The Rise of Southeast Asia, Seen in a Bottle of Scottish Whisky

BY :KARL LESTER M. YAP

MARCH 26, 2015

Medco's production and processing facilities of crude oil at Rimau asset in South Sumatra. (Photo courtesy of Medco Energi)

Evidence of Southeast Asia’s rising clout can be found in a bottle of Whyte & Mackay whisky.

Philippine brandy seller Emperador bought the Scottish spirits maker last year, part of a $68.6 billion overseas acquisition spree by Southeast Asian companies, according to data compiled by Bloomberg. The most recent United Nations data show the region’s total outward foreign direct investment almost equaled Germany’s.

While Singapore is still the biggest buyer of foreign companies, the area’s record total includes rising outflows from the Philippines and Indonesia — emerging nations with companies building an international presence. The shift showcases the increasing economic weight of a region that was dominated by outside powers through the first half of the 20th century, as it takes halting steps to forge a common market.

“This is quite remarkable: it reflects their growing maturity and the region’s rising power,” said Frederic Neumann, co-head of Asian economics research in Hong Kong at HSBC Holdings. “Many companies in the region are now ready to build brands, acquire key technology and use these for further growth either domestically or globally.”

Philippine companies, profiting from one of the world’s fastest-growing economies in recent years, are acquiring assets as diverse as a New Zealand biscuit maker and an island in South Korea, boosting pending and completed overseas buyouts to a record $2.4 billion last year.

Multiple rivals

Emperador defeated multiple rivals for Whyte & Mackay, seizing the opportunity to introduce more products to a rising middle class at home, as well as broaden its overseas market to boost profits.

“There were actually many bidders but ultimately Emperador bagged the deal,” Winston Co, the company’s president, said in an interview. “Today it has a global footprint because of Whyte & Mackay’s presence in 50 countries.”

Similar ambitions drove Universal Robina in its NZ$700 million ($532 million) acquisition of New Zealand snack food maker, Griffin’s. It was the Philippine company’s biggest purchase to date and a step toward becoming a major regional player, said Mike Liwanag, vice president for corporate planning.

“Everyone has regional ambitions because they’re finding their home markets getting too small,” Liwanag said in a March 6 interview in Manila. “If we build two to three products overseas, it will give us a lot of sales and profits down the road.”

Economic heft

That a Philippine maker of potato chips and cookies has the wherewithal to take over a more than 100-year-old New Zealand company, whose past owners include Nabisco and Danone, is another testament to Southeast Asia’s growing economic heft.

As the members of the Association of Southeast Asian Nations open up their borders to each other’s goods to create an Asean Economic Community, the region of more than 600 million people has become an increasing source of tourists for Japan and a significant buyer of Japanese and Chinese exports.

As a group, the region’s five largest economies will expand 5.2 percent this year, the International Monetary Fund forecasts, compared with 3.6 percent for the US and 1.2 percent for the euro area.

The MSCI index of Southeast Asia stocks has risen 27 percent in the past five years, compared with a 21 percent gain in Asian stocks. Philippine stocks surged to a record this month as accelerating economic growth fueled profits, and the country won investment grade ratings for the first time in 2013 from Fitch Ratings and Standard & Poor’s, cutting borrowing costs.

Financial muscle

Diminishing inflation has also led to monetary easing around the world, enabling companies to take on debt at lower cost and giving them more financial muscle for overseas acquisitions.

Universal Robina’s purchase of Griffin’s was funded by debt, the company said. “Over the years we have managed to grow specific businesses and accumulated cash,” Liwanag said.

With “financing costs remaining low, it emboldens companies to search for opportunities abroad,” he said.

Southeast Asia’s outward direct investment averaged $53.4 billion annually in the five years through 2013, up from $32.3 billion from 2004 to 2008, according to data from the United Nations Conference on Trade and Development. In 2013 alone, Southeast Asia’s total of $56.4 billion closed in on Germany’s $57.8 billion.

Home market

At Singapore’s Oversea-Chinese Banking, Chief Executive Officer Samuel Tsien led the lender through last year’s purchase of Wing Hang Bank in Hong Kong for about $5 billion as the bank sought to expand outside of its home market. Malaysia’s Sime Darby bid 1.07 billion pounds ($1.6 billion) last year for New Britain Palm Oil while Indonesia’s Medco Energi Internasional bought Tunisian oil assets.

Not all of the expansion has come from economic strength. Thailand, where growth and exports have weakened in the wake of political turmoil and historic flooding, has seen its companies turning overseas to invest.

Thai companies have $10.64 billion of overseas acquisitions pending and completed this quarter, more than double its full- year 2014 level. Rather than benefiting from gains in their home economy, they are probably seeking better growth elsewhere as years of political turmoil hurt profits at home, said Neumann at HSBC.

Faster growth

In neighboring Philippines, faster growth has allowed companies to build up ammunition for their overseas forays. Philippine companies hold some $69 billion of cash, triple the amount five years earlier, according to data compiled by Bloomberg.

The country’s outward foreign direct investment surged to a record $6.99 billion in 2014, according to central bank data going back to 2005, which tracks completed deals. Southeast Asia’s No. 5 economy averaged annual growth of 6.3 percent during the period, up from 4.5 percent in the previous 10 years.

“We don’t have the whiskey, we don’t have the food but what we have is a skill set we feel we have mastered,” Paolo Borromeo, Ayala Corp.’s head of corporate strategy, said in an interview. “Everyone’s becoming world class and absolutely, we can compete.”

Bloomberg

SHARE