Getting to 20% With Ayala

As eTelecare's (ETEL) shares tumbled, the Philippines' oldest conglomerate and owner of the country's biggest bank and biggest real-estate company made good on its intentions to boost its stake.

According to information reported by Ayala Corp. to US regulators, the conglomerate now owns 6.39 million ETEL shares, or 22.22% of the BPO. Ayala first bought into ETEL in June 2006, when press reports said it paid about 800 million pesos for 11% of the company, using LiveIt Solutions Inc. as its investment vehicle.

The shares may have just been transferred from one Ayala pocket to another. Check out Ayala Corp.'s US SEC filing. There are more layers in this than a wedding cake: Ayala wholly owns Azalea International Venture Partners Ltd., which wholly owns LiveIt Investments Ltd., which in turn wholly owns Newbridge International Investment Ltd. Newbridge, after all, was an original investor in eTelecare. In an early November filing, Ayala said additional investments in eTelecare were for "investment purposes."

Ayala Corporation currently intends, depending on market and other conditions, and in its sole discretion, to consider acquiring additional Shares of the Issuer and thereby increase its total beneficial ownership interest to 20% of total outstanding Shares on a fully diluted basis (or approximately 22% of the Issuer’s total current outstanding Shares on an undiluted basis), in order, among other things, to allow Ayala Corporation to account for its Shares under the equity method of accounting.

Even then, it's usually a good sign when a major shareholder puts it on record that it is the shareholder on record, instead of burying it in an offshore vehicle domiciled in some balmy tax haven. After all, Ayala will not want to get above the 20% threshold if it's expecting poor performance from ETEL going forward.

Bagging The Citi

Would you buy a business from a bank? Would you buy a business that is solely dependent on that bank? Citibank is close to a sale of its captive BPO, according to Indian press reports. The information asymmetry seems to favor Citibank, since who better knows the bank's prospects -- and the outsourcing potential going forward -- than itself.


If you're a buyer, it makes sense to pay the reported $1.2 billion price if you're confident you can cut costs in the unit faster or deeper than Citi thinks, and if you can use the Citibank BPO as a platform to acquire other bank customers. What better calling card than to say to future customers, "The largest bank in the world outsources to me."

Citigroup's BPO arm, Citigroup Global Services, is likely to find a new owner in a week. Surprisingly, big names like IBM, Infosys, TCS and Blackstone, which were in the race for the BPO firm, have fallen by the wayside, citing expensive valuations. The fight is now between half a dozen suitors comprising Genpact, First Source, WNS, 3i and a couple of private equity investors. Citigroup's BPO arm was recently put on the block and is likely to be valued around $1.2 billion. "The multiples are going to be pretty high here.

That means the buyers require to cough up anything up to $1.2 billion. Third party BPO firms in India are yet to have such deep pockets. Again, sinking large chunks of money upfront on a non-core cause may not be the right option for domestic IT services providers. That clearly leaves the game with big boys like IBM and monied PE guys who are willing to wait for ROI and capable of taking risk,'' says Pari Natarajan, CEO, Zinnov, a Silicon Valley-based offshore research and consulting firm.
For Genpact, the former captive unit of GE, this acquisition would reaffirm its leadership position in the country, while for WNS, acquiring Citigroup Global would give it a presence in the financial services sector. WNS, a legal service and financial services company, has made a few unsuccessful attempts to add financial services to its portfolio and is looking to make a splash by bagging this deal.First Source, on the other hand, is already a specialised player in the banking and insurance sector and the addition of the Citigroup's captive unit will bring them practices that banks usually don't outsource to third party players.

Blackstone Flag to Fly in Philippines

A Reuters news story in the NYTimes website says Blackstone Group has bought Intelenet Global Services of India, teaming up with its management in an 80-20 venture. The buyout price was in the region of $200 million.

This marks the first foray in the industry for Blackstone. And such big boys with deep pockets don't usually stop at one deal. Rollup strategy, anyone?

The British bank Barclays and an Indian mortgage firm, the Housing Development Finance Corporation, said separately that they each were selling their holdings in Intelenet, without disclosing the price.

Intelenet plans to expand its operations in Britain and begin services out of the Philippines and Mauritius, said its chief executive, Susir Kumar.

If Citi Can Do It, So Can HSBC

HSBC , according to this press report, will add a few thousand more jobs in the Philippines to serve its US and UK customers. As more and more financial bigwigs such as AIG and Citibank cluster their in-house operations in the Philippines, you can say the Philippines is becoming the center of backroom operations -- the contradictory terms intended.

