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The Moneyman (Second of Two Parts)

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“We have a relationship with everybody from Mr [Henry] Sy’s group, to BPI, to everybody. They all know our company in some way,” Trade Finance Corporation CEO David Sullivan tells China Business - Philippines in an exclusive interview. He says his group has established a presence here.

David Sullivan
All set
Says Sullivan, “Our operations in the Philippines are now changing as we speak. We have been surviving with a rep office in Salcedo Village, but now our business here is established. We have just received clearance from the government to set up TFC Capital Philippines Inc.”

About two and a half years ago, some Chinese businessmen came to TFC to ask about the Philippines. The Asian Development Bank (ADB) also approached Sullivan’s company because they had a loan out to an RP corporation. “ADB wanted someone to refinance that loan. We decided to take that on. At the same time we started coming to the Philippines to look into some of the projects that the Chinese had here.

Sullivan explains the Chinese began investing in countries like Russia, Australia, or India, where financial institutions are already present. Some went to the Philippines for mining or retirement. “Being a smaller institution and recognizing that we have to survive by being a niche player, we decided to follow the Chinese into those second tier markets.

The rest of the interview follows.

Does your niche market change based on the country you operate in?
Yes, it has to. We kind of juggle our niches around market to market.

I would say that business is quite unique in the Philippines for us. We came here for mining, but have done more in terms of actual production of steel. When we first came here, the number of deals that we did in the mining sector was fewer than we expected. Eighteen months ago, the major focus here was alternative energy, biofuel, and biomass—conversion of waste into energy pellets. Now the biofuel business is dead because oil prices are so low. But the biomass business, which is basically cleaning up your country’s landfills, is still a very niche business to us. We are bringing foreign technology companies into the Philippines with local partners in order to put these alternative energy, biomass deals together.

In Cambodia, we are doing things like leasing agricultural land—about 40,000 hectares and then we try to lease it out. We also have resorts on the beaches.

In China, we are now switching almost 67% of our energy on hotels. The steel and commodity industries have ground to a halt because of the financial crisis. Real estate prices are coming down, so there’s a lot of four, five star hotels for sale. There are a lot of companies wanting to get into the hotel sector in China. You wouldn’t believe it. Two years ago, we had 100% mining and metal processing [companies] as our clients. Now, I think we have more hotel groups than we have metal producers.

The common theme of the whole group is we like resources and processing of resources. We’re doing that everywhere. But in every country we have something else. Here, it’s alternative energy; in China, it’s real estate; in Cambodia, it’s probably agricultural land that we buy; in Laos, we do mining and hotels. The reason we have an office in Australia is actually outsourcing of investors. Many Australian mining groups like to invest in the resources business in China and the Philippines. We have to keep moving around.

Do you think Manila is doing enough to support companies you have been working with?
In the Philippines, there’s this tendency not to let the other guy know what you’re doing. Even the banks here are controlled by families [who] also own businesses. If you run a telecoms company and go to a bank, you’ll probably find that the bank’s owners also have a telecoms company. In this market, more than, say, China, there’s a tendency to not want to raise too much money from [local] institutions. Before we did business here, we often [saw] a lot of funding requests [from Philippine companies] in the Hong Kong market.

To answer the question is difficult. As an outsider, I see the enormous gap between those that have and those that don’t. On the other hand, the history of the country is messy, to say the least, isn’t it? You’ve ended up with this kind of elitist group and many poorer people [going] into the city just looking for work, looking for money. Is the government doing enough? They have limitations on what they can do for such a big problem. I think maybe this government has done a little bit more than others have. But you have such a vast problem. There’s so much poverty here. It’s a big task to look after all those people.

What can companies do to keep themselves viable during hard times?
It’s difficult because nobody wants to listen to the small guy. Two years ago, you could go buy a James Bond briefcase, learn how to use PowerPoint, tour the world, and get money. Now, nobody has five minutes for the small guy and the small project. I think anybody now that has a new business and a good idea is probably not going to get support from financial institutions. [They would] have to contact some high net worth individuals who are running corporations, and ask them for personal support. I think it’s very tough. If you look at our clients, [you’ll see] we try to help small-caps and mid-caps. But the deals that we are closing more the last six to nine months are for mid-caps because the market doesn’t want to put money in the small companies at this time.

It’s not that banks are not lending. The banks are lending, but they’re only lending to big groups. The Philippines actually has the same problem. Banks are now being more conservative about who they lend money to. Most of the banks are just relying on big groups to stimulate the economy.

Where’s the small guy? When is the new guy going to come through? He [has] nobody to support him now.

So you’re saying banks support only big companies?
I think so, but they won’t admit that.

What is the difference between the Philippines and China in terms of dealing with companies and banks?
It’s easier to do things in China than it is here. Without getting too nitty-gritty, I would say that with Chinese organizations, once we reach an agreement, we stick to it. Sometimes that doesn’t happen here. And I think it’s easier to build up mutual trust in China than it is here. You can imagine, with the history of this country, why would anyone want to trust anybody? You have this whole mixed bag of people from different origins and it sort of comes through in the culture and the day-to-day business. People will renegotiate contracts already signed. There’s so much red tape to get things approved.

I have been sitting here for more than a month just waiting for them to approve a name. Once they approve the name, they’ll have to approve the nature of our business, which takes another two months. This kind of thing is not very user-friendly. In China, 15 years ago, it used to be this way. But you can set up a company in one week in Shanghai now.

The problem is, markets that were way behind the Philippines in terms of user friendliness—China, Cambodia, Laos, even Vietnam—are [now] in front. I think this is a major issue. You have quite a hurdle here with the red tape. That’s my opinion.

Print ed: 07/09

 

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