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Philippine Tycoon’s Empire Debt in Focus After Default Scare
(Bloomberg) -- A dispute over a mere $4 million debt payment involving a Philippine conglomerate is flagging broader concerns about the group’s rapid borrowing in recent years, just as growing threats to the global economy prompt rising risks of nonpayment.
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Dennis Uy, an oil trader from the southern city of Davao who counts former president Rodrigo Duterte as a family friend, built a business empire spanning oil, shipping, casinos and telecommunications. That rapid expansion was financed by borrowing that’s now in the spotlight.
A unit of his holding company Udenna Corp. got served with a default notice last week from banks as a $4 million liability was due to the airport authority in Clark, northwest of Manila. The authority owns land that Uy is developing as a business district under a long-term lease.
While Udenna said Monday that the matter had been settled, warning lights are flashing and highlight broader risks in the country. The Philippines remains one of Asia’s fastest growing economies, but the quickest inflation since 2018, rising interest rates and a weaker currency are threatening its pandemic recovery.
A measure of bankruptcy risk, known as the Altman-Z score, for three companies owned by the businessman shows greater risks than the average for the MSCI Philippines Index, which is already the worst in Southeast Asia, according to data compiled by Bloomberg.
Telecommunications company Dito CME Holdings Corp. has a -0.94 reading, compared with the average of 2.15 for companies in the MSCI Philippine Index. A score of 1.8 or below indicates bankruptcy risk and a number above 3 suggests sound footing. Shipping firm Chelsea Logistics & Infrastructure Holdings Corp. is at -0.52 and casino venture PH Resorts Group Holdings Inc. at -0.35. Phoenix Petroleum Philippines Inc. is the strongest at 1.87.
“While it’s good to know that the matter of the default notice has been resolved, it is too early to say that Uy’s already over the hump,” Astro del Castillo, managing director at First Grade Finance Inc. “The question over his debt will put off some investors as it will take time to be resolved and it’s getting addressed at a time of economic uncertainty. There could be others in the same boat since the business environment has turned sour but for now he’s at the center.”
Uy hails from Davao del Sur, the same province in the southern island of Mindanao as the former president, and was a donor to the leader’s campaign. He kicked off a deal spree following Duterte’s election in 2016, buying a stake in logistics company 2GO Group Inc. and consolidating his shipping business into Chelsea Logistics.
Uy said in an interview with Bloomberg in 2017 that “we’re aggressive in expanding our businesses because we believe in the president’s economic agenda,” as Duterte embarked on a large-scale infrastructure plan.
With that rapid growth came a mushrooming of debt. Udenna and its units saw their liabilities more than double over a three-year period and amounted to 254 billion pesos ($4.6 billion) at the end of 2020, according to the latest available filings. There are numerous corporate groups in the Philippines with bigger debt loads, with the figure putting Udenna only within the top 20 of listed firms’ liabilities that year. But the pace of expansion in obligations in Uy’s empire has stirred concerns.
Calls to Udenna spokesman Leo Venezuela went unanswered and there was no immediate reply to emailed questions about the group’s financial situation. A call to Udenna President Marty Escalona went unanswered and there was no immediate reply to a message.
In the default notice that Udenna received on July 22 against its affiliate, Clark Global City Corp., banks led by BDO Unibank Inc., the Philippines’ biggest lender, said the firm had failed to pay $4 million in debt related to the airport lease agreement.
In its statement on Monday, Udenna said that the matter was settled “to the satisfaction of the majority lender and the consortium banks.”
Creditors to Udenna and its units have included BDO, China Banking Corp., Philippine National Bank and Bank of China, as well as state lenders Land Bank of the Philippines and Development Bank of the Philippines, according to annual reports from Uy’s companies.
The Philippine banking system is “quite strong whatever happens,” central bank Governor Felipe Medalla said on Tuesday when asked about the Udenna default notice. “There are many creditors. The point is, there are rules and those rules are best followed by everyone.”
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