February 20, 2015
Business World by Krista Montealegre | http://goo.gl/Vktzvv
ROXAS HOLDINGS, Inc. (RHI) may seal an agreement this year with First Pacific Co. Ltd. for a joint venture in Indonesia, marking the Philippine sugar company’s expansion in Southeast Asia.
On the sidelines of the company’s stockholders meeting yesterday, RHI President and Chief Executive Officer Renato C. Valencia said the firm may set up an integrated sugar operation in Indonesia that includes a sugar mill refinery, ethanol plant and cogeneration plant.
“Gone are the days when you can make a lot of money when there’s a mill. You can’t make money unless you have ethanol and a cogen plant,” Mr. Valencia said.
First Pacific Managing Director Manuel V. Pangilinan said RHI and the Hong Kong-based company may “hopefully” reach an agreement this year.
“We’re helping them, but we have to do that with the Salim Group because they already have operations there. It will be best if we do a joint venture with Anthoni [Salim],” Mr. Pangilinan said, referring to the chairman of First Pacific.
Mr. Pangilinan pointed out that First Pacific, which owns Indonesian company Indofood Sukses Makmur Tbk, stands to benefit from the expertise of RHI, noting that the Philippine firm is “bigger than the Salim sugar operations.”
First Pacific owns 34% of RHI after buying the shares of the Roxas family and other investors last year, ending the company’s long-time search for a strategic partner just in time for Southeast Asia’s economic integration that comes into force this year.
As RHI diversifies its revenue stream, the company’s venture into ethanol and the development of cogeneration facilities are seen accounting for bulk of the revenues in the next three to five years, said Pedro E. Roxas, the company’s chairman.
“The ideal mix we will be looking for is 40% for sugar; cogeneration, 30%; and ethanol, 30%. Then you have a more diversified revenue stream,” Mr. Roxas said.
At the moment, majority of RHI’s revenues come from the sugar business with revenues from ethanol accounting for 15% of the total.
RHI is undertaking a feasibility study for the development of a second cogeneration facility, a 30-megawatt plant at its Nasugbu, Batangas mill and refinery. The study will be completed in three to four months, Mr. Valencia said.
RHI and Global Business Power Corp. (GBPC), the power generation arm of GT Capital Holdings, Inc., are holding a final round of talks for the award of a front-end engineering design for a $100-million 40-MW cogeneration facility beside RHI’s sugar mill in La Carlota, Negros Occidental. The project is on track to be completed in 2017.
Manila Electric Co., where Mr. Pangilinan is chairman, owns 22% of GBPC.
RHI Executive Vice-President and Chief Finance Officer Armando B. Escobar said the company is spending P1.2 billion to upgrade its plants.
The amount excludes expenses related to the cogeneration facilities.
Mr. Valencia said the Philippine sugar industry faces risks given the region’s integration so it is important for local firms to cut costs and look at other revenue sources. Philippine sugar production was flat at 2.4 million tons in 2014.
“The long-dreaded moment when tariff on sugar is reduced to 5% from 48% in 2011 has now come. It is incumbent upon us to act judiciously in order for us to enjoy a progressive and inclusive growth at Roxas Holdings,” Mr. Roxas said.
“The competition is far bigger now with the possible entry of imported sugar at relatively low prices.”
Mr. Valencia said RHI expects to post better net profit and revenues despite a slowdown in the first quarter of its fiscal year.
“Mature canes are now starting to come in so by the second quarter, we can recover or at least catch up,” he said.