Philippine Power And Banking Giant Aboitiz Equity Ventures Plans $7 Billion Makeover

Sabin Aboitiz is transforming the Philippines’ second-largest electricity producer into a banking, infrastructure and technology powerhouse.

This story is part of Forbes’ coverage of Philippines’ Richest 2023. See the full list here.

Sabin Aboitiz is spearheading a 380-billion-peso ($7 billion) makeover of Aboitiz Equity Ventures, a century-old Philippine power and banking behemoth controlled by his extended family, into a wider group focused on banking, infrastructure and technology. In the next seven years, the president and CEO plans to expand into renewable energy generation and build airports, cellular towers and data centers to tap demand from a young population in one of Southeast Asia’s fastest growing economies.

Shortly after taking over the reins of the company from his older brother Erramon in January 2020, Sabin witnessed the fallout of Aboitiz Equity’s reliance on electricity generation for almost 60% of its profit as a nationwide lockdown to curb the pandemic decimated demand. Net profit slumped 30% to 15.4 billion pesos that year, the lowest in over a decade. “We wanted to diversify away from single-regulated industries and move into consumer sectors where we can take advantage of the country’s demographic dividend,” Aboitiz, 59, says in an interview in June at his office at the heart of Bonifacio Global City, just outside Metro Manila’s Makati central business district.

They have done just that. Aboitiz Equity earlier this month partnered with Coca-Cola Europacific Partners (CCEP) to buy Coca-Cola Beverages Philippines from the U.S. soft drinks giant at an enterprise value of $1.8 billion. The proposed acquisition, which is subject to due diligence and regulatory approvals, is expected to be completed by year’s end. “The acquisition would build on Aboitiz’s portfolio diversification strategy to enter the consumer market through a highly profitable business with one of the best global brands,” Sabin says. Upon the deal’s completion, Aboitiz Equity will own 40% of Coca-Cola Philippines, while CCEP will own the rest.

MORE FROM FORBESBillionaire Aboitiz Family And CCEP Agree To Buy Coca-Cola Philippines In Deal Valued At $1.8 BillionBy Jonathan Burgos

While Aboitiz’s current makeover is one of the most ambitious taken by the family, such efforts are not new. Aboitiz Equity has constantly evolved to keep its businesses relevant to the times. The colonial-era company—which traces its roots to Paulino Aboitiz, a sailor from Spain’s Basque region, who came to the Philippines in the late 1800s and built a hemp trading and shipping business—was formally incorporated in 1920 as privately held Aboitiz & Co., the parent of Aboitiz Equity. Starting from a base in Cebu island in central Philippines, successive generations have stuck to the philosophy of their late patriarch Ramon Aboitiz (Paulino’s second son and Sabin’s grandfather), who, according to a book published by the company to mark its centenary, once said: “Never fall in love with your business.”

Erramon, 67, who served as president and CEO from 2009 to 2019, steadily grew Aboitiz Equity’s power business into the country’s second-largest electricity supplier with a current installed capacity of almost 4 gigawatts. Passenger and cargo shipping, once the group’s largest business, was divested in 2010 as margins shrank amid competition from budget airlines, which at times offered airfares cheaper than ferry tickets. The group also has interests in feed mills, food manufacturing, cement and real estate. “We’ve always been transformative, but the speed of transformation is becoming faster,” Sabin says. “We’re transitioning from a 100-year-old man to a 25-year-old athlete.”

Sabin and his siblings belong to the fourth generation of the Aboitiz family, which has an estimated net worth of $3.15 billion and ranks No. 6 in the Philippines’ 50 Richest. The family has over 500 members, 17 of whom are currently involved in the business. Sabin has spent his entire career in various roles across many Aboitiz businesses, after graduating from Gonzaga University in the U.S. with a degree in business administration and finance in 1986.

