Subic redux – BusinessMirror

SUBIC BAY FREEPORT—Finally, a rainbow in the lingering stormy sky.

With a total of P32.98 billion in foreign direct investments (FDI), or more than 71 percent of the P46.23-billion national total in the second quarter of this year, the Subic Bay Metropolitan Authority (SBMA) further boosted economic growth and erased a nagging uncertainty about the future of shipbuilding here, a cornerstone in Subic’s claim to fame as the country’s first and most progressive free port.

Members of the Pacific Business Mission from Australia and New Zealand met with SBMA Chairman and Administrator Rolen C. Paulino Sr. during a briefing at the Subic Bay Travelers Hotel last month under the sponsorship of the Philippine Trade and Investment Center of Australia/New Zealand, and in partnership with the Subic-Clark Alliance Development Council and the Board of Investments.

Subic’s second-quarter foreign investment haul was not only 30,205 percent higher than the aggregate of P108.8-million projects it signed on in the first quarter; it also fortified the country’s latest three-month batch of approved foreign investments, which was more than double the P22.5 billion posted in the second quarter of 2021.

According to the Philippine Statistics Authority (PSA), foreign investment (FI) commitments for the second quarter of 2022 “were mainly driven by investments from the Netherlands, which accounted for 41.2 percent of the total approved FI, followed by Singapore, [which accounted for] 34.4 percent.”

The PSA also said that from among the investment pledges, real-estate activities stand to receive P19.30 billion or 41.7 percent, and that the biggest chunk of these was intended to finance projects in Central Luzon amounting to P33.94 billion or 73.4 percent of the total.

While the PSA couched its report in general terms and did not specify which contributed most of the investments generated in the second quarter, SBMA records indicated that the bulk of commitments by the Netherlands and Singapore were for the Subic Bay Freeport.

Philippine officials, including then Foreign Affairs Secretary Teodoro Locsin Jr., Defense Secretary Delfin Lorenzana, Finance Secretary Carlos
Dominguez III and Central Bank Governor Benjamin Diokno, and Philippine Ambassador to the US Jose Manuel G. Romualdez, with the former
SBMA Chairman and Administrator Wilma T. Eisma as guest, celebrate the sealing of the Hanjin Subic takeover deal at the Philippine Embassy in Washington, D.C., on April 19 with US Secretary of the Navy Carlos Del Toro and Cerberus cofounder and co-CEO Steve Feinberg.

Specifically, the pledges were made to revive the moribund shipyard that Korean shipbuilder Hanjin had defaulted on in January 2019, or more than three years and a half ago.

Agila soars

According to the SBMA Business and Investment Group (SBMA-BIG), four Dutch-controlled companies had taken out leases in the second quarter for the redevelopment and operation of the former Hanjin facilities in Subic, now called Agila Subic. These include the Redondo Peninsula shipyard, a training center at the Subic Techno Park, a jetty at Cubi Point, and the Hanjin residential apartments at Subic’s naval magazine area.

The Dutch investments, which are combined under the Agila Subic banner, total P18.45 billion. The biggest of these is that of Agila South Inc., which pledged P10.74 billion for the development, operation and subleasing of the Subic shipyard.

The other Agila firms also made huge investment commitments: P6.28 billion by Agila NY Naval Inc., also for development, operation and subleasing activity; P1.11 billion by Agila Subic Compass Inc. for maintenance and management of real property; and P313.13 million by Agila Subic TC Inc. to acquire and manage subleases of housing units, among others.

SBMA-BIG sources told the BusinessMirror that the Agila firms will serve as affiliates under Cerberus Capital Management as holding company.

Cerberus, a US-based private equity firm, completed the takeover of the debt-laden Hanjin shipyard last April, Philippine officials announced then. It reportedly paid $300 million to settle the debts that Hanjin owed to several banks.

