First Pacific Company Limited
First Pacific Company Limited
24th Floor, Two Exchange Square
8 Connaught Place Central
Hong Kong (852) 8424388
Fax: (852) 8459243
Web site: http://www.irasia.com/listco/hk/firstpac/index.htm
Sales: HK$54.8 billion (US$7.03 billion) (1996)
Stock Exchanges: Hong Kong Amsterdam NASDAQ
SICs: 6719 Holding Companies; 7300 Business Services; 6000 Depositary Institutions; 6500 Real Estate; 4810 Telephone Communication
In the somewhat murky world of Asian conglomerates, First Pacific Company Limited is one of the fastest-growing and most transparent. A publicly traded holding company, First Pacific is majority-owned by Indonesia’s powerful Salim Group. First Pacific’s portfolio includes 13 companies, operating in 40 countries, with 45,000 employees. The companies, all of which function as independent units, and six of which are publicly traded, are focused on four principal areas: marketing and distribution; telecommunications; property; and banking. Marketing and distribution contribute the largest share—88 percent—of First Pacific’s sales, through companies including the Dutch-based international trading giant Hagemeyer; Australian computer and telecom products distributor Tech Pacific International; Metro Pacific, First Pacific’s Philippines flagship; Berli Jucker Public Company, a Thailand-based distributor of food and other products; and Indonesia’s P.T. Darya-Varia Laboratoria, that country’s second-largest pharmaceutical distributor.
While trading continues to be the company’s chief revenue generator, telecommunications represents the company’s fastest-growing segment. Telecommunications companies in First Pacific’s portfolio include Pacific Link Communication, one of Hong Kong’s largest mobile phone companies, with 240,000 customers; Smart Communications, which falls under the Metro Pacific arm, and which, with 310,000 customers has captured 39 percent of the Philippines’ cellular phone market; and P.T. Metro Selular Nusantara amd P.T. Indolink First Pacific, which provide cellular and paging services to Indonesia. In 1996, First Pacific contracted with Lucent Technologies to build a cellular network in three Indian states for the company’s new Escotel Mobile Communications joint-venture with India’s Escorts—by early 1997 Escotel had already signed up 5,700 subscribers in a combined population of 126 million. Full implementation of Escotel was slated for mid-1997. First Pacific has also entered joint ventures to provide mobile and paging services in Fujian, Shenzen, Fuzhou, and Xiamen in China, as well as in Taiwan.
First Pacific’s vast real estate holdings include, through Metro Pacific, the huge Fort Bonifacio Development Corporation project in metro Manila, Philippines. Plans there include the construction of some 100 50-story buildings, providing space for more than 300,000 residents and more than one million office workers, making the site larger than Hong Kong’s entire central business district. Through Metro Pacific, First Pacific also owns Landco, Inc., a high-end residential and resort developer for properties outside of metro Manila. In Hong Kong, First Pacific Davies operates both property and integrated property services (such as security services) companies, managing 110 million square feet of office, residential, and commercial space. Banking, the final and smallest piece in the First Pacific puzzle, is represented primarily by the 27-branch First Pacific Bank network.
Despite the Salim Group’s control of First Pacific, the company enjoys an independence that is unusual among companies run by powerful Asian families. First Pacific is led by managing director and founder Manuel Pangilinan, who has been given free rein to build and direct the company. Pangilinan has turned the Salim Group’s initial $1.5 million investment into a company that reported a 1996 attributable profit (excluding exceptional gains) of HK$1.57 billion (US$202 million) on turnover of HK$54.8 billion (US$7.03 billion).
Founded in 1981
First Pacific began as a small Hong Kong-based financial services company established to allow four of Indonesia’s leading families—the Salim, Sutanto, Sudwikatmono, and Risjad families—to funnel some of their wealth overseas. The Salim family, headed by Soedono Salim (aka Liem Sioe Liong), controlled the largest portion of the new company. Soedono Salim, whose personal worth made him one of the world’s wealthiest men, was born in China’s Fujian province in 1916. In the 1930s, Liem/Salim moved to Java, in Indonesia, to work for the peanut oil company run by his uncle and brother. In his 20s, Liem struck out on his own, entering the coffee and cloves trade, supplying cloves to the kretek (clove-flavored cigarettes) industry, and soon expanded into other goods. But the key to Liem’s fortune lay in the Indonesian war for independence of 1947–49. Liem backed the Indonesian rebels over the Dutch colonial forces, supplying the rebels with food and clothing, and possibly arms as well. During that war, Liem also became acquainted with a young lieutenant colonel by the name of Suharto. With independence, Liem—who adopted the Indonesian-styled name Soedono Salim—branched out into other areas, founding companies selling goods ranging from bicycle parts to noodles to nails. Salim’s entry into banking came in 1957, when he acquired Bank Central Asia, which would grow to become Indonesia’s largest private bank.