There’s regular leadership succession to ensure Aboitiz Equity remains agile, with the president and CEO’s term pegged at six years and retirement set at 60. (However, the board extended Sabin’s term by three years to December 2027 as a result of the disruption caused by the pandemic.) While an Aboitiz has always helmed the conglomerate, Sabin says their positions at the company are not guaranteed as leaders are chosen based on merit. For the fifth generation, Sabin’s only son, Samel, 32, works in the finance department of Aboitiz Equity. Tristan, the 41-year-old son of Sabin’s cousin, late Roberto Eduardo, is the CEO of Pilmico, a meat producer that also makes flour and ani-mal feeds. Tristan’s sister, Ana Maria Aboitiz-Delgado, 43, is one of the six family representatives on the group’s nine-member board, which includes Erramon and is chaired by his eldest brother, Enrique Jr., 69.

“We’re transitioning from a hundred-year-old man to a 25-year-old athlete.”

The earnings setback during the pandemic not only prompted Sabin to seek new growth drivers, it also triggered a transition away from coal-fired power generation to nonpolluting renewable energy sources. In 2021, at the peak of Covid-19, Aboitiz Equity sold a 25% stake in Aboitiz Power to JERA—a joint venture between Japan’s Tepco Fuel & Power and Chubu Electric Power—for $1.5 billion, paring its stake in the utility to 52% from 77%. “There should be no single business contributing more than 50%,” Sabin says.

Powering Up

Bolstered by contributions from its power and banking businesses, Aboitiz Equity’s net profit has recovered from pandemic lows.

The group’s net profit fell 9% to 25 billion pesos in 2022 year-on-year following the stake reduction, and declined another 11% in the first six months of this year, attributed to foreign exchange losses on its U.S. dollar-denominated assets. Despite the softer earnings, Sabin is confident the group’s diversification strategy will boost the group’s profitability going forward. “We believe earnings will eventually strengthen as we diversify,” Sabin says. “The drop in earnings was a cost of diversification and transformation that we are more than willing to pay.” Proceeds from the partial sale of its stake in Aboitiz Power also strengthened the company’s balance sheet to support investment plans.

Aboitiz Power is investing 190 billion pesos this decade in renewable energy to more than double its installed electricity generation capacity to 9.2 gigawatts by 2030. The company has stopped building new coal-fired plants, which account for about 77% of its installed capacity, and Sabin says it is stepping up the construction of geothermal, solar, wind and hydro power stations to achieve its goal of producing half of its electricity output from renewable sources by 2030. Through its partnership with JERA, the group is also exploring other clean energy technologies such as natural gas, hydrogen and ammonia, according to Sabin. “These facilities will help diversify the country’s energy mix, reduce dependence on imported fossil fuels,” Sabin says, adding that the move will also make it easier for Aboitiz Power to get financing, as lenders seeking to lower their carbon footprint increasingly favor funding green projects.

Nevertheless, despite rising interest rates, Sabin says fundraising isn’t a concern. “We have lots of credit lines,” he says. “We can easily refinance our debts.” The group may also divest some assets, either through outright sales or initial public offerings, to raise fresh capital, he adds.

While Aboitiz Equity is among the most indebted Philippine conglomerates—with gross borrowings of 373 billion pesos and debt to equity ratio of 1.1 times as of March 2023, according to Bloomberg data—April Lynn Tan, chief strategist at COL Financial Group in Manila, says the group is well placed to take on more debt. “They can afford to be highly leveraged given that they are in the power business and the cash flows are very steady,” Tan says in July by text message. “It will be easy for them to raise funding for their projects.” Aboitiz Power is the group’s cash cow, accounting for 58% of the conglomerate’s net profit last year.

Union Bank of the Philippines is another growth pillar for Aboitiz Equity, accounting for 25% of its 2022 net profit. In 2021, it outbid bigger rivals including Ayala Corp.’s Bank of Philippine Islands to buy Citibank’s consumer banking operations in the Philippines. The 45.3-billion-peso acquisition, completed in August 2022, boosted the lender’s earnings and cemented its position among the top five consumer banks in the country.

Union Bank’s net profit jumped 6% from a year earlier to 6.4 billion pesos in the first six months of 2023, boosted by maiden contributions from the Citibank franchise, after posting a flat growth last year. The acquisition added one million mid- to high net worth individuals to Union Bank’s 12 million customers. “It’s a great marriage,” Sabin says. “The acquisition enhanced Union Bank’s credit card business. We’re on our way to becoming a great consumer bank.”

