1. thecorporatetreasurer.com2 corporate treasurer October / november 2015
Asean
champions
As the Asean Economic Community’s formation draws near, The Corporate Treasurer
asked some of the region’s leading financial lights for their views on its potential.
By Ann Shi

2. thecorporatetreasurer.com October / november 2015 corporate treasurer 3
AseanChampions
I
t has been a year since we last
spoke to the region’s highest-
profile treasurers about their
outlook on the Association
of Southeast Asian Nations
(Asean). They were keen to talk up
the opportunities the bloc offers, but
as the December deadline looms over
the creation of the Asean Economic
Community (AEC), the tone seems to be
more measured as the theory now turns
to practice.
The Corporate Treasurer spoke recently
with Mohamad bin Derwish, treasurer
at Malaysia’s national telecom champion
Telekom Malaysia (TM), about the
company’s domestic growth strategy
and the difficulty of obtaining business
licences abroad.
We also spoke to Jose Teodoro K.
Limcaoco, managing director and
treasurer at the Philippines’ oldest
conglomerate Ayala, about the overseas
ventures it made this spring.
Wan Chun Shong, group treasurer
of Tan Chong Group, outlined the
conglomerate’s expansion strategy
with a special view on Cambodia, Laos,
Myanmar, and Vietnam, while Fuad Rizal,
treasurer at Garuda, talked about the risks
of an “open skies” policy.
We also got the views of PTTEP’s CFO
Penchun Jarikasem on the need for a more
cohesive energy policy, and her fears that
most small companies have little idea
about what the AEC will mean for them. n

3. thecorporatetreasurer.com4 corporate treasurer October / november 2015
Telekom Malaysia: Talking to the 600 million
Since the 2008 demerger of its mobile
and international operations arm, TM
International, which later changed its
name to Axiata, TM has focused its
attention on its core fixed-line telecom
business.
“Over 90% of TM’s revenue streams
[now] come from the domestic market,”
said Mohamad bin Derwish, TM’s
treasurer and general manager of
corporate finance, who added that
despite what the free-trade potential the
AEC might offer, home is where the
major focus will stay.
That is not to say TM has no ambitions
to go regional, or even beyond. As Dervish
sees it, the long-awaited AEC provides an
opportunity to access a market of more
than 600 million consumers.
The company has signed
agreements with Thailand’s Symphony
Communication and Cambodia’s Telcotech
to install a 1,300km-long submarine cable
system. Once finished, the system will link
up the three countries, with further access
to Laos, Myanmar and Vietnam through
terrestrial links.
The system is expected to be ready for
commercial services by the end of 2016.
And in March 2014, TM partnered with
regional and global telecom players for
laying a cable system that connects Asia,
Africa and Europe.
Even though Asean countries are
becoming more integrated, barriers
remain for companies looking to grow
regionally. The willingness of other
nations to grant telecom licences to
outsiders is an issue. Every country has
different regulations on telecom entry and
services, but greater connectivity across
the region should be on the AEC’s agenda,
Derwish said.
“I hold an open heart to expand into
other countries in the region, but first, I
need to see how opened-up they can be.”
Sound of silence
For now, with most of its business in
Malaysia, it makes sense that TM’s
treasury management is centralised at
its headquarters in Kuala Lumpur, said
Derwish.
This means TM can have group-level
visibility on the use of funds, flow of
receivables and payments across different
operations in the group, he added.
Derwish is also “holding an open heart”
to the Malaysia government, it seems.
Despite its treasury location, TM has not
applied for government tax incentives for
operating a treasury centre in Malaysia –
the rules for eligibility are heavily skewed
to foreign corporates.
According to Derwish, one of the
conditions for the treasury management
centre’s (TMC) tax benefits is having at
least 80% of the TMC’s revenue generated
from offshore markets. This is geared to
encourage foreign multinationals to set up
their TMCs in Malaysia.