...the visiting bank official said HSBC is committed to the country in terms of expanding its banking services and its support group by increasing its Business
Processing Outsourcing (BPO) operations.
A third BPO is scheduled to open this coming year, which will increase the total employees of the bank on a consolidated basis to roughly 11,000, disclosed HSBC Philippines Chief Executive Officer Mark Watkinson. Specifically, its banking operations employs a total of 2,500 and 5,500 for BPOs.
At present, the bank has a couple of BPOs, one in Ayala-Alabang and another in PBCom Tower at the heart of the Central Makati Business District. These two service HSBC’s clients in the United States and United Kingdom.
It was explained the Philippines has an edge to service the bank’s US and UK customer base because of the natural talent of locals to speak English as a second language.

WaMu Chooses Cebu

Washington Mutual (stock symbol: WM) is putting in a captive operation in Cebu, the Philippines' second-largest metropolitan area.

Joel Mari Yu, Cebu Investment Promotions Center managing director, announced the entry of Washington Mutual Inc., one of US’ leading retailers of financial services catering to consumers and small business banks. He said WaMu will be among the locators of a 12-story building that will be constructed in the Asiatown IT Park (AITP).

While WaMu's entry into the Philippines will mean an addition of 1,500 jobs to the country's burgeoning BPO industry, what happens to PeopleSupport?

Coming Soon: Bosses from Bangalore

When your backyard is crowded, you need to go someplace else. The success of India in making the awkward term BPO an acronym we now all know has led to homegrown problems. While India sorts it out, in the meantime the greener pasture is the Philippines. Competition for Manila's best workers who can speak straight English with an American accent is intensifying, though the labor surplus in the Philippines is still large, so the runaway bidding for qualified workers isn't there -- yet.

Expect a few announcements from major BPO players within the year, according to India's Financial Express.

The wheel has come a full circle for the Indian business process outsourcing (BPO) sector with runaway wage inflation driving the who’s who in the domestic BPO world to look for low cost destinations such as the Philippines to scale up operations.
Leading the pack is the Infosys BPO, which has already set up shop in the Philippines in association with a local partner. The company is said to be planning to ramp up its presence there through an acquisition or floating a new facility. Other BPO players such as HTMT, IBM Daksh and GenPact are also ramping up their Philippines operations, industry watchers say.
“The challenge is real. For a tier-II player who needs to grow to graduate to tier-I, Philippines are an extremely attractive base to expand into. In 2007, we expect four to five deals involving large Indian players who are moving to that country,” he said, adding, “most of the investments there would be towards setting up support operations for primary facilities based in India.” Many BPOs are eyeing tier-II locations outside Manila and Makati in the Philippines to set up disaster recovery centres for Indian facilities, sources said.

One Citi's Loss is Another's Gain

Citibank, the financial colossus with 327,000 employees scattered around the world, says it will eliminate 17,000 jobs and move 9,500 to lower-cost countries.

Citibank's Philippine operations (4,100 employees) already does the accounting backroom for the bank titan's Asian operations. What will Manila gain at the expense of New York? Here's how many Citibank employees in the Big Apple will get pink slips, according to the NYTimes:

Some of the biggest body blows in the cost-cutting effort will be felt in New York, where Citigroup is the largest private employer. About 1,600 jobs will be eliminated in the city, where Citigroup has 27,000 employees and its headquarters.

An additional 200 jobs will be lost in New York State, about 75 jobs will be cut in Connecticut, and a handful will be shed in New Jersey. The first pink slips have already been handed out.

Over all, roughly 8 percent of Citigroup’s 327,000 workers worldwide, from entry-level consumer bankers to senior executives in the investment bank, will be affected.

This from Citibank Philippines:

Citigroup Business Process Solutions provides BPO, Call Center and other IT and IT-enabled services to various Citigroup consumer group operations around the region supporting 3 key domains: Citiphone Banking, Credit Operations and Transaction Services.

In addition, three regional operations are located in the Philippines: Citigroup Business Services, the global financial and management reporting center and global payment services center supporting over 60 countries in Asia, Europe, Middle East and Africa; Citigroup Information Technology and Infrastructure Philippines; and a satellite office of the Asia Pacific Banking Institute.

Singapore vs Philippines

Sometimes, you can compare the housing markets and the level of sophistication of the banking industry by the products they offer.

If you are a Singapore office worker, you can borrow for a home loan, and you'll know what the interest rate will be for two years. Beyond that, you wouldn't know for certain, because the loan becomes variable. If you are an office worker in the Philippines, you could fix the interest rates that you will pay on your home loan for the next 25 years.

In Singapore, OCBC offers the following package fixed-rate loan:

Year 1 3.75% p.a. (fixed)
Year 2 4.00% p.a. (fixed)
Thereafter VALUE RATE Less 0.75% (variable)


In Philippines, BDO offers these rates:

9.00% fixed for 1 year
9.25% fixed for 2 years
9.75% fixed for 3 years
9.95% fixed for 4 to 5 years
11.00% fixed for 10 years
11.50% fixed for 15 and 25 years

Of course, anyone would rather borrow at 3.75% than at 11%. But having a First World economy does not always mean you are ahead of everyone.