Salim’s fortunes rose still higher when Suharto came to power in 1965. Soon after, Salim gained monopolies on the country’s clove, cement, and flour markets. Despite his close ties with the Suharto family, however, Salim remained vulnerable in a country that was overwhelmingly Islamic. Only 3 percent of Indonesians were of Chinese origin, yet the Indonesian Chinese controlled some 70 percent of the country’s economy. Salim began looking for a way to move some of his profits out of Indonesia. In 1972, Salim and partners (which included Suharto’s half-brother Sudwikatmono) set up a small Hong Kong company, First Pacific Finance. In the late 1970s the group stepped up its overseas expansion. The group, popularly known as the Liem Investors, bought a stake in Overseas Union Finance in 1979. Two years later, the group increased its Hong Kong presence. In a move seen as unusual among closely controlled Asian family businesses, Salim directed son Anthony to bring in outside talent to help the group expand. Anthony Salim approached Manuel Pangilinan, a Filipino with an M.B.A. from the Wharton School working as an investment banker for American Express’s Hong Kong office, to set up a deposit-taking company in Hong Kong that would enable the Salims to expand into consumer products and finance. With $1.5 million in startup capital, Pangilinan purchased a dormant property company, renamed as First Pacific Holdings, and then a shell company formerly managed by the merchant banking arm of the Jardine hong; that company was renamed First Pacific International.
Missteps in the 1980s
Pangilinan was given complete autonomy to run the three publicly traded First Pacific companies, in part to make the companies more attractive to international investment. The First Pacific group began building a portfolio of acquisitions, beginning with the ailing Hibernia Bank in California. Hibernia, that state’s 12th largest bank, had lost $6.7 million in the year before its acquisition. After losing another $13 million in 1982, the bank turned profitable in 1983. Another key acquisition made by First Pacific was a stake in the Dutch trading giant Hagemeyer; First Pacific quickly built up a 67 percent share in that company. Meanwhile, First Pacific began issuing shares in the companies, touting First Pacific as an investment channel into the massive Salim family holdings—principally through the promise of possible ventures between the Liem family and First Pacific’s Hagemeyer and Hibernia. Investors became skeptical when this promise failed to come true, in the face of the Liems’ reluctance to participate with First Pacific. As Pangilinan himself told Institutional Investor, “The Liem pipeline was a pipe dream.” In 1984, the company reorganized as First Pacific Group, and began emphasizing itself as a financial services company.
Meanwhile, First Pacific launched an extensive acquisition program that made investors nervous. By the mid-1980s, the company had gathered some 23 companies under its wing, with activities scattered across industries from dry goods (Hong Kong’s Dragonseed), to computer products in Australia, to soap and shoe polish distributorships in Thailand, to coffee in Saudi Arabia, to office properties in Hong Kong, as well as a seat on the London Stock Exchange. First Pacific also amassed extensive holdings in the Philippines—although that country had not been among the company’s originally planned investment sites. But when a company defaulted on a $1.5 million loan, First Pacific agreed to accept the Manila-based First Philippine Capital Corp. investment bank. That placed First Pacific in the middle of a turbulent political situation in the Philippines following Benigno Acquino’s assassination. Other companies were seeking to divest their Philippine holdings and turned to First Pacific. The company gambled, buying up at bargain prices a local subsidiary of Thailand’s Berli Jucker and another of the Scott Paper Company, bringing the company into soap and toilet paper. First Pacific’s Philippine wing, later renamed Metro Pacific, targeted exclusively companies providing consumer products at first, including First Pacific’s largest acquisition, Metro Drug Corporation, the company’s leading distributor of pharmaceutical and veterinary products. As a Metro Pacific executive explained to Business Times: “Whatever the political situation, there will always be a market for their products so there was more than an even chance that these companies would continue operating well.”