Initiated three years ago, the licence
offers a 70% tax exemption on income
from treasury activities such as realised
FX gains; no withholding taxes on
interest payments on borrowings by
TMCs; and full exemptions from stamp
duty on all the loans executed by TMCs.
“We are talking to the government
now [about] broader TMCs tax incentives
[for companies whose revenue mainly
relies on domestic market] to attract
more applications,” said Derwish.

4. thecorporatetreasurer.com October / november 2015 corporate treasurer 5
AseanChampions
At Ayala’s annual stockholders’ meeting
in April, its chairman, Jaime Augusto
Zobel de Ayala, said the group is strongly
interested in investment opportunities
in Asean. His younger brother Fernando
Zobel de Ayala added that some business
expansion efforts by group companies in
Asean have made much progress already.
The 181-year-old conglomerate, with
core interests in real estate, telecoms,
utilities and banking, has hiked its capital
expenditure to around P185 billion ($4.15
billion) for this year, up from P160 billion
in 2014. A significant portion is likely to
go to Southeast Asia. At present, overseas
businesses only account for around 10% of
Ayala’s revenue, according to Fernando.
Its real estate arm, Ayala Land, acquired
Tan Chong’s
ride into the
Asean
Building Ayala’s Empire
An integrated market with great growth
potential and a large population base will
appeal to most chief executives, especially
those highly reliant on sales volume. The
automotive industry is a case in point.
The low car ownership rate across
Asean, coupled with the region’s
increasing purchasing power constitutes a
natural growth engine, according to a June
report by consulting firm Frost & Sullivan,
which predicts Asean’s automotive sales
will grow to 4.5 million units in 2020,
from 3.5 million in 2013. Tan Chong Motor
Holdings (Tan Chong), one of the oldest
listed automotive companies in Malaysia,
is priming itself to take advantage.
“[AEC] envisages offering ‘a single
market and production base’ that enables
economies of scale and phased-out tariffs.
The landscape is conducive for auto
players to produce a specific model in
one country and distribute it throughout
Asean, to achieve higher productivity and
cost efficiency,” said Wan Chun Shong, Tan
Chong’s group treasurer.
The auto company is betting on
Cambodia, Laos, Myanmar and Vietnam
(CLMV), to yield the best returns. Wan
told The Corporate Treasurer that total
industry volume (TIV), an indicator for the
sales of new motor vehicles, typically soars
when GDP per capita hits $3,000.
GDP per capita in the CLMV lags far
behind the $4,300 of the Philippines, the
poorest member of the six major Asean
countries. Myanmar and Cambodia had
around $1,600 and $2,300 respectively
in 2012, according to the International
Monetary Fund.
“[Among the CLMV], Vietnam shows
the greatest potential, as its GDP per
capita is expected to reach $3,000 in
2018, and as its motorcycle owners look to
upgrade to entry-level cars,” said Wan.
The group identifies three key
development phases in the CLMV:
Adaptation (market entry) until 2015;
stabilisation in 2016 and 2017; and growth
from 2018 onwards. In each country, Tan
Chong aims to grab a minimum of 5% TIV
when a new venture stabilises.
To establish first-mover advantage,
Tan Chong built its first overseas vehicle
assembly plant in Da Nang, Vietnam in
June 2010, establishing a strategic foothold
in the country and access to the local
market. The plant rolled out its first Nissan
Sunny model in June 2013.
As Myanmar opens its doors to foreign
investors after years of isolation, Wan
believes it can be the next growth driver
for the region. Putting its money where
its mouth is, Tan Chong will soon set up
an assembly plant in the Bago region, 50
miles north-east of Yangon.
The company plans to take a
“conglomerate approach” to venturing
offshore. With interests in heavy
machinery, cosmetics, undergarments and
tourism, after it establishes a foot in the
door with its motor offerings, the other
business divisions will march in.
Go-slow implementation
The vision is smooth, but reality tends to
deliver a bumpier ride. Issues, including
cultural differences, entry barriers and
financial incompetence, constitute an
obstacle. Each country has “unique
constraints”, said Wan.
