Aboitiz Power Corp. will build plants in Indonesia and scout for ventures in Vietnam and Myanmar as the Philippines’ second-largest electricity producer expands in Southeast Asia, while expecting an oversupply at home.
The company would spend an estimated $4.5 billion to add 1,600 megawatts of capacity and help meet its target of a 4,000-megawatt portfolio in its home country by 2020, Chief Executive Officer Erramon Aboitiz said. It may invest $500 million in equity for projects in Southeast Asia in five years, he said.
“We want to stay close to home,” Aboitiz said in an interview in his office in Taguig City on Monday. Indonesia, Vietnam and Myanmar are “the countries that pose the best opportunity for us. We’ve chosen ASEAN because we can add value in these places.”
From trading abaca more than a century ago to expanding into shipping, banking and power, Aboitiz joins other Philippine companies like Ayala Corp., Universal Robina Corp. and Emperador Inc. in pursuing regional ambitions as their home markets become small.
“Project returns in the Philippines may not be as attractive so they go outside for better returns,” George Ching, a utilities analyst at COL Financial Group Inc., said by phone. “Myanmar and Vietnam are similar to the Philippines. These economies are in need of infrastructure and power projects and these markets are also almost similar in size.”
Aboitiz Power shares rose 0.9 percent to 43.90 pesos, its highest close since Aug. 20, while parent Aboitiz Equity Ventures Inc. climbed 1.5 percent. The Philippine benchmark stock index advanced 1.3 percent.
Demand for electricity in the Philippines rose 42 percent in the 10 years to 2013, almost three times as much as the 15 percent growth in generating capacity. Tight supply and the resulting periodic outages prompted San Miguel Corp. and Ayala Corp. to invest in power. Even Manila Electric Co., the country’s largest power retailer, has started to build plants after being out of the generation business after leaving the sector more than 40 years ago.
“If you look at the current plans of people, and say that all of the plants that people say are going to build will be built, then I think there is going to be an oversupply,” Aboitiz said. A glut may happen in the southern Philippine island of Mindanao as early as 2018 and by 2020 in the main Luzon island, he said.
Power is “like many other businesses where the growth or expansion will always be lumpy,” Aboitiz said. “There might be times that there’s going to be oversupply, then the market will continue to grow, and then you catch up,. I am not too concerned. We’re building as scheduled.”
Aboitiz Power joined PT Energi Infranusantara in a study to explore and develop a potential 127-megawatt hydropower project in Central Sulawesi in Indonesia and agreed to explore and develop a geothermal plant in East Java with a partner, the company said in separate statements in September.
Aboitiz Equity, the holding company of a range of family businesses that include banking and food, is bidding for airports, rails and roads as the Philippines seeks to boost infrastructure spending to 5 percent of gross domestic product by 2016.
The group is on track with plans to invest 60 billion pesos ($1.2 billion) this year, with almost 90 percent of the amount allotted for its power unit, he said. Aboitiz Power’s profit fell 23 percent in the second quarter to 3.7 billion pesos, dragging its parent’s profit 19 percent lower.
Its acquisition of Lafarge SA’s assets in the Southeast Asian nation is part of the foray into infrastructure, Aboitiz said, expecting cement demand to increase between 7 percent and 8 percent annually in the next 10 years. Aboitiz in July said it’s investing 24 billion pesos in the transaction done with CRH Plc.
Cement sales rose 12.5 percent to 6.21 million tons in the second quarter, accelerating from a 9.6 percent increase in the first three months of the year, Philippine Star reported in July, citing an industry group.
“If infrastructure continues to develop, if the housing market continues to go the way it is today, we feel the requirement for cement is going to be quite good,” Aboitiz said. “We definitely will need to increase the capacity of our cement plants.”
Source: Bloom Berg