Philippine, Vietnam conglomerates to invest US$185 billion in fresh ventures over next decade
Strategic national goals in renewable energy and infrastructure will underpin new business areas: S&P Global Ratings
[SINGAPORE] Funds totalling about US$185 billion are expected to be invested into new business areas by conglomerates in the Philippines and Vietnam over the next 10 years, a report by S&P Global Ratings indicated.
Of this amount, up to two-thirds are earmarked for spending in the infrastructure and renewable energy sectors, the Nov 5 report added.
Analysts from the ratings agency evaluated the investment and funding needs of nine of the largest publicly listed conglomerates in the two South-east Asian countries. These included the Philippines’ Ayala Corporation, SM Investments Corporation (SMIC) and JG Summit, as well as Vietnam’s FPT Corporation, Hoa Phat Group and Vingroup.
“This will be their most demanding investment cycle to date,” the analysts noted, adding that the US$185 billion in new investments is 2.5 times the conglomerates’ capital spending over the last decade.
“Mature core operations and access to deep funding pools give the firms a credible shot at high-barrier sectors. They are not starting from a weak position.”
National goals
Based on corporate disclosures and the companies’ capital expenditure budgets, the analysts found that four out of the five Philippine conglomerates in the study are likely to prioritise renewable energy projects. Meanwhile, only one Vietnamese company – Vingroup – will probably do so.
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This is in line with the Philippine government’s “generally supportive policies” in the country’s energy transition goals, they said. “Based on the project pipeline of these conglomerates, we estimate they will account for about 40 to 50 per cent of the country’s renewable energy capacity by 2030.”
For instance, Aboitiz Renewables, a subsidiary of Aboitiz Equity Ventures (AEV), intends to grow its renewables portfolio to 4.6 gigawatts by 2030 from 928 megawatts currently.
As for the Vietnamese conglomerates, more are likely to seek new business ventures in infrastructure, with such projects expected to account for around 67 per cent of capex in new ventures in the next decade, the report said.
“The Vietnamese government is upgrading infrastructure to set a foundation for long-term economic growth,” it noted.
Vingroup, in particular, is expected to play a significant role in these upgrades – it proposed a US$61.3 billion North-South high-speed railway project earlier this year. Hoa Phat Group, meanwhile, intends to invest US$550 million in specialised structural steel projects.
Steelmaking has been identified as one of Vietnam’s most promising areas, as ongoing railway projects and a drive towards self-sufficiency in steel manufacturing are lifting growth expectations for the sector.
S&P highlighted that many of these ventures will help conglomerates in both countries to reinforce their market positions within core business areas.
For example, it said AEV’s main banking business – the Union Bank of the Philippines – stands to benefit from expanded offerings through the group’s investment into fintech company UBX Philippines.
Moreover, even when these ventures are not directly linked to their core businesses, the corporates could still discover new business synergies from broadening their sectoral scope, S&P added.
“Vingroup’s proposed high-speed railway and power plant projects could improve infrastructure connectivity and electricity availability,” it said. “This could enable its property arm to expand into satellite cities and tap underserved mass-market housing demand in Vietnam.”
Still, the agency’s analysts noted that measurable success would depend on the conglomerates’ ability to execute operations in new ventures, as unfamiliar territories and existing competition could pose difficulties.
“Venturing into less synergistic and technically complex sectors entails higher execution risks. The investment horizon is also likely to be long, and it remains uncertain when and whether operations will be profitable.”
Vingroup’s electric vehicle arm VinFast, for instance, has been unprofitable since 2018 and will likely remain so for two more years, they added.
Funding sources will be key
They also identified a divergence in funding trends for new business investments among the conglomerates, with more of the Philippine corporates turning to cash flow from their core businesses to support capex spending.
In contrast, among the Vietnamese conglomerates, about 50 per cent of capex has been funded through debt, compared with 44 per cent in the Philippines.
Debt-to-Ebitda (earnings before interest, taxes, depreciation and amortisation) ratios in Vietnam have risen aggressively over the last five years, the analysts said, while Philippine corporates have kept leverage growth modest.
“Refinancing and liquidity pressures are higher for Vietnamese conglomerates,” they noted. They also said that a more developed domestic bond market could give Philippine corporates “more well-spread debt maturity profiles”.
But they noted that larger conglomerates in both countries have greater capability to tap foreign debt markets to fund new ventures, on the back of robust investor demand for emerging-market corporate debt.
“Ayala, SMIC, San Miguel, Masan (Group) and Vingroup, in particular, are more active in offshore notes and perpetuals, and US dollar loans,” they said.
“The challenge ahead is about diversifying funding access and building business models agile enough to support innovation through the next economic cycle.”
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