AYALA CORPORATION

32/F TO 35/F, TOWER ONE AND EXCHANGE PLAZA, AYALA TRIANGLE AYALA AVENUE
CORNER PASEO DE ROXAS
MAKATI CITY 1200
PHILIPPINES
TELEPHONE NUMBER: (+632) 908-3000/ (+632) 908-3357

This Prospectus relates to the offer and sale by way of a re-issuance (the “Offer”) of 20,000,000,
cumulative, non-voting, perpetual, peso-denominated Preferred Class “B” Shares (the “Preferred
Shares”) of Ayala Corporation (“Ayala”, the “Company” or the “Issuer”), a corporation organized under
Philippine law. In the event of an oversubscription, BDO Capital & Investment Corporation (“BDO
Capital”), BPI Capital Corporation (“BPI Capital”), China Bank Capital Corporation (“China Bank
Capital”), First Metro Investment Corporation (“First Metro”), and PNB Capital and Investment
Corporation (“PNB Capital”) each of BDO Capital, BPI Capital, China Bank Capital, First Metro, and
PNB Capital, a “Joint Lead Underwriter and collectively the “Joint Lead Underwriters”), with the
consent of the Company, reserve the right, but not the obligation, to increase the size of the Offer up
to an additional 10,000,000 Preferred Shares (the “Oversubscription Option”), for an aggregate issue
size of up to 30,000,000 Preferred Shares. The Preferred Shares subject of the Offer and any exercise
of the Oversubscription Option will be issued from the previously issued and redeemed (not currently
outstanding) preferred shares in the Company’s treasury stock. The Preferred Shares are intended to
be issued on [●], 2019 (the “Issue Date”). Each Preferred Share has a par value of ₱100.00 and a
liquidation right equivalent to ₱500.00 (the “Liquidation Right”).

The Preferred Shares are being offered for subscription solely in the Philippines through the Joint Lead
Underwriters (the “Underwriters”) and Selling Agents named herein at a subscription price of ₱500.00
per share (the “Offer Price” or the “Issue Price”).

Following the Offer, the Company will have the following issued and outstanding shares: (a)
627,346,015 common shares, (b) up to 50,000,000 Class “B” preferred shares, and (c) 200,000,000
voting preferred shares (the “Voting Preferred Shares”). The holders of the Preferred Shares do not
have identical rights and privileges with holders of the existing common shares of the Company. After
the Offer, and assuming the Oversubscription Option is exercised in full, the Company will have the
following issued and outstanding shares: (a) 627,346,015 of 900,000,000 authorized common shares,
(b) 0 of 12,000,000 authorized Class “A” Preferred Shares, (c) up to 50,000,000 of 58,000,000
authorized Class “B” Preferred Shares, (d) 0 of 40,000,000 authorized Class “C” Preferred Shares,
and (e) 200,000,000 of 200,000,000 authorized Voting Preferred Shares. The Company will have (a)
3,805,644 common shares; (b) 12,000,000 Class “A” Preferred Shares; and (c) 8,000,000 Class “B”
Preferred Shares, held in Treasury.

The Preferred Shares will be listed on the Main Board of The Philippine Stock Exchange, Inc. (“PSE”)
on [●] 2019 (the “Listing Date”) under the trading symbol [●] for the Preferred Shares.

The declaration and payment of Dividends on the Preferred Shares on each Dividend Payment Date
will be subject to the sole and absolute discretion of the Issuer’s Board of Directors (the “Board”) to
the extent permitted by law and subject to the Dividend Payment Conditions (as defined below). The
declaration and payment of dividends (except stock dividends) do not require any further approval
from the shareholders.

As and if declared by the Board, dividends on the Preferred Shares shall be at a fixed rate of [●]% per
annum calculated in respect of each Preferred Share by reference to the Offer Price thereof in respect
of each Dividend Period (as defined herein) (also the “Initial Dividend Rate”). Subject to the limitations
described in this Prospectus, dividends on the Preferred Shares will be payable quarterly in arrears
on [•], [•], [•], and [•] of each year (each a “Dividend Payment Date” as defined herein). Unless the
Preferred Shares are redeemed by the Company on the Dividend Rate Re-Setting Date, the Dividend
Rate for all following Dividend Periods shall be the higher of (a) the Initial Dividend Rate on the
Dividend Rate Re-Setting Date or (b) the sum of (i) the Reference Rate, and (ii) the Step-Up Spread
(see “Summary of the Offering” on page [•]).

Dividends on the Preferred Shares will be cumulative. If for any reason the Issuer’s Board does not
declare a dividend on the Preferred Shares for a dividend period, the Issuer will not pay a dividend on

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the Dividend Payment Date for that dividend period. However, on any future Dividend Payment Date
on which dividends are declared, holders of the Preferred Shares as of record date of such dividends
must receive the Dividends due them on such Dividend Payment Date as well as all Dividends accrued
and unpaid to the holders of the Preferred Shares as of the same record date prior to such Dividend
Payment Date (see “Description of the Securities” on page [•]).

