The biggest infra company

San Miguel Corp. president and CEO Ramon S. Ang and Metro Pacific Investments Corp. chair, president and CEO Manuel V. Pangilinan are talking to merge their respective tollways operations – SMC Tollways (under San Miguel Infrastructure Holdings) and Metro Pacific Tollways Corp. (MPTC), under MPIC.

Merging the two tollways giants could result in an infrastructure behemoth with an enterprise value of up to P900 billion ($16.36 billion at P55 to $1). Together, SMC and MPIC will form the Philippines’ biggest infrastructure company.

MPIC has 295 kms of tollways portfolio in the Philippines, plus 180.5 kms in Vietnam and Indonesia.

San Miguel says it has concession rights to 787.54 kms of tollways in Luzon, enough to connect windy Pagudpud in the north to spicy Bicol in south Luzon in six hours.

Enterprise value measures a company’s capitalization, debt and cash and near-cash holdings.

To value an enterprise, analysts often calculate its earnings over a period of years and discount the amount by an imputed cost of money, usually the prevailing interest rate and required rate of return. In infra, that return could be 12-14 percent per year – above the February 2024 inflation rate of 3.4 percent and above current corporate borrowing rate of 5 to 9 percent.

Tollways business is immensely profitable. Since motorists pay in advance or in cash, receivables are zero.

In 2022 alone, MPTC reported EBITDA of P16.28 billion over revenues of P22.85 billion, an EBITDA margin of 39 percent. EBITDA is earnings before interest, income tax and depreciation. Roads are depreciated in 20 years or at 5 percent per year.

In 2023, SMC Tollways had an EBITDA of P27 billion. The SMC-MPIC tollways business will have a starting EBITDA of P50 billion, according to MVP. “Both companies are doing well,” he says. The merger, he reckons, “can be done this year. This business is not complex.”

The new tollways conglomerate could then sell its shares to the public through an IPO (initial public offering). At 9x P50-billion EBITDA, the enterprise can have a market capitalization of P450 billion in a bull market, making it the second largest corporation in the Philippines after the P1.2-trillion market cap of SM Investments Corp.

The SMC-MPTC merger could be bigger in market than other larger and older holding companies, like Ayala Corp., P413 billion in market value; JG Summit Holdings, P300 billion; Aboitiz Equity Ventures, P273 billion and SMC itself, P246 billion. For RSA, building roads is not about making money. “San Miguel will continue to pursue these vital infrastructure projects, in close coordination with our government, because of their benefits to our people and economy. Through these projects, we also create jobs, improve the mobility of goods and services and make our cities and regions more primed for growth. All these serve to support and sustain our growing economy,” Ang said at the inauguration March 1, 2024 of the 800-meter Tramo, Pasay access road to the Ninoy Aquino International Airport, part of the 12-km NAIA Expressway of SMC.

SMC and MPTC each claims their tollways business is the biggest in the Philippines. MPTC claims not only to be the biggest in the Philippines but also the biggest toll road operator and developer in Southeast Asia.

“MPTC is the largest toll road developer and operator in the Philippines in terms of vehicle traffic volume, revenue levels, asset base and combined length of expressways in kilometers,” says the company’s website.

MPTC’s Philippine tollways include the 106-km North Luzon Expressway (NLEX), the 94-km SubicClark-Tarlac Expressway (SCTEX), the 14-km ManilaCavite Toll Expressway (CAVITEX), the 45-km CaviteLaguna Expressway (CALAX), the 12-km Cebu-Cordova Link Expressway (CCLEX) and the 8-km NLEX Connector Road (NLEX Connector).

MPTC also has investments in Indonesia via PT Nusantara whose operations comprise of toll roads, ports, water and energy generation and distribution; and in Vietnam’s CII Bridges & Roads Investment Joint Stock Company that is primarily engaged in the construction, development and operations of urban infrastructure.

“We are the first toll road developer to venture into the fast growing Visayas island, seen as a beginning to creating and building more toll roads in high-growth areas outside of Luzon,” says MPTC. “We are the first Philippine company that now has significant stakes in two major infrastructure companies in two progressive countries in the ASEAN, Indonesia and Vietnam.”

SMC Infrastructure’s current portfolio includes: the 89.2-km Tarlac-Pangasinan-La Union Expressway (TPLEX), the 41.9-km Southern Tagalog Arterial Road (STAR), the 36-km South Luzon Expressway (SLEX), the 118.09-km Skyway System and the 5.4-km NAIA Expressway (NAIAX), the SLEX Toll Road 4 to Lucena, the 420-km SLEX Toll road (TR5) to Bicol and the 19.37km Pasig River Expressway (PAREX).

Being the gateway to the southernmost part of Luzon, SLEX and its expansion provide faster access to the provinces of Laguna, Batangas and Quezon, SMC points out.

Controversial, the Pasig River Expressway (PAREX) is a 19.37-km, 6-lane elevated expressway that will connect the Radial Road 10 (R10) in Manila and the Circumferential Road 6 (C6) through the South East Metro Manila Expressway (SEMME), a section of Skyway Stage 4. PAREX aims to solve traffic congestion in the metropolis by establishing a direct link between the western and eastern cities of Metro Manila.

The friendship and partnership of once ardent rivals and frenemies between RSA and MVP can only be good for the people and the country.

So far, the partnership has produced the Philippines’ first ever basketball championship in 61 years and a triconglomerate power generation venture among SMC, MPIC and Aboitiz in a $3.3-billion 2,598-megawatt integrated gas-fired power generation to help solve the Philippines’ worsening energy shortages.

Next for RSA and MVP: major food production projects to bring food prices – and inflation – down.

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