WSJ: Profile of Philippines' Tobacco Tycoon

[Robert Weissman <rob@essential.org>]

Reclusive Philippine Tycoon Becomes A More Public Figure After PAL Crisis
by JAMES HOOKWAY Staff Reporter of THE WALL STREET JOURNAL
Source: The Wall Street Journal Interactive Edition, Tuesday, 9/7/99

MANILA, Philippines -- Early last month, reclusive tycoon Lucio Tan
accepted a potentially risky dinner invitation: to be a guest of honor at
the 95th anniversary bash of the Philippine Bureau of Internal Revenue.

No, it wasn't the Philippine government's latest ruse to snare a man once
alleged to be the country's biggest tax evader. It was just another sign
that Mr. Tan now feels it's safe to step out of the shadows he's long
inhabited.

His close friend Joseph Estrada is now president, and has pledged his
businessman buddy that he won't be singled out for tax probes under his
administration. Mr. Tan always denied he evaded taxes and the
25-billion-peso (about $625,000) case against him was thrown out in July
after simmering through the terms of presidents Corazon Aquino and Fidel
Ramos. Now it is Mr. Tan who is calling some of the big plays for the
government as he tries to keep his airline, Philippine Airlines, airborne.

The troubles at PAL over the past year have tightly bound Mr. Tan and Mr.
Estrada together. Mr. Estrada, a flamboyant ex-movie star, has staked a
chunk of his political capital on saving PAL, and he needs the soft-spoken
Chinese-Filipino controlling shareholder and chief executive to make that
happen.

The spotlight on PAL has also worked to put Mr. Tan at center stage. Asked
recently during a rare interview whether PAL's financial crisis has forced
him to change the way he does business, Mr. Tan responds with a joke.
"Yes," he shrugs. "It's more businesslike."

Mr. Tan is beginning to shed his cloak of secrecy in other ways, too. For
years, he has held most of his companies privately. Now he is mulling
whether to list his two biggest moneymakers -- Fortune Tobacco and Asian
Breweries -- on the stock market.

At the tail end of the Marcos regime in the 1980s, Mr. Tan would spend
months in China to avoid the financial demands of the flamboyant first
lady, Imelda Marcos, building new business contacts while he was there.
Now, Mr. Tan is frequently photographed waving over Mr. Estrada's shoulder
as the president shuffles down aircraft stairways from Tokyo to Kuala
Lumpur.

Solita Monsod, a former economic planner under Mrs. Aquino and now a
television talk show host and professor, says Mr. Tan's high profile is
"part and parcel of the return of cronyism" under Mr. Estrada. His
increasingly frequent public appearances, Ms. Monsod says, are "simply a
case of flaunting his power so that people will realize just how close to
Mr. Estrada he is."

For his part, Mr. Estrada says that "although I am blessed with many
friends, I have no cronies."

Mr. Tan, generally a modest man, takes pride in his business acumen,
rather than his political connections. After hiring a team of former
Cathay Pacific executives to steer PAL's rehabilitation, he parted company
with them after their chief publicly criticized the financial management
of the airline. When the U.S. Export-Import Bank initiated legal action to
repossess PAL aircraft after his return to the chief executive's post in
April, Mr. Tan was also unhappy.

"Someone is putting me in a bad name ... that I am not a good
businessman," Mr. Tan said.

Business Insight

He sometimes jokes that younger Chinese-Filipino businesspeople have
"young blood, but no brains," and his own take on what makes good business
sense is often startling. In April, armed with a mischievous fondness for
the word "Mafia," he lectured the American Chamber of Commerce on
capitalism, Tan-style.

"In medicine, they say without bacteria, you cannot live. Everybody must
depend on bacteria. So it is with Mafia," Mr. Tan said, using his own term
to refer to the Philippines' business elite. "Without Mafia, it is
difficult. Guided Mafia is different. So in our country, we need guided
Mafia."