Credit card fees from the Citibank portfolio, along with increasing contributions from digital banking boosted Union Bank’s net interest margins, which rose 60 basis points to 5.2% in the first half from a year earlier. The bank’s net profit is expected to climb steadily, with Maybank Securities forecasting a 15% increase to a record 14.4 billion pesos this year, and climbing to 19.3 billion pesos in 2024 and 21.4 billion pesos in 2025.

Sabin says acquiring Citibank’s portfolio also helped strengthen Union Bank’s brand equity, enabling it to sponsor performances in the Philippines such as a concert by American singer Bruno Mars this June, with hit Broadway musical “Hamilton” to follow starting September. The enlarged banking portfolio also presents Aboitiz Equity an opportunity to cross-sell products and services across various businesses, using data analytics tools developed by its data science and AI arm, Aboitiz Data Innovation, he adds.

Capital Intensive

The biggest companies in the Philippines are among the most indebted in the country.

Beyond power and banking, Aboitiz Equity is focusing on developing infrastructure such as airports, cellular towers and data centers. In September 2022, its infrastructure arm, Aboitiz InfraCapital, agreed to buy the Mactan Cebu International Airport for 25 billion pesos from tycoon Edgar Saavedra’s Megawide Construction and its Indian partner, GMR Airports International, with the deal set to close next year. In April, it joined a group of five other Philippine conglomerates in proposing to upgrade the country’s main international gateway, Ninoy Aquino International Airport, at a price tag of 267 billion pesos. However, the government rejected the group’s plan in July and plans to invite bids for a less costly project estimated at 170 billion pesos.

“The minute you privatize the airports and make it more efficient, tourism will boom,” says Sabin, who serves as an adviser to Philippine president Ferdinand Marcos Jr. As the lead convenor of the Private Sector Advisory Council, he advises Marcos on streamlining government processes through digitalization and building infrastructure to support economic growth.

The council has proposed digitizing visas issued to foreign travelers to the Philippines, which, along with airport upgrades, would help boost tourism, Sabin says. While visitor arrivals jumped fivefold from a year earlier to 2.5 million in the first six months of 2023, and the government is aiming for 4.8 million tourists for the year, numbers are still way below the pre-pandemic peak of 8.3 million set in 2019.

Aboitiz InfraCapital is building a portfolio of cellular towers and data centers across the Philippines to plug into Southeast Asia’s fourth-largest digital economy. The gross merchandise value of e-commerce, food delivery, fintech and ride-hailing transactions in the country is expected to reach as much as $150 billion by 2030 from $20 billion last year, according to the latest e-conomy report published by Bain, Google and Temasek. “Airports, cellular towers and data centers would provide Aboitiz very steady cash flows,” COL Financial’s Tan says.

“We are empowering the country to stay connected and adapt to the ever-evolving digital landscape, driving progress and advancement for all.”

Aboitiz InfraCapital and Partners Group—a Swiss private equity firm with $142 billion of assets under management—formed Unity Digital Infrastructure in 2021 to acquire cellular towers and related facilities in the country. Since December 2022, Unity Digital has bought almost 1,100 towers from telecom giant PLDT and Ayala Corp.’s Globe Telecom for about 15 billion pesos, almost doubling its portfolio to more than 2,000 across the Philippines. Unity Digital plans to invest up to 25 billion pesos in the next few years to expand its wireless network.

Separately, Aboitiz InfraCapital forged an alliance with U.S.-based EdgeConnex, a data center builder backed by Swedish private equity firm EQT, in 2022 to build data centers amid booming demand from e-commerce firms and cloud-based services. “We are empowering the country to stay connected and adapt to the ever-evolving digital landscape, driving progress and advancement for all,” Sabin says.

Sabin hopes that the investments in digital industries will prompt investors to ascribe a premium to Aboitiz Equity’s shares. While the company trades at a prospective price-to-earnings ratio of 12 times, higher than most Philippine conglomerates, it still trades at a discount to San Miguel’s 14 times and JG Summit’s 15 times, according to Bloomberg data. “We hope that one day Aboitiz Equity could trade at 20 times PE or even higher,” Sabin says. “If we’re successful, these new businesses will multiply benefits across the group.”