First Pacific future 'uncertain' after record US$1.7b provision
Analysts who attended a recent First Pacific briefing say they left with a sense of uncertainty about the company's future direction.
The briefing on Thursday coincided with an announcement by First Pacific that it would record provisions of US$1.7 billion, about equal to all its profits for the past 14 years, to reflect the fall in values of its assets in the Philippines and Indonesia.
The move wipes out the foodstuffs-to-telecommunications conglomerate's consolidated shareholder equity and will put it deeply into the red.
Analysts had previously expected First Pacific to announce a loss of about US$50 million for the year to December 31 last year.
First Pacific said the write-off involved its principal operating subsidiaries, which include Philippine Long Distance Telephone (PLDT), Indonesian instant noodle-maker Indofood and Philippine property conglomerate Metro Pacific, whose biggest asset is the Fort Bonifacio redevelopment in Manila.
First Pacific also made a US$100 million provision for general risks, including further depreciation of the Philippine peso and Indonesian rupiah.
Philip Tulk, an analyst at Lehman Brothers, described the provisions as accounting technicalities.
'Nothing's changed for that company, in terms of cash flow and its assets. They've just wrote those down to a more realistic number,' he said.
Geoffrey Palmer, an investment analyst at Credit Suisse First Boston who covers the company, also played down the impact of the provisions.
He said the main question on investors' minds was 'where does the company go from here', of which First Pacific had given no indication.
'At the parent company level, it's now in pretty good shape. It's paid down much of its debts, Indofood is fine, PLDT has some short-term debt problems, but most of that comes from the Asian financial crisis and is being sorted out,' Mr Palmer said.
'At the parent company level now, they're a holding company for their investments. But they need to be doing more than just that.'
Mr Palmer said the biggest problem was First Pacific's lack of capital for investing in new projects.
'They haven't said what they will do. But if they said something, investors would be shocked, since they have no money. What they need to do is keep sorting out PLDT and Indofood and get some dividend income from them, but that's still some years away.'
Mr Tulk said First Pacific indicated to analysts that it was not interested in further investments in Escotel, the company's India cellular arm, although the company needed to expand.
'Most likely, the partner in that project, Escorts Group, will take a larger stake for injecting some cash in. But the problem with that situation is that First Pacific then wouldn't get any money back, which they would want to do,' he said.
First Pacific told analysts that Escotel now had a 9 per cent share of the India cellular market with 450,000 subscribers.
