MANILA (Bloomberg): Philippine tycoon Dennis Uy’s (pic) conglomerate is open to parting ways with its crown jewels as part of an asset-sale plan to pay down debt after it aggressively expanded from oil to casinos.
Discussions are underway and are ripe to close in coming months, according to the president of holding company Udenna Corp, who joined Uy for an interview with Bloomberg this week. The leaders of several units, including Chelsea Logistics & Infrastructure Holdings Corp. and Phoenix Petroleum Philippines Inc. were also present. Although the preference is to pare down debt without divesting the majority of Phoenix and Chelsea, the group is open to offers.
Udenna would like to keep its crown jewels, but won’t object to an attractive offer if that helps cut debt further, President Martin Escalona said.
The asset-sale plan follows years of credit-fueled expansion by Udenna, including a foray into property and casinos, a telecommunication venture, as well as investments in a gas platform operator and a culinary school.
The Davao City-based business empire made headlines in July after one of its units received a default notice from creditors, which Escalona said made him skip dinner when he received word of it on a Friday evening. He termed it as a "misunderstanding” and Udenna said the matter is now settled.
The executives declined to give a figure for the group’s total debt, but publicly available filings provide details of its borrowings. Mobile phone operator DITO Telecommunity Corp., Uy’s venture with China Telecommunications Corp., took out more than US$1 billion in loans from Chinese banks, according to figures published this month.
Udenna’s most recent report shows debt of 180 billion pesos ($3.21 billion) at the end of 2020.
Creditors have been supportive, Escalona said, adding the group is looking to sign a planned $4.1 billion loan by November.
"We know how to sell, and we know how to buy,” Uy said. "
If some of our assets are attractive, and it makes sense, then we rationalise, but again, it’s not easy because everyone’s part of the family.”
Uy, 48, said any decision to sell assets is an emotional one for him as the company is responsible for thousands of families.
"We should’ve raised equity, which we planned in 2020, but we made the decision that debt is cheaper,” said Uy, adding he should’ve brought in strategic partners.
The conglomerate has already started unloading assets, selling stake in its casino ventures to billionaire Enrique Razon, who is also acquiring a stake in an offshore gas project where Uy has an investment. Chelsea last year sold its entire holding in a shipping company called 2GO.
Uy, who made a name from oil trading, kicked off his expansion and deal spree following the 2016 election of former President Rodrigo Duterte. Both hail from Davao City in the southern island of Mindanao.
The shipping and energy mogul, who contributed to Duterte’s campaign and counts the leader as a family friend, defended his aggressive expansion in a 2017 interview, saying he believed in Duterte’s economic agenda. In the past years, he has assembled assets that have eaten into industries ruled by the country’s richest families.
"We expanded too fast in the past, and the only reason we did that was that there was a very strong belief that the economy will improve,” said Escalona.
The onslaught of the pandemic and the group’s debt load have raised the insolvency risks on Uy’s businesses.
A measure of bankruptcy risk, known as the Altman-Z score, for four companies owned by the businessman shows greater risks than the average for the MSCI Philippines Index, which is already the worst in South-East Asia, according to data compiled by Bloomberg.
"Of course we are wounded. Who else is not?” Uy said.
"We’re making it right, righting the ship.”
