Ayala: The Company That Built Makati Out of Farmland

Ayala is the oldest business in the Philippines and the clearest example of how conglomerates work there. This story covers the trading house origins, the Makati land decision, the banking franchise, telecoms and water, the current portfolio, the governance structure and the risks of the model — part of the Philippines Company Stories hub.

How does a company survive for nearly two centuries?

By repeatedly changing what it does while keeping who it is. The business began as a trading and distillery partnership in Spanish-era Manila, moved into insurance and infrastructure, then into land, then into banking, telecommunications and power.

Each transition followed the same logic: identify infrastructure the country needed and could not otherwise fund, take the long-duration risk, and hold the asset for generations rather than trading it.

The other half of the answer is political. A family enterprise operating through colonial administrations, an occupation and a dictatorship must maintain working relationships with every government without becoming dependent on any of them — which is a discipline as demanding as any commercial one.

Why was Makati the decisive decision?

Because the family held large tracts of agricultural land outside Manila and chose, in the late 1940s, to master-plan it as a modern business district rather than sell it or farm it.

The bet required patience most owners do not have. Roads, drainage, power and telephone lines had to be built before any buyer would pay commercial prices, and the payback ran over decades rather than years.

The result is that the country’s financial centre sits on land the group planned, developed, sold and leased — and that the group captured not just the land value but the banking, retail and office businesses that grew on it.

What does master-planned development actually mean?

Controlling a large contiguous land area and deciding where roads, utilities, commercial zones, residential areas and open space go, rather than developing plot by plot within someone else’s street grid.

The commercial advantage is enormous. A developer that controls the whole district captures the uplift from its own placemaking: the office tower raises the value of the retail, the retail raises the residential, and every phase sells into demand the earlier phases created.

It also allows quality control over decades. A district where the developer still owns significant assets has a direct interest in maintaining standards, which is why master-planned estates in the Philippines have generally aged better than piecemeal development.

Why is the banking franchise so valuable?

Because Bank of the Philippine Islands traces to 1851, making it the oldest bank in the country and among the oldest in Southeast Asia, with a deposit base and corporate relationships accumulated over that period.

Banking also fits the conglomerate structure unusually well. A group developing property, building power plants and operating telecoms generates enormous financing requirements, and a related bank provides both a funding relationship and visibility into the wider economy.

Regulation limits how far that relationship can go, with related-party lending rules constraining how much a bank may lend within its own group — a constraint introduced precisely because the temptation is obvious.

How did the group enter telecommunications?

Through a joint venture that became the country’s second mobile network, entering a market where the incumbent had held an effective monopoly for decades and where service quality reflected that.

The timing was decisive. Mobile arrived just as fixed-line penetration was collapsing under its own inefficiency, and prepaid pricing made phones affordable to a population that had never had a landline.

Text messaging then became a national habit on a scale that surprised everyone, generating revenue from a service the networks had treated as an afterthought — and funding the network investment that followed.

What is the water concession business?

A privatization arrangement under which private operators took over the distribution of water in metropolitan Manila, investing in pipes, treatment and connections in exchange for tariffs set under a regulated framework.

The operational results were substantial: connections expanded enormously, non-revenue water from leaks and theft fell sharply, and service moved from intermittent to continuous across much of the service area.

The political results were harder. Tariff arbitration disputes, contract renegotiation under government pressure and public anger about pricing have all demonstrated that utility concessions are political assets whatever the contract says.

Why move into renewable power?

Because Philippine electricity is among the most expensive in Asia, demand grows with the economy, and the country’s generation mix remains heavily dependent on imported coal — which makes new domestic renewable capacity both commercially and strategically attractive.

The group set a public commitment to exit coal generation and build a large renewable portfolio, which is unusual in a market where most generators have hedged that decision.

Execution depends on grid capacity, permitting and the auction framework for renewable supply contracts, all of which are outside the developer’s control — which is the recurring pattern in Philippine infrastructure investment.

How is the holding company actually structured?

As a listed parent controlling stakes in separately listed subsidiaries, with the family holding control through a private holding vehicle above the listed parent.

That layering lets the family control a very large asset base with a comparatively small direct economic stake, which is the standard structure across Asian conglomerates and the standard governance objection to them.

The defence is time horizon and accountability. A controlling family that intends to hold assets for another century allocates capital differently from a fund manager measured quarterly, and the family’s name on the buildings creates reputational discipline no code of governance can replicate.

What is the holding company discount?

The gap between the market value of a parent and the combined value of the stakes it owns, which for Philippine conglomerates has frequently been substantial.

Investors apply it because they can buy the listed subsidiaries directly, because the parent adds a layer of costs and taxes, and because minority holders cannot direct how the group deploys the cash the subsidiaries generate.

Narrowing it requires either buybacks, higher dividends or demonstrable value creation at the unlisted businesses, and groups that simply argue the discount is unfair generally keep it.

What are the risks in this model?

Concentration in a single economy is the first. A group with property, banking, telecoms and power in one country has no diversification against a domestic political or macroeconomic shock, only against sectoral ones.

Regulatory exposure is the second, and it is unusually direct. Water tariffs, electricity rates, telecoms spectrum and property zoning are all set or influenced by government, which means political relationships are a permanent operational requirement.

Succession is the third. Family control depends on each generation producing capable leaders willing to serve, and the history of Asian family conglomerates is full of groups that fragmented in the third or fourth generation.

How does the group handle succession?

Through professional management with family members in strategic roles, formal preparation of the next generation, and separation between family ownership and executive appointment.

The pattern across successful Asian dynasties is the same: family holds capital and sets direction, professionals run operating businesses, and the boundary between the two is defined explicitly rather than negotiated case by case.

Where it fails is in groups where every senior role is filled by a relative regardless of capability, which produces the third-generation decline that the literature on family business describes repeatedly.

What does the group get right that others do not?

Patience with land, which is the single most reliable source of wealth in a rapidly urbanizing country, and a willingness to build infrastructure before the demand is visible.

It also professionalized earlier than most Philippine family groups, bringing in external executives, listing subsidiaries with real minority participation and adopting disclosure standards well beyond the local requirement.

The result is a group that international investors will hold, which lowers its cost of capital — a genuine advantage in an economy where capital is expensive.

What is the lesson?

That in a developing economy, the durable strategy is to own the infrastructure everyone else needs. Land, banking, connectivity, power and water are all businesses where the customer cannot go elsewhere.

The second lesson is that time horizon is a competitive weapon. A group willing to wait thirty years for a district to mature will beat every developer that needs to exit in five.

The third is that political survival is a business skill. Two centuries of operating across colonial, occupied, democratic and authoritarian governments is not luck; it is a deliberate discipline of never being indispensable to any single regime.

How do Philippine conglomerates raise capital?

Principally by listing operating subsidiaries separately, which lets each business raise equity against its own prospects while the parent retains control with a partial stake.

Domestic bond markets supply long-term peso funding for property and infrastructure, which matters enormously because these are peso-earning assets and dollar borrowing would introduce currency mismatch.

Foreign capital enters through the listed subsidiaries and through project-level partnerships, which is also how the groups import technical expertise for businesses like power generation and water treatment.

What is the group’s healthcare and education exposure?

Investments in hospital networks, clinics and private schools, on the reasoning that a growing middle class spends an increasing share of income on health and education long before it spends more on anything else.

Both are capacity-constrained sectors where public provision is stretched, which creates durable private demand rather than demand that depends on discretionary spending.

They are also operationally demanding businesses with regulatory oversight, clinical or academic staffing constraints and reputational risk that a property or utility business does not carry.

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