It was a frank insight from a tycoon who's never quite looked like one.
The 65-year-old Mr. Tan habitually dresses in the simple barong Tagalog
shirt of the Philippines, a loose-fitting soft white shirt, and is often
ribbed in the local media for wearing cheap pants and white nylon socks.
But over the past three decades, Mr. Tan has built a business empire
sprawling from the Philippines to the South Pacific to Canada while
keeping his wheeling and dealing firmly behind closed doors.

That secrecy adds to the suspicion that he's viewed with in some quarters,
as does his rapid rise during the 20-year rule of late dictator Ferdinand
Marcos. But his friends and associates say that is just because he is a
Chinese-Filipino who has reached the pinnacle of corporate success in the
Philippines; Mr. Tan, sometimes known as "El Kapitan," puts it all down to
hard work.

Beer and Cigarettes

Born in China's Fujian province, his family moved to the Philippines when
he was a child. After an impoverished youth, he went to Manila to study
chemistry, but quit before graduating to take a job in a tobacco factory.
That's when the nonsmoker hatched plans to start his own cigarette
company, Fortune Tobacco.

Once it got off the ground in 1966, Fortune Tobacco grew quickly. In later
years, the speed of his success prompted accusations that Mr. Tan had been
aided by tax breaks granted by Mr. Marcos, although the timely
introduction of a new budget-cigarette brand, Hope, in 1975, proved to be
a major money-spinner. Mr. Tan also got permission in the 1970s from Mr.
Marcos to start a brewing business, Asian Breweries, that was the only
company allowed to challenge the supremacy of San Miguel Corp., whose
trademark beer dominates the local market.

In 1977, Mr. Tan bought a defunct bank from the government, and quickly
proved his skill in the banking industry. Now known as Allied Banking
Corp., it is one of the leading lenders in the Philippines, and helped
fuel Mr. Tan's moves in brewing and real estate. And in 1993 he secured
control of PAL after a bitter ownership feud.

He certainly wasn't the first Philippine tycoon to win government favors.
Businesspeople are often big contributors to many different political
campaigns at the same time in the hope of exerting influence no matter who
wins the election. The distribution networks of companies such as San
Miguel and Mr. Tan's own tobacco and brewing businesses are valuable
political tools. With the help of businesspeople such as Mr. Tan and
Eduardo "Danding" Cojuangco Jr., Mr. Marcos drummed up support across this
archipelago of more than 7,000 islands.

One-Horse Man

Ethnic Chinese businesspeople, denied the family links to power enjoyed by
the Spanish-descended aristocracy, are some of the biggest campaign
contributors. But Mr. Tan breaks the mold: He eschews contributing to a
bunch of candidates and instead is a one-horse man. First, it was Mr.
Marcos; now it's Mr. Estrada. (Official campaign records don't show Mr.
Tan contributing any money; rather, it was one of Mr. Tan's seven brothers
who donated to Mr. Estrada's campaign last year. But people close to the
campaign acknowledge that Mr. Tan was a major financial contributor.)

The way the relationship works was seen in June, when PAL was locked in
its most serious tailspin to date. If Mr. Tan couldn't pull together $200
million in fresh capital, the airline faced liquidation. He says he had
already lost millions of dollars keeping PAL aloft, prompting Mr. Estrada
to laud him as a "national hero." Mr. Tan hoped some government agencies
could chip in, but while Mr. Estrada proclaimed that he wouldn't use state
funds to bail out distressed companies, his government was quietly rolling
back its liberal "open skies" aviation policy at the tycoon's request.

That meant curtailing the number of foreign flights in and out of the
Philippines to limit competition for PAL, despite the country's need to
foster a stronger tourism industry. In late July, the Philippines
threatened to break off all air agreements with Taiwan if they couldn't be
renegotiated in PAL's favor. Although the government later tried to cool
tempers, Taiwan threatened to retaliate, noting that some 110,000 Filipino
workers earn their bread in the island state, and send $1 billion home
each year.

Mr. Tan is adamant that he wants the government to give "all out" support
to PAL, and complains bitterly about foreign airlines, which he accuses of
using large, wide-body jumbo jets on routes where they should be using
only smaller aircraft. "The open skies policy is like a big fish eating
small fish," he says, adding that it is a "very expensive promotion" for
tourism.

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