For example, Laos and Cambodia
still adopt docket prices for vehicle
importation, instead of the actual invoice
price. This creates inconsistency – tax is
lower based on docket price and higher on
invoice price.
Malaysia’s approval permit, an import
licence designed to protect the local car
industry from parallel importers, places
a non-tariff barrier to cross-border trade;
and almost every other Asean member
has its own version as well. In the auto
industry, a separate licence for each
new brand a company intends to trade,
produce, or distribute, is required.
Myanmar has a business law on
equity requirement that restricts trading
business. And “you can’t make US dollar
payments in Myanmar as the country is
under US sanctions”, Wan added.
“Conglomerates will not enjoy the real
benefits of AEC unless [all] the Asean
members are ready to [fully] liberalise
their markets. Until then, set realistic
expectations and remain resilient.”

5. thecorporatetreasurer.com6 corporate treasurer October / november 2015
a roughly 9% stake of $43 million in
Malaysia’s MCT Consortium in April,
followed by call-option agreements with
two MCT shareholders in May to increase
the stake to around 33%. In Myanmar, the
developer is talking to the country’s major
retailer City Mart for a residential JV.
Its water distribution division Manila
Water, which also operates projects in
Vietnam and Myanmar, is now eyeing
franchises in Indonesia and elsewhere,
according to its CEO Gerardo Ablaza.
Another two major businesses of Ayala,
Globe Telecom and Bank of the Philippine
Islands, are looking to launch mobile-
banking services for low-income families
he said. “When conglomerates consider
their Asean ambitions, they should ask
themselves how easy it is to alter their
banking relationships.”
Limcaoco noted the regulators are
putting together an Asean banking
integration framework, which is expected
to allow a licenced bank in one country
to also operate in another Asean member
country. “It will be exciting if [well-
designed and] fully implemented,” he said.
Labour mobility is another important
factor, Limcaoco added. He believes a
true AEC should mean that a professional
with a given licence can practice in other
countries in the region.
PTTEP: Fuel growth with centralisation
Asean does not have enough energy
resources to support its growth – eight
out of 10 Asean countries are highly
dependent on imported oil. Thailand’s
petroleum giant PTT Exploration and
Production (PTTEP) sees this as an
opportunity to tackle a big market gap.
PTTEP has been investing in Myanmar
for more than two decades. To date,
PTTEP has eight E&P projects in
Myanmar, one fifth of its 40 projects in 11
countries internationally, which include
five in Indonesia and Vietnam.
In the first six months of this year,
Asean contributed 93% of PTTEP’s total
average sales volume, or 20% excluding
Thailand.
Add low oil prices, these figures could
get bigger, as the petroleum group has
a $3 billion cash war chest, of which a
significant portion is primed for new
investment in Southeast Asia.
“We would be looking at acquisitions,
with a primary focus on producing or
near-to-production assets in Southeast
Asia,” said PTTEP’s CFO Penchun
Jarikasem.
On this front, Jarikasem believes
centralisation is the key to supporting
its growth. Increasing the company’s
treasury management efficiency,
improving yield by being the single
point of investment, and gaining
greater bargaining power with financial
institutions, are all part of the plan.
The company decided in mid-2013 to
utilise a treasury centre to concentrate
liquidity and cash as the first step in
2014.
With two cash pools – one in US
dollars and the other in Thai baht,
containing between $700 million and
$3 billion, depending on operating cash
flow projection – and a Thailand-based
treasury centre in operation since 2014, it
has implemented an intra-group liquidity
structure through automated inter-
company cash pooling and sweeping.
PTTEP’s treasury team estimates the
structure has saved the group about
$300 million overall minimum working
capital requirement on a daily basis, as
multiple accounts are pooled together to
increase liquidity and free up idle cash.
Jarikasem is generally positive about
the opportunities AEC can bring to a
company like PTTEP, but “time is the key
challenge”.
AEC IGNORANCE
The AEC will “make our investments
in the region more flexible through
improvements in logistics, transport
facilitation, as well as free flow of
labour”, she said.
