Indonesian tycoon seeks to buy Philippine sugar companies

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Anthoni SalimIndonesian billionaire Anthoni Salim’s First Pacific Co. is seeking to buy sugar companies in the Philippines to expand its footprint in Southeast Asia and tap opportunities from a free-trade agreement in the region, Bloomberg reported.

Pressure for sugar companies to become more competitive is growing ahead of a reduction in regional sugar tariffs next year, First Pacific Chief Executive Officer Manuel Pangilinan said.

The margins of Philippine sugar refiners are being squeezed because of their productions costs, creating opportunities for companies that can bring greater efficiency, according to Aida Ignacio, deputy administrator of the Philippines Sugar Regulatory Administration. First Pacific already owns stakes in the nation’s biggest producer of raw sugar, Roxas Holdings Inc., and largest refiner, Victorias Milling Co.

“We are small compared with our regional competitors, and you have to consolidate if you want to be competitive,” Pangilinan said. “We are open to acquiring other millers and refiners. It is an investment that we’d like to grow.”

As part of a free-trade agreement among members of the ASEAN, the tariff on sugar imported among member states will be halved to 5 per cent next year. It was 48 per cent in 2010. Philippine refiners will face intensified competition from those in Thailand, the world’s largest sugar exporter after Brazil.

The cost of producing sugar in the Philippines is about 1,000 pesos ($23) per 50 kilogramme bag, according to Ignacio. The average price of white sugar this year on NYSE Liffe in London has been $456.30, according to Bloomberg. That equates to $22.80 per 50 kilos.

The Philippines has 28 mills and 11 refiners, according to Ignacio. Mills make both raw and unrefined sugar, while refineries make only white sugar.

“The industry expects some mills and refiners may consider consolidation because they can’t afford the investments” to modernise, Ignacio said. “Upgrades will bring down production costs and increase the recovery rate of sugar, which is lower than in other countries,” she said.

About 90 per cent of sugarcane output in the country comes from farmers with a planted area of less than 5 hectares, Ignacio said.

“There are inefficiencies in the system that you try to fix and in the process make a profit,” Pangilinan said. “That’s the whole point in business.”

First Pacific, based in Hong Kong, has been building its assets in the industry in the Philippines. The company controls 34 per cent of Roxas Holdings, and this year it acquired 7.5 per cent of Victorias Milling. Shares of Roxas Holdings have gained 44 pe rcent this year, while Victorias Milling has more than doubled in the period.

The positions in sugar companies are in addition to holdings across other industries in the nation, where First Pacific started investing in the 1980s. It owns stakes in Philippine Long Distance Telephone Co., Philex Mining Corp. and Metro Pacific Investments Corp.

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Reading Time: 2 minutes

Indonesian billionaire Anthoni Salim’s First Pacific Co. is seeking to buy sugar companies in the Philippines to expand its footprint in Southeast Asia and tap opportunities from a free-trade agreement in the region, Bloomberg reported.

Reading Time: 2 minutes

Anthoni SalimIndonesian billionaire Anthoni Salim’s First Pacific Co. is seeking to buy sugar companies in the Philippines to expand its footprint in Southeast Asia and tap opportunities from a free-trade agreement in the region, Bloomberg reported.

Pressure for sugar companies to become more competitive is growing ahead of a reduction in regional sugar tariffs next year, First Pacific Chief Executive Officer Manuel Pangilinan said.

The margins of Philippine sugar refiners are being squeezed because of their productions costs, creating opportunities for companies that can bring greater efficiency, according to Aida Ignacio, deputy administrator of the Philippines Sugar Regulatory Administration. First Pacific already owns stakes in the nation’s biggest producer of raw sugar, Roxas Holdings Inc., and largest refiner, Victorias Milling Co.

“We are small compared with our regional competitors, and you have to consolidate if you want to be competitive,” Pangilinan said. “We are open to acquiring other millers and refiners. It is an investment that we’d like to grow.”

As part of a free-trade agreement among members of the ASEAN, the tariff on sugar imported among member states will be halved to 5 per cent next year. It was 48 per cent in 2010. Philippine refiners will face intensified competition from those in Thailand, the world’s largest sugar exporter after Brazil.

The cost of producing sugar in the Philippines is about 1,000 pesos ($23) per 50 kilogramme bag, according to Ignacio. The average price of white sugar this year on NYSE Liffe in London has been $456.30, according to Bloomberg. That equates to $22.80 per 50 kilos.

The Philippines has 28 mills and 11 refiners, according to Ignacio. Mills make both raw and unrefined sugar, while refineries make only white sugar.

“The industry expects some mills and refiners may consider consolidation because they can’t afford the investments” to modernise, Ignacio said. “Upgrades will bring down production costs and increase the recovery rate of sugar, which is lower than in other countries,” she said.

About 90 per cent of sugarcane output in the country comes from farmers with a planted area of less than 5 hectares, Ignacio said.

“There are inefficiencies in the system that you try to fix and in the process make a profit,” Pangilinan said. “That’s the whole point in business.”

First Pacific, based in Hong Kong, has been building its assets in the industry in the Philippines. The company controls 34 per cent of Roxas Holdings, and this year it acquired 7.5 per cent of Victorias Milling. Shares of Roxas Holdings have gained 44 pe rcent this year, while Victorias Milling has more than doubled in the period.

The positions in sugar companies are in addition to holdings across other industries in the nation, where First Pacific started investing in the 1980s. It owns stakes in Philippine Long Distance Telephone Co., Philex Mining Corp. and Metro Pacific Investments Corp.

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