Aerial view of the Agila Subic shipyard, showing the southern portion of the facility (lower part of photo) to be occupied by Vectrus, and the northern part (upper portion) to be occupied by the Philippine Navy

Last April 19, a diplomatic reception was held at the Philippine Embassy in Washington, D.C., to celebrate the conclusion of the Subic shipyard deal, the government announced then. Present, among others, were then Foreign Affairs Secretary Teodoro Locsin Jr., Defense Secretary Delfin Lorenzana, Finance Secretary Carlos Dominguez III and Central Bank Governor Benjamin Diokno, Philippine Ambassador to the US Jose Manuel G. Romualdez, US Secretary of the Navy Carlos Del Toro, Cerberus cofounder and co-CEO Steve Feinberg, and former SBMA Chairman and Administrator Wilma T. Eisma, who represented the SBMA in the negotiations last year for the Hanjin shipyard takeover.

The Agila ventures are 99.99 percent controlled by Dutch principals, with minimal shares from American and Filipino partners, according to SBMA-BIG records.

New tenants

MEANWHILE, a Singaporean firm named Vectrus Subic Corp. has pledged P14.52 billion to provide general logistics and warehousing services in consonance with the Agila project.

Vectrus, which operates as a global government services company, will provide “storage, care, repair and maintenance of materials, stocks, vehicles and equipment belonging to the United States government,” according to its company profile filed with the SBMA.

It will also serve in inventory management and movement, importation and exportation of materials, stocks and equipment within and in the immediate vicinity of warehouse facilities.

The SBMA said Vectrus will occupy most of the shipbuilding facilities, including the quays, and will be one of the first tenants of Agila Subic, along with the Philippine Navy (PN), which now occupies the former Hanjin administrative office, mess hall and barracks.

The PN’s activation and subsequent operationalization of a base of operations in Subic are reportedly in line with its scaled-up maritime operations to support its deep-draft vessels like the Jose Rizal-class missile-frigates, Del Pilar-class offshore patrol ships, and Tarlac-class landing docks.

The Navy’s Subic base will also house select fleet marine units, and maintenance and replenishment facilities that will allow the fleet to sustain the operational requirements of current and future capital vessels.

Curing the Hanjin ‘crash’

The P18.45-billion investment by Agila is expected to restore Subic’s preeminent position as one of the country’s top investment destinations.

It is also the much-awaited white knight to rescue Subic’s lady in financial distress; the long-sought-for balm to cure Subic after Hanjin Heavy Industries Corp.-Philippines (HHIC-Phil) heavily crashed and burned in 2019.

When Hanjin-Subic was fully operational, it made the Philippines the fourth biggest shipbuilder in the world—a distinction gained after the firm delivered 123 vessels, some of them then the biggest in the world like the 20,600-TEU Antoine De Saint Exupery container ship unveiled in January 2017.

As the biggest foreign company in the Subic Bay Freeport, HHIC-Phil then basked in the aura of its $2.3-billion direct investments, and, at the height of its operations, some 35,000 workers in its and its sub-contractors’ employ.

Then in a move that stunned the business community here and sent shockwaves abroad, the Korean firm in Subic filed for bankruptcy on January 8, 2019, some 12 years after it broke ground in 2006 for its shipyard operations.

As it turned out, the firm owed some $400 million in outstanding loans from Philippine banks, aside from $900 million in debts with lenders in South Korea. And it did not have enough cash to pay back its loans.

Rainbow in the sky

THE substantial investments pledged under the Agila Project, as well as by shipyard tenant Vectrus—a total of P32.97 billion—could also be the welcome rainbow to dispel storm clouds that hovered over Subic in the past years.

Warning of an “alarming trend impeding sustained success” in generating investments and jobs in the Subic Bay Freeport, the Subic Bay Freeport Chamber of Commerce (SBFCC) noted in a white paper last March that Subic “consistently underperforms compared to other economic zones,” thus the perception of a lack of incentives for businesses in the Subic Freeport.

With data from the PSA, the SBFCC pointed out that Subic generated only P803.9 million in foreign investments in 2018, compared to P1.67 billion by the Authority of the Freeport Area of Bataan (AFAB); P7.14 billion by the Clark Development Corp. (CDC); and P1.19 billion by the Cagayan Economic Zone Authority (CEZA).

And while the SBMA signed P2.89 billion worth of investments in 2019 compared to P340 million by AFAB, P1.25 billion by CDC, and P340 million by CZA, Subic again lagged in the pandemic year of 2020 with P431 million, compared to P2.57 billion for CDC and P1.26 billion for CEZA.

Following the release of their statement, SBFCC President Benjamin E. Antonio III told the BusinessMirror in a March 30 interview that the business situation in Subic “has deteriorated over the years, until it has become untenable.” As a result, a lot of investors were already opting out, he added.

But has the SBFCC, which presented its manifesto to serve as a “roadmap to re-calibrate [SBMA] operations and be responsive to the needs of their locators,” concluded as much too soon? New investment turnouts seem to say so.

Back in business

ACCORDING to the SBMA, the Subic Bay Freeport posted substantial economic growth despite the lingering effects of the Covid-19 pandemic.

In its 2021 year-end report, the Subic agency pointed out that new investments, including expansions, totaled P17.29 billion, higher than the 2020 record by P15.74 billion, or 1,011 percent. The 2021 investment record even topped the pre-pandemic 2019 level by P8.05 billion, or 87 percent, with the bulk coming from a P15-billion commitment to develop the SBFZ marshalling yard.

SBMA Senior Deputy Administrator for Business Renato W. Lee III said the 2022 first-half records followed suit with total investments rising to P35.35 billion, and with shipyard-related pledges reaching P32.97 billion, or 93.26 percent of the total.

Lee said the SBMA successfully processed 24 investment applications in the first quarter of 2022, and followed this up with a total of 37 new approvals in the second quarter, which included the four Agila ventures.

The other substantial investment pledges in the second quarter were made by Unco United Oil and Gas Philippines Inc., with P1.94 billion; Filgasco Trading, with P109.77 million; Northern Express Transport Inc., with P62 million; Great Mobility Industrial Corp., with P61.04 million; Metro Built Enterprises Corp., with P61.04 million; and Erra Trucks and Equipment Corp, with P55 million. All are Filipino-owned companies.

Malasakit and success

KAREN G. Magno, manager of the SBMA Business and Investment Department for Manufacturing and Maritime, which facilitated the Agila investments, attributed the surge in Subic investments to the agency’s commitment to its stakeholders.

“We strive hard to maintain the confidence of our investors, and keep the Freeport as an ideal investment destination,” Magno said.  “This is because we are driven by our core value of malasakit, which is the deepest form of caring—malasakit towards our stakeholders, and malasakit to Subic, which we call our home.”

Magno added that the SBMA Business and Investment Group stayed open 24/7 at the height of the pandemic and even during lockdowns to minimize disruption of business among the industries that were allowed to operate.

As the SBMA continues to transition towards the new normal, Magno said the Subic agency expects to generate more investments by further improving its services and being fast, friendly and flexible in its dealing with customers, especially investors.

Recently, the Subic Bay Freeport welcomed a huge delegation from the Pacific Business Mission, as the Philippine Trade and Investment Center of Australia/New Zealand, in partnership with the Subic-Clark Alliance Development Council and the Board of Investments, drummed up potential investments in Philippine ecozones like Subic, Clark Freeport, and the Mount Samat Flagship Tourism Enterprise Zone.

In a briefing at the Subic Bay Travelers Hotel, SBMA officials, led by Chairman and Administrator Rolen C. Paulino Sr., encouraged the delegates to “make it happen in Subic.”

“As the global economy is struggling to bounce back from the negative effects of the Covid-19 pandemic, we are glad to have this opportunity to participate in this investment mission and introduce or re-introduce the Subic Bay Freeport and Economic Zone to you,” Paulino said.

He added that the entire Subic Freeport community “is looking forward with much enthusiasm to work in partnership with all of you for the growth and progress of the Philippine economy, in general, and in the Subic Bay Freeport community, in particular.”

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