Mabuhay Holdings Corporation
President’s Report – 2013

Welcome to our Annual General Meeting!

In the past years, before I reported on the general situation of our company, I always shared with you a brief outlook of the world economy as well as that of the Philippines. As you may recall, I had painted a gloomy picture of the world economy but predicted a satisfactory economic performance in our own country for the past few consecutive years. We had proved to be accurate in our analysis and predictions. It seems that I still have to repeat the same story line this year.

The economic situation throughout the world appears to be improving, but in reality, the underlying conditions are still not good. The most significant sources for fueling the world economic growth, or what we call “the engines of the international economic train”, namely, the United States of America, the European Union and Japan, are still in deep trouble. In recent years, the Western world looks up to China as the savior of the world economy. But now, China is also facing a lot of problems of her own.

We do not hear too much bad news from Europe recently, but all of us know that the crisis there is still far from being over. Greece, Portugal, Ireland, Spain, Cyprus and many other European countries, including those in the Eastern European bloc, are confronting different kinds of economic and social problems. Being the big brothers in the European community, Germany and France are trying to help their poor neighbors in order to avoid a debacle of the Euro zone alliance. Under these circumstances, we cannot expect Europe to do much to boost the economic growth of the other parts of the world.

US economy is also far far from recovery. The US government appears to be helpless in solving its budget deficit and the country is heavily indebted. When I reported to you last October, I mentioned that the national debt of the United States government stood at close to 16 trillion US dollars, but now, the figure has jumped up by more than one trillion dollars in less than a year, and the amount is still growing by 3.5 Billion dollars every day. Aside from printing money and devaluing its currency, the American government does not seem to have a solution for its serious debt problem. Under the present situation, we also cannot expect the US to contribute much to the recovery of the world economy.

In the past few years, the United States government used the so-called Quantitative Easing policy, or QE, to address its financial problems. The Federal Reserve kept on printing new money and pumped funds into the financial system with the attempt to stimulate economic activities and to bring down the unemployment rate. But we know that over printing of money will seriously affect the credibility of the US currency. Since the US economy appears to be healthier in the last few months, Chairman Ben Bernanke of US Fed Fund announced recently that the size of QE3 will be reduced starting next month. We have seen that with this announcement, the property and stock markets in the US started a downward movement. But worse, this intended policy also resulted in the withdrawal of the so-called hot money from the emerging markets, triggering serious stock market plunge and currency devaluation in most Asian countries. We have to be very careful since signs similar to the situation before the 2008 Asian financial crisis are reappearing again.

Japan is facing serious problems also. Prime Minister Abe announced recently that the Japanese economy improved tremendously after he took over the leadership. It appears so, but Abe actually improves the Japanese economy just by printing more new bills and engineering for the Japanese Yen to depreciate drastically in order to make Japan competitive internationally. In reality, Abe is only trying to solve the immediate problems at the cost of future generations. The Japanese national debt has exceeded more than one quadrillion Yen, or roughly 10.5 trillion US dollars. This amounts to 247 % of the Japanese GDP, so far the highest debt to GDP ratio among all the developed countries. The only comfort is that 90% of Japan’s national debt is financed by local borrowing and therefore a default is unlikely. However, the Japanese government has to address to this situation and the only way is to impose new taxes, which may trigger social unrest. In view of its own domestic problems, we should not expect the Japanese to give substantial assistance to bring about the economic development of the poorer countries in the near future.

As I said, the western world hopes that China will play the role of a savior in this international economic crisis. But China is now facing the serious problem of inflation, just like India, Brazil, Russia and the other emerging countries. The Chinese economic growth is very much dependent on its export business. With the slowdown of the economic growth in US, Europe and Japan, the Chinese export sector is serious affected. China used to have double digit GDP growth for many years, but this growth rate has dropped to 7% in recent months. All economists are of the opinion that China should emphasize on domestic consumption to continue its bullish economic growth. But we know that China has a very polarized society. Not many people in China can classify themselves as from the middle class, people are either very rich or very poor. The poor people do not have the consuming power while the rich all go abroad and consume outside of the country. It is very difficult for China to boost its domestic consuming market. At the same time, China is also facing problems such as the property bubble and other issues leading to social unrest. It seems China has to solve her own domestic problems before rescuing the world economy.

Similar to the previous years, I am happy to present to you a bright picture of the Philippine economy. Our GDP growth for the first quarter of 2013 was 7.5%, the highest in Asia, even higher than that of China. For the first time in many decades, our country is now accorded by the major rating companies in the world with an investment rating. However, as I mentioned earlier, another Asian financial crisis appears to be in the making, our fiscal and economic policy makers have to be alert and extremely cautious these days.

Undoubtedly, Business Process Outsourcing and the Overseas Filipino Workers are the two important factors contributing immensely to the stability and growth of our economy. Nevertheless, as concerned citizens, we really hope that the Philippine government will soon transform our economic structure in such a way that we do not have to depend on BPO and the OFW’s too heavily. As I mentioned in my previous reports, people who are working in the Call Centers have a reversed time schedule of work since most Call Centers are servicing the American and European countries where the time zones are different from ours. The nature of work also gives the Call Center staff lots of tension and psychological pressure. It is indeed a health hazard for the young people to work under such conditions in the long run. As for the OFW’s, they are the real heroes who contribute so much to our economy. But with them working overseas, social problems arise. Many families end up broken. A lot of children with parents working abroad become problematic youth. We hope that eventually our very own economy will be able to provide enough job opportunities for our compatriots to work locally.

I have emphasized in my previous reports that our government should seriously promote the tourism industry. This so-called “industry without chimneys” can generate huge foreign exchange and create jobs for our people. According to the statistics of the United Nations Tourism Organization, in the year 2012, Malaysia had more than 25 million foreign visitors, Thailand had 22.35 million, Singapore had around 15 million visitors and more than 8 million for Indonesia. Foreigners visited the Philippines last year numbered only 4.2 million, although a big increase from the previous year already, we were still far behind our ASEAN neighbors. Even the newly opened socialist country of Vietnam outnumbered us with 6.85 million tourists. We have all the conditions and qualities to become a tourist heaven. We only have to improve the infrastructures and get serious in our efforts to make people around the world realize that it is more fun in the Philippines.

We are happy to see that our national government is now working towards this direction. Our Foreign Affairs Department recently announced that people from 151 countries and regions can visit the Philippines for 30 days without a visa. That will certainly help in promoting our tourism industry. Unfortunately, China and Taiwan are excluded from the visa free treatment and I think this is a wrong decision. The UN report reveals that in 2012, China topped the world in tourist spending with the amount of US$ 102 billion, followed by Germany with 83.8 billion, USA with 83.5 billion, UK with 52.3 billion and Russia with 42.8 billion. The big spending of the Chinese tourists is so well known that signature shops in Paris, London, New York all hire Chinese speaking shopkeepers to serve them. Milan city government printed leaflets in Chinese language to accommodate the increasing number of tourists from China mainland. Kuala Lumpur airport even install signs in Chinese characters. Why are we rejecting these big time spenders? The rationale given by our officials is that some Chinese tourists are overstaying and some Taiwanese tourists involve in website crimes. We cannot deny that among tourists, there are some bad elements. We should task our law enforcement units to run after these unscrupulous persons rather than setting barriers to block their nationals from entering our country.

Let me go to Mabuhay Holdings Corporation now. Over the last year, we continued to exert efforts to nurture our subsidiary, IRC Properties, Inc. IRC has almost completed Phase I of Sunshine Fiesta Subdivision, a low cost housing project in Binangonan, Rizal. We have now started another project in that area, named Fiesta Casitas. Pag-Ibig has granted a development loan for IRC to start this project. IRC is in the final stage of negotiations for the sale of a piece of land to a leading property developer in our country. The sale of land is just the first step, it will be followed by possible joint ventures with this group. By early next month, IRC will also close a deal for the sale of another piece of land to a group of developers with Chinese background. This group has valuable experience and enjoys excellent prestige in real estate development in China. The entrance of this group will definitely make the IRC community in Binangonan more colorful. IRC is also in the process of negotiating with two foreign groups for a possible JV to develop a piece of land inside the Eastridge Golf Course, right in between the golf clubhouse and the Thunderbird Casino Hotel. More projects will be coming on their way for IRC.

I believe that you have noticed the share price of IRC had been rising in the past months, from around 60 centavos last year to over 1.70 recently. Investors in the stock market realize the value of this company. Mabuhay will definitely benefit immensely from the appreciation of the IRC shares since we own around 40% of this company. We can therefore draw the conclusion that the future of Mabuhay is very bright.

One of the affiliated companies of Mabuhay owns a valuable property in Tagaytay, but unfortunately it is infested with squatters. We had won a court case to eject these illegal settlers more than 10 years ago, but there are still legal hindrances delaying the execution of the court order. I am happy to inform you that finally, we will solve this problem satisfactorily within the next month.

Mabuhay extended quite a lot of advances to finance its subsidiaries, including IRC, and because of that, we borrowed loans from foreign creditors. We are now in the process of liquidating some assets to reduce the amount of our payables.

The management of Mabuhay Holdings Corporation will diligently monitor the changing conditions in the domestic and international business communities. We will continue to explore opportunities for the growth of our company.

Again, I want to reiterate our gratitude and appreciation for the continued support and trust that you have given to the management. Let us look forward to a better tomorrow for Mabuhay. Thank you.




Esteban G. Peña Sy
President
August 30, 2013