War of the villages

Aviation status quo

FEW things are quite as interesting as a war among the well heeled, and this story we’re about to tell you is no different.

According to our sources, there is now a brewing war among several of Makati City’s posh “villages” due to—hold on to your seats—vehicular access. Specifically, we’re talking about Makati’s Dasmariñas Village whose federation is now headed by a new and young board (whose members, as such, are likely to turn long established practices and traditions on their heads).

The board of Dasma’s federation has supposedly informed the village association of Magallanes just across from the street (across from South Superhighway, that is) that the latter will no longer be included in the intervillage car pass access scheme that also includes the upscale enclaves of Forbes Park, BelAir and Urdaneta.

If you’re wondering why this is such a big deal, it’s partly because many residents there want to have easy access to the houses of their amigos and amigas in adjoining villages when visiting for parties and dinners. There is also the convenience of being able to skip the usual traffic by cutting through the tree-lined village streets to reach the other side of Makati in no time.

It is unclear what prompted Dasma to move against “Maga” but the latter is ready to strike back. They’re threatening to close sewerage lines from other villages to the Ayala Sewerage Treatment Plant ... which will result in a toxic waste overflow in Forbes and Dasma. Yes, this is how they do things around there.

Longchamp flooding the market

IF YOU are wondering why there seems to be a lot more Longchamp bags being carried around town and in the provinces these days, you can blame it on increased incidence of counterfeiting.

According to officials of the Bureau of Customs and the National Bureau of Investigation, copycat bags bearing the design and brand of the French leather and luxury goods firm founded in 1948 started flooding the local market last year, putting Longchamp near the top of the list of brands targeted by counterfeiters.

Another French brand, Louis Vuitton, still holds the unwanted title of being the most counterfeited bag brand in the Philippines, followed by Longchamp and Italian luxury brands Gucci and Prada and American brand Coach.

Government officials involved in anti-counterfeiting efforts say that Longchamp may be the new flavor of the month because the brand owners are not yet as aggressive as Louis Vuitton in going after the counterfeiters.

It may only be a matter of time, however, before they start forcing the cheap imitations out of the market, which is only too happy to pay for what looks like the real thing at a fraction of the cost. EVER wondered why Airasia Philippines is taking its time in launching its international flights, which it trumpeted since last year? We were wondering, too, as we asked around the airline industry’s regulators and key players.

Well, BIZ BUZZ found out that the local unit of Malaysian budget carrier Airasia Berhad has yet to receive clearance from the International Civil Aviation Organization to operate internationally, in part due to stricter standards being imposed on Philippine carriers due to the country’s downgraded aviation status ( the socalled “Category 2” of the US Federal Aviation Administration).

According to our sources, the ICAO— the umbrella organization of the world’s airlines— has decided to impose a moratorium on approvals for airlines from the Philippines, pending more decisive government action on improving the country’s Category 2 status.

And this is not just about ICAO mimicking the FAA’S move, we’re told. There are, supposedly, genuine concerns in the international community about the Philippine government’s ability to effectively regulate new entrants like Airasia Philippines.

In effect, there is a status quo order on the local aviation industry being imposed by the rest of the world. Pending any convincing government moves, Airasia will likely be confined to its domestic routes ( which have limited margins), Philippine Airlines will be unable to use their newer and more efficient aircraft on trans- Pacific routes and Cebu Pacific will likely have to postpone plans to fly longer routes.

Weighing PGOLD

PUREGOLD Price Club’s share price has dropped by about 6 percent since last mid- week when it was disclosed that the retailer will pay P16.5 billion to take over the six- store S& R Membership Shopping business. Analysts think it’s an expensive shareswap deal between the companies both controlled by Chinoy businessman and are worried that minority investors— who own a third of the publicly listed Puregold— will be unfairly diluted.

Lucio Co

head of research at Campos Lanuza & Co., for instance, changed his recommendation on the stock to “no action” from “buy,” projecting a 4.5- percent decline in Puregold earnings per share this 2012 arising from the transaction. “The dilution from shares issue [ to pay for the acquisition] offsets the impact of additional earnings from S& R,” he says. Lacson is just one of many analysts who are jittery about this transaction, which will result in the issuance of 766.41 million new Puregold shares at P21.50 each ( for a swap ratio of 450 Puregold shares for

Jose Mari Lacson,

each share of S& R operator Kareila Management Corp.)

Asked about this matter, Puregold president

Leonar-

tells BIZ BUZZ that it only makes sense to inject an existing company into another if it will increase earnings. He points out that this results in just that, arguing that the consolidation will even boost earnings by least 4 percent. “There will be an increase in the number of shares but there will be an increase in net income,” he says. In terms of price-to-earnings (P/E) multiples, Dayao says similar retail businesses in the United States and Asia are now trading at a P/E multiple of about 25 to 26 times (which means investors are paying 25-26 times the amount of money those companies are making).

The S& R transaction, Dayao says, is priced at 16.5 times the upscale retailer’s expected earnings for 2012, which he says is thus cheaper than Puregold’s P/ E multiple of about 21 to 22 times. “It’s a 25- percent discount over the current P/ E of Puregold,” Dayao says. Because there’s no other similar peer group in the local stock market, being the only pure retail play in town, Dayao says the transaction has been priced based on valuations in offshore markets.

do Dayao

More on SCTEX review

IF METRO Pacific Investments Corp. could have its way, it does not want to go back to the negotiating table and change a 33-year concession deal with the Bases Conversion Development Authority on the country’s longest expressway, Subic-clark-tarlac Expressway (SCTEX). The contract has been signed last year but has yet to take effect pending fresh concerns from the Department of Finance on revenue-sharing.

“Obviously, we don’t want it to be renegotiated. I don’t know what aspect they want to improve on,” says a high- raking MPIC official. “There’s an impression that there’s too much earnings that go with the traffic but the traffic assumptions used have been overestimated,” the official notes. What MPIC has been trying to do, the official stresses, is to clarify the assumptions on the model.

“There’s a false impression that there’s too much traffic,” the official says. “There’s no way we can get that much money.” Will MPIC agree to renegotiate if the government insists on it? It depends on the assumptions to be used for the proposed revision of revenuesharing agreement, the official says.

Meanwhile, some parties are likely praying for a rebidding, although government sources still insist there’s a small chance that the tide will turn in that direction. A courtroom battle is possible if MPIC and the government are unable to settle things amicably.

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