RAISING CAPITAL- SPECIAL COMMENDATION
Delfin Gonzalez - Globe Telecom
By Abe De Ramos

As CFO of Philippine cellular firm Globe Telecom, Delfin Gonzalez has a tough act to follow. His predecessor, Gil Genio, is a corporate finance whiz whose string of equity and junk bond issues breezed through the worst political and stock market scandals the country has seen. However, it looks like Genio's successor is going to give him a run for his money.

In just a year since his appointment, Gonzalez, who was briefly CFO of San Miguel, the Philippines' largest private enterprise, has earned a reputation as an aggressive fundraiser who can tap various sources while deftly balancing capital structure. Globe's debt-to-equity ratio now stands beautifully at one-to-one. Ratings agency Standard & Poor's (S&P) affirmed Globe's stability by raising its credit rating twice last year, a rare feat globally, while the Philippine Stock Exchange elevated Globe in its 30-company index. This has earned him a Special Commendation for Raising Capital in this year's Best Practices Awards.

The reason for these changes is simple: demand for mobile phone services in the Philippines is insatiable, and Globe is being rewarded with market share and profits because it hasn't disappointed customers by rolling out expensive network infrastructure year after year. This has been possible because Gonzalez has succeeded in convincing shareholders and local and international lenders to buy into his story.

This year Gonzalez will raise US$258 million for network outlay. That should be easy considering he raised US$751 million in less than six months last year, a hostile year for a junk-rated telco in an economic basket-case country. Given his limited choices, Gonzalez opted for project financing for a chunk of his borrowing. The maturity was shorter than the bond market could offer, but Gonzales got his money cheap. "We decided not to go for aggressive terms, but for one that gave us a lot of confidence that the funding would be obtained," says the Harvard graduate. "This type of financing tends to be cheaper than bonds, but the average life is also lower," he says.

That is hardly a trade-off given Globe's strong cashflow. The smart thing Globe and Citibank did was to arrange the financing with the right people and structure. Globe uses the equipment of Finnish telecom giant Nokia for its core network, and leveraged Nokia's trust to obtain credit from Finnvera, a Finnish export credit agency. Because Finnvera has prior exposure to Globe, Citibank arranged a reinsurance of the existing exposure, equal to 85 percent commercial risk coverage. To minimize currency risk, Gonzalez added a peso component in his funding scheme, and supplemented it with currency swaps.

Diversifying funding sources is a daunting challenge for a CFO, so Gonzales keeps constant watch of his cost of capital. "Telecommunications is a capital-intensive business; we have to put significant capital up front for returns over a long period of time," says Gonzales. "We try to manage our ability to service debt by making sure we have adequate levels of equity." For that, he can count on his shareholders. SingTel, Deutsche Telekom and Ayala together injected US$68 million last year and committed another US$155 million.

Gonzalez knows that the fulfillment of these commitments will tip Globe's capital structure towards equity, and slightly increase his cost of capital. "In this volatile environment we need to take a more conservative stance so we can proceed with our expansion program with financing flexibility," says Gonzales. "The market isn't going to wait for us," he says.

Nonetheless, Gonzales is already eyeing the international bond markets for his US$258 million capital requirement this year. With improved economic outlook globally - and a sustained addiction of Filipinos to mobile phones - Gonzalez should continue to make his mark.