But not everyone appears to know
this. Jarikasem cited a recent report
from Asian Development Bank, which
claims that less than one-fifth of
Asean businesses are ready for the
transition to the AEC, highlighting a
lack of awareness and understanding –
especially among SMEs – of what the
AEC really entails.
Unsurprisingly, PTTEP would like to
see a more coherent policy on the region’s
energy supply chain and a regional
energy security plan that promotes
the investment and trade of energy
resources, given the region’s shortness
in energy. On this front, Jarikasem is
hoping the two key initiatives targeting
the region’s energy supply chain – Trans-
Asean Gas Pipeline (TAGP) and Asean
Power Grid (APG), which were mandated
back in 1997 – can deliver progress on
building up energy interconnections in
the region.
To date, six of the 16 planned APG
interconnections have been built, with
3,489MW power purchase achieved.
Similarly, the TAGP has commissioned
a total of 12 bilateral gas pipeline
interconnections projects, with a total
length of 3,377km.
in the region, especially in Myanmar.
Cross-border banking
While there has been a lot talk about the
2015 deadline as a watershed, Asean “has
been quite open for many years in terms
of trade”, Ayala’s managing director and
treasurer, Jose Teodoro K. Limcaoco, told
The Corporate Treasurer.
People have a greater awareness of the
development of inter-Asean trade but
Limcaoco thinks the governments should
be focusing on liberating “the regulated
businesses” rather than “the pure trade”.
The regulated businesses, such as
banking or insurance, have real potential,

6. thecorporatetreasurer.com October / november 2015 corporate treasurer 7
AseanChampions
Garuda flies to the ‘Asean Open Skies’
Earlier this year Garuda Indonesia’s
CEO, Arif Wibowo, publicly stated his
opposition to full liberalisation of air
services markets in Asean. He said it
would create an “un-level playing field” as
foreign carriers serving Indonesia clearly
have significantly more to gain, with
Indonesia being the biggest airline market
in Southeast Asia.
He was referring to the Asean Open
Skies policy, a scheme to bring about
greater regional connectivity between
aviation markets. It came into effect in
January 2015 and is scheduled to be fully
implemented by this year end as part of an
AEC initiative.
Also speaking as chairman of
the Indonesia National Air Carriers
Association, Wibowo said Indonesia’s tax
regime, airport inefficiencies and high
fuel costs would make local airlines less
competitive than their Southeast Asian
counterparts, especially those from
Singapore, Malaysia and Thailand.
But despite opposition, Indonesia’s
national flag carrier has decided to fly
into the “open skies”, however fierce the
competition will be. Its low-cost arm
Citilink is applying for permits to operate
more international flights bound for other
Asean countries, according to Wibowo.
“The AEC
will make our
investments in
the region more
flexible through
improvements
in logistics,
transport
facilitation, as
well as free flow
of labour”
The Corporate Treasurer spoke to Fuad
Rizal, treasurer at Garuda, who said: “The
Asean region is now the top priority” in
terms of offshore flights. Approximately
20% of Garuda’s revenue comes from
overseas operations, of which up to 80% is
from Asean (excluding Indonesia).
For the planned AEC, Rizal views the
initiative to waive entry visa requirements
for travellers among the 10 nations as
positive for its revenue growth prospects.
“Applying for a visa is a cost,” Rizal
said. If all Asean countries drop visa
requirements, it would stimulate tourism
between Asean members.
He added the carrier currently operates
direct flights to Thailand, Malaysia and
Singapore, in addition to code-shares with
Vietnam Airlines, Philippines Airlines,
Myanmar Airways International, and
Royal Brunei Airlines.
This footprint makes sense, as the
most profitable sector for Garuda lies in
business travel. People are more likely to
go to Singapore and Malaysia for business,
and Vietnam, and the Philippines for
leisure.
In a defence of its heartland, Garuda
intends to increase international
destinations from 25 in 2015 to 27 in
2016. It also plans to increase its domestic
destinations from 65 in 2015 to 73 in 2016.