The company adopted a policy of identifying undervalued companies in the Pacific Rim (but including the U.S.) and hiring new management to build them. Management of the individual companies were given near-complete autonomy to run the companies. But First Pacific’s rapid, seemingly directionless growth soon made it unpopular with investors. Despite the company’s strong revenue (to $1.6 billion in 1987) and earnings growth, First Pacific’s own stock remained undervalued and raising equity was difficult. The company was criticized for its seemingly chaotic organizational structure. Worse, in 1987 the company was forced to sell off one of its principal assets, Hibernia Bank, after it proved too difficult to make the bank competitive. The company reorganized again, registering in Bermuda, in 1988. By 1990, the company was forced to turn to its parent for financing, giving the Salim Group more equity in First Pacific.
Finding Focus in the 1990s
The company changed direction in 1991. First Pacific was refocused on its four core areas of marketing and distribution, telecommunications, real estate, and banking. The company pared down its holdings, selling off ten companies outside its core areas, and at the same time stopped making acquisitions at the holding company level. With the refocus of the company, investor interest picked up—by 1994, First Pacific barely missed out on being added to Hong Kong’s blue-chip Hang Seng Index (HIS). (The company joined the HIS in June 1996.) Meanwhile, its Manila flagship, Metro Pacific, was on a buying spree of its own, purchasing the state-owned Domestic Satellite (Domsat) telecommunications firm in 1994, and that company’s 39 percent interest in Smart Communications. Metro Pacific also added Hershey’s Filipino franchise, Philippine Cocoa Corp. First Pacific also moved to expand its Berli Jucker conglomerate based in Bangkok, Thailand. By 1992, the company’s profits were rebounding, to HK$458 million; in 1993, profits rose to HK$781 million.
While Hagemeyer continued to represent First Pacific’s largest holding, the company emphasis shifted to building its position in Asia. By 1994, the company’s Asian operations contributed 68 percent of First Pacific’s profit for the year. Divisions such as the Tech Pacific computer and software distributorship and the company’s interest in Philippine-based Darya-Varia Laboratoria were also growing strongly, more than doubling in size. Meanwhile, Metro Pacific’s holdings were bolstered by its winning bid, as part of a consortium of investors, for the 214-hectare Fort Bonifacio, a former undeveloped military reserve in the heart of Manila. First Pacific’s early entry into the Asian telecommunications industry, particularly in cellular phones and paging services, helped position the company as those markets prepared to explode. In just a decade and a half, Pangilinan had built First Pacific from a tiny company to one of Asia’s largest conglomerates, which posted a profit of HK$1.57 billion (US$202 million) on turnover of HKS54.8 billion (US$7.03 billion) in 1996. The Salim family, which took the daring step of letting an “outsider” control a family business, seemed likely to maintain its hands-off approach to First Pacific. From total investments of only $150 million, the Salim’s stake in First Pacific had risen to be worth some $1.2 billion, with no end yet in sight of the Asian economic boom.
First Pacific Davies, Ltd. (Hong Kong); FPB Bank Holding Company (Hong Kong) (51%); Hagemeyer N.V. (Netherlands) (50.8%); Metro Pacific Corp. (Philippines) (40%); Pacific Link Communications Ltd. (Hong Kong) (65%); Pacific TeleLink Ltd. (Hong Kong) (64.7%); PT Indolink First Pacific (Indonesia) (60%); Smart Communications, Inc. (Hong Kong) (40%); Tech Pacific Holdings Ltd. (Australia).
Almazan, Alec, “Entering the Land of the Giants,” Business Times, December 11, 1995, p. 21.
Clifford, Mark L., “The New Asian Manager,” Business Week, September 2, 1996, p. 22.
Dodwell, David, “First Pacific Tightens Its Grip,” Financial Times, September 6, 1984, p. 26.
Friedland, Jonathan, “Pacific Overtures,” Institutional Investor, May 1988, p. 175.
Gopalan, Nisha, “First Pacific Has Fingers in All Pies,” South China Morning Post, October 13, 1996, p. 4.
Murphy, Kevin, “Horning Into Hong Kong,” International Herald Tribune, October 7, 1994.
Tanzer, Andrew, “First Pacific’s Pearls,” Forbes, February 13, 1995, p. 48.
“First Pacific: Limbered Up and Raring to Go,” The Economist, June 16, 1984, p. 57.
—M. L. Cohen