Corp. managing director Juan Paolo Colet said First Gen should seriously consider monetizing its geothermal business.

Based on First Gen’s 45.8-percent economic stake in EDC, Colet noted, a $5-billion equity valuation would translate into proceeds of about $2.29 billion or roughly P141 billion at current exchange rates.

The transaction will mark a remarkable return on one of the Lopez Group’s biggest investments. In 2007, First Gen acquired EDC from the government for around P58.5 billion.

“Given First Gen’s persistent market valuation discount, such a transaction represents an opportunity to return a meaningful amount of capital to shareholders while simultaneously recycling proceeds into more profitable clean energy investments,” Colet said.

Following news of BREN’s offer, First Gen shares climbed as high as P22.30 before settling at P19.80 yesterday, up 18.42 percent from the previous day’s close of P16.72.

Stock brokerage firm COL Financial said it remains uncertain whether First Gen and its partner GIC/Macquarie Group would be willing to divest their interests in EDC.

“It’s more of a valuation issue than anything,” COL Financial chief equity strategist April Lee-Tan told The STAR yesterday.

Was South Korea conquered by the Philippines when Jollibee acquired Shabu All Day and Compose Coffee? The answer is still a big no. In fact, if you think about it, South Korea still remains an independent country. Any talk about FDIs as invaders and destroyers is third-world thinking, as the late Lee Kuan Yew would state it. In reality, any purchase has to go through legal checks in any country. Jollibee didn't buy Compose Coffee and Shabu All Day at a whim and say, "South Korea belongs to the Philippines." Instead, South Korea's economic restrictions (which aren't written in the constitution but are purely legislative) keep the balance. Jollibee now bears responsibility for Shabu all Day and Compose Coffee, as it buys a majority stake.

In this case, the Barito Group assumes responsibility for EDC if ever it succeeds in buying it. That's definitely a lot of money that could be used to help solve the ongoing Filipino energy crisis. The growth and expansion can be used to help develop more electrical power, which in turn, makes it easier to do business. However, let me remind you that we still need to get rid of Article XII's equity restrictions. All restrictions must be like making sure the flow of money is accounted for, environmental laws, labor laws, taxation, and the like. Barito Group would still need to pay taxes after all, and the tax burden will be on them if they get EDC, which will give First Gen money for its projects too. Of course, money, whether foreign or Filipino, will still get taxed by the BIR based on net income after taxes.

The same would be true if Barito Group purchases EDC. Think about the opportunity cost because of Pinoy Pride Economics. The Philippines couldn't afford to miss the great Asian Century opportunity. As said, relax, the Barito Group would still be subjected to Filipino laws when they EDC. 

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