As and if declared by the Board, the Issuer may redeem the Preferred Shares on the Dividend Rate
Re-Setting Date or any Dividend Payment Date after the Dividend Rate Re-Setting Date (as defined
in this Prospectus) in whole (but not in part), at a redemption price equal to the Issue Price plus any
accrued and unpaid dividends after deduction for any tax and customary transfer costs to effect the
redemption (the “Redemption Payment”). The Redemption Payment shall be made to holders of the
Preferred Shares as of the record date set by Ayala for such redemption.

Subject to compliance with law, Ayala may purchase the Preferred Shares at any time at any price
either through the PSE, by public tender or through negotiated transactions. Any Preferred Shares
redeemed or purchased by Ayala shall be recorded as treasury stock of Ayala and may be re-issued
in the future at such terms and at such time as Ayala may determine.

All payments in respect of the Preferred Shares are to be made free and clear of any deductions or
withholding for or on account of any present or future taxes or duties imposed by or on behalf of the
Government of the Republic of the Philippines (the “Government”), including, but not limited to, stamp,
issue, registration, documentary, value-added or any similar tax or other taxes and duties, including
interest and penalties. If such taxes or duties are imposed, the Issuer will pay additional amounts so
that holders of Preferred Shares will receive the full amount of the relevant payment which otherwise
would have been due and payable, provided, however, that the Issuer shall not be liable for, and the
foregoing payment undertaking of the Company shall not apply to: (a) any withholding tax applicable
on dividends earned or on any amounts payable to the holders of the Preferred Shares prescribed
under the National Internal Revenue Code of 1997, as amended (the “Tax Code”) including any
additional tax on such dividends imposed by changes in law, rule, or regulation; (b) any income tax
(whether or not subject to withholding); percentage tax (such as stock transaction tax), documentary
stamp tax or other applicable taxes on the redemption (or receipt of the redemption price) of the
Preferred Shares; (c) any expanded value-added tax which may be payable by any holder of the
Preferred Shares on any amount to be received from the Issuer under the Offer; (d) any withholding
tax, including any additional tax imposed by change in law, rules, or regulation, on any dividend
payable to any holder of Preferred Shares or any entity which is a non-resident foreign corporation;
and (e) any applicable taxes on any subsequent sale or transfer of the Preferred Shares by any holder
of the Preferred Shares which shall be for the account of such holder (or the buyer in case such buyer
shall have agreed to be responsible for the payment of such taxes).

If payments become subject to additional withholding or any new tax as a result of certain changes in
law, rule or regulation, or in the interpretation thereof, and such tax cannot be avoided by use of
reasonable measures available to the Issuer, the Issuer may redeem the Preferred Shares in whole,
but not in part, on any Dividend Payment Date (having given not more than 60 nor less than 30 days’
notice by publication in two national newspapers) at the Issue Price plus all accrued and unpaid
dividends, if any (see “Summary of the Offering” on page [•]; the taxes applicable on the Preferred
Shares are discussed in the section on “Philippine Taxation” on page [•]).

If an Accounting Event (as defined below) occurs that will result in a change in accounting treatment of
the Shares, the Issuer may redeem the Shares in whole, but not in part, on any Dividend Payment Date
(having given not more than 60 nor less than 30 days’ prior notice) at the Offer Price plus all accrued
and unpaid dividends, if any (see “Summary of the Offering” on page [•]).

The Preferred Shares will constitute direct and unsecured subordinated obligations of the Issuer
ranking at least pari passu in all respects and rateably without preference or priority among themselves
with all other Preferred Shares issued by the Issuer.

The Preferred Shares will be issued in scripless form. Title to the Preferred Shares shall pass by
endorsement and delivery to the transferee and registration in the registry of shareholders to be
maintained by the Registrar and Depository Agent (as defined herein). Settlement of the Preferred

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Shares in respect of such transfer or change of title to the Preferred Shares, including the settlement
of documentary stamp taxes, if any, arising from subsequent transfers, shall be similar to the transfer
of title and settlement procedures for listed securities in the PSE (see “Summary of the Offering” on
page [•]).

The gross proceeds of the Offer are expected to reach approximately ₱10,000,000,000.00 or,
should the Joint Lead Underwriters, in consultation with the Issuer, exercise in full its Oversubscription
Option, ₱15,000,000,000.00. The net proceeds from the Offer, estimated to be at ₱[•] or ₱[•], if
the Oversubscription Option is exercised in full, is determined by deducting from the gross
proceeds the SEC Registration fees, total issue management, underwriting and selling fees, listing
fees, taxes and other related fees and out-of-pocket expenses, and will be used by the Company
to refinance outstanding credit facilities, which were drawn to finance the proposed redemption on
[November 5], 2019 of the outstanding 27,000,000 Class “B” Series 2 Preferred Shares issued on
November 5, 2014 (the “Outstanding Preferred Shares”), and for the general corporate purposes of
Ayala (see “Use of Proceeds” on page [•]). The Joint Lead Underwriters shall receive an estimated
fee of 0.35% of the gross proceeds of the Offer, inclusive of amounts to be paid to the Selling
Agents.

On [September 20], 2019, Ayala filed a Registration Statement with the Securities and Exchange
Commission (“SEC”), in connection with the re-issuance of 20,000,000, cumulative, non-voting
Class “B” Preferred Shares with an Oversubscription Option for up to an additional 10,000,000
Class “B” Preferred Shares. Should there be any remaining balance of the aggregate amount left
in case of non-exercise or partial exercise only of the oversubscription option, it shall be lodged
under a shelf registration and will be raised in future tranches.

Some of the Company’s existing loan agreements contain covenants that restrict the declaration or
payments of dividends under certain circumstances, such as the occurrence of an event of default
under such loan agreements or if such payment would cause an event of default to occur, if certain
financial ratios are not met or payment would cause them not to be met, requiring revenues of the
Company to be applied toward certain expenses prior to the payment of dividends and other
circumstances (see “Description of the Securities” on page [•]).

No dealer, salesman, or any other person has been authorized to give any information or to make any
representation not contained in this Prospectus. If given or made, any such information or
representation must not be relied upon as having been authorized by the Company, the Joint Issue
Managers or any of the Underwriters. The distribution of this Prospectus and the offer and sale of the
Preferred Shares may, in certain jurisdictions, be restricted by law. The Company and the Joint Lead
Underwriters require persons into whose possession this Prospectus comes to inform themselves of
and observe all such restrictions. This Prospectus does not constitute an offer of any securities, or any
offer to sell, or a solicitation of any offer to buy any securities of the Company in any jurisdiction, to or
from any person to whom it is unlawful to make such offer in such jurisdiction. Prior to the Offer, there
has been a public market for the Preferred Shares. The Preferred Shares were offered at the issue
price of ₱500.00 per share and was eventually redeemed in full at the issue price, in accordance to
the terms of the offering at the time of issuance of such preferred shares.

Unless otherwise stated, the information contained in this Prospectus has been supplied by the
Company. To the best of its knowledge and belief, the Company (which has taken all reasonable care
to ensure that such is the case) confirms that the information contained in this Prospectus is correct,
and that there is no material statement or omission of fact which would make any statement in this
Prospectus misleading in any material respect. The Company hereby accepts full and sole
responsibility for the accuracy of the information contained in this Prospectus. The Joint Issue
Managers and the Underwriters confirm that they have exerted reasonable efforts to verify the
information contained herein but do not make any representation, express or implied, as to the
accuracy or completeness of the materials contained herein.

The Company, the Joint Issue Managers and the Underwriters have exercised due diligence in
ascertaining that all material representations contained in this Prospectus and any amendments and
supplements are true and correct, and that no material information was omitted, which was necessary
in order to make the statements contained in said documents not misleading.

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Unless otherwise indicated, all information in this Prospectus is as of [June 30, 2019]. Neither the
delivery of this Prospectus nor any sale made pursuant to this Prospectus shall, under any
circumstances, create any implication that the information contained herein is correct as of any date
subsequent to the date hereof or that there has been no change in the affairs of the Company and its
subsidiaries since such date. Market data and certain industry forecasts used throughout this
Prospectus were obtained from internal surveys, market research, publicly available information and
industry publications. Industry publications generally state that the information contained therein has
been obtained from sources believed to be reliable, but that the accuracy and completeness of such
information is not guaranteed. Similarly, internal surveys, industry forecasts and market research,
while believed to be reliable, have not been independently verified, and none of the Company, the
Joint Issue Managers and the Underwriters make any representation as to the accuracy of such
information. Each person contemplating an investment in the Preferred Shares should make his own
investigation and analysis of the creditworthiness of Ayala and his own determination of the suitability
of any such investment. The risk disclosure herein does not purport to disclose all the risks and other
significant aspects of investing in the Preferred Shares. A person contemplating an investment in the
Preferred Shares should seek professional advice if he or she is uncertain of, or has not understood
any aspect of the securities to invest in or the nature of risks involved in trading of securities, especially
those high-risk securities. Investing in the Preferred Shares involves a higher degree of risk compared
to debt instruments. For a discussion of certain factors to be considered in respect of an investment
in the Preferred Shares, see the section entitled “Risk Factors” beginning on page [•].

An application to list the Preferred Shares has been filed with the PSE and has been approved by the
Board of Directors of the PSE on [•]. The PSE assumes no responsibility for the correctness of any
statements made or opinions expressed in this Prospectus. The PSE makes no representation as to
its completeness and expressly disclaims any liability whatