11th January 1998
FIRST PACIFIC ANNOUNCES DISPOSAL, INVESTMENT PROGRAMS
In order to best position the Company to address the prevailing adverse economic climate and to benefit from the region's eventual economic recovery, the Company has sharpened its strategic focus on the following three central principles:
Accordingly, the Company has determined that it will implement disposal and investment programs that are based on these guiding principles. The programs are designed to enhance future earnings, as well as to reaffirm First Pacific's character as an Asian company and its commitment to the region. The Company considers that steps taken at this time to build a stronger cash position are both prudent and opportune in the current environment.
Following the sale, which was completed on 8th January 1998, the Company will focus its efforts in the telecommunications sector in those Asian markets where it can be the dominant player or a strong second operator.
The Company has appointed ING Barings and UBS to act as advisors in connection with the proposed sale, subject to market conditions and shareholders' approval, of its entire 40 per cent holding of Hagemeyer's ordinary shares. The Company's stake in Hagemeyer has a current market value of approximately US$1.6 billion.
The management of Hagemeyer is fully supportive of the Company's decision and intends to participate actively in the disposal process with a view to the shares being widely distributed in an orderly manner.
The rights-issue proceeds will be used primarily to retire a significant portion of Metro Pacific's head office debt and to support the approved capital expenditure program of Smart Communications, Inc.
First Pacific, which currently has an effective economic interest of approximately 70 per cent in Metro Pacific, supports the rights issue and, subject to finalizing terms, will subscribe to its proportional share of any such issue. Taking up its full allotment would cost approximately Pesos 10 billion. The Company is prepared to take up the full Pesos 14 billion should other shareholders not wish to participate in the offer.
As part of its own strategic review, Metro Pacific is also considering the possible disposal of certain non-core assets. However, it will maintain its existing 61 per cent stake in Bonifacio Land Corporation as a core investment.
Profit and Loss Account - Recurring income from operations
Where local currencies have depreciated against the US dollar, local currency results are less when expressed in US dollar terms. Currency depreciations during 1997 are estimated to have had an adverse effect on 1997 recurring income from operations of approximately US$25 million. Income from operations in 1996 was US$243.2 million.
In accordance with generally accepted accounting principles, it is the Company's accounting policy to translate the profit and loss statements of overseas subsidiary companies into U.S. dollars using average rates of exchange for the period. A comparison of average exchange rates follows:
Profit and Loss Account - Exceptional items
The Company took a decision in 1996 to hedge its currency exposure wherever practicable, as unhedged U.S. dollar liabilities may give rise to local currency exchange losses where there has been a relative currency depreciation. Of the estimated US$3.2 billion of consolidated net indebtedness (total group borrowings, including loan capital, less cash balances), an estimated US$560 million relating to the Company's regional operations is unhedged (principally in the Company's Philippine operations where the ability to hedge foreign currency exposure is limited). The Company's share of the unrealized foreign exchange loss arising from this unhedged indebtedness is estimated to be approximately US$70 million and will be recognized as exceptional in the Company's 1997 consolidated profit and loss statement. Due to gains arising, principally from asset disposals, net exceptional items for 1997 - including unrealized foreign exchange losses - are not expected to be significant.
Balance Sheet
As at 31st December 1996, investments in subsidiary companies was approximately US$900 million. This has been reduced when expressed in U.S. dollar terms where investments are held in currencies that have depreciated. The estimated adverse effect on the book value of such investments is approximately US$300 million and this will be treated as an adjustment to total equity in the consolidated balance sheet for 1997.
In accordance with generally accepted accounting principles, it is the Company's accounting policy to translate monetary assets and liabilities at the rates of exchange ruling at the balance sheet date.
A comparison of closing exchange rates follows:
It is too early to predict the effect of regional currency fluctuations on the Company's 1998 results.
The estimated net debt position at 31st December 1997, as set out below, is stated prior to the receipt of any Pacific Link and other proceeds from the disposal program.
The Company's average cash borrowing cost for 1997 is estimated at 5.0 per cent. In 1996, the average borrowing cost was 6.8 per cent.
Proforma net consolidated indebtedness is determined after deconsolidating the estimated indebtedness of Pacific Link and Hagemeyer, and including the disposal program's estimated proceeds of US$2 billion, a portion of which would be utilised as set out in the investment program. The estimated ratios would be:
The Group's average borrowing cost for 1997 is expected to be comparable with the average borrowing cost in 1996 of 8.0 per cent.
In particular, there will be no special dividend paid in the event that the Company completes all or part of its disposal program.
Among such opportunities is San Miguel Corporation, in which the Company, acting through Philippine affiliates, accumulated in 1997 a stake of approximately two per cent at a cost of less than US$70 million. In addition, these affiliates have engaged in amicable discussions with certain parties involved in San Miguel regarding the possibility of making a substantial strategic investment in San Miguel. However, there has not been recent progress in these discussions.
No agreement has been concluded with these parties that would result in further shares in San Miguel being acquired by the Company or its Philippine affiliates. The Company wishes to emphasize that it will not proceed with the overall investment unless it concludes that the transaction meets the Company's established investment and management requirements.
For further information, please contact:
| Robert Sherbin Group Vice President Corporate Communications First Pacific Company Limited |
Tel: (852) 2842 4380 |
Company information can also be accessed on:
| Web Site: |
http://www.firstpacco.com http://www.irasia.com/listco/hk/firstpac |
E-mail: info@firstpac.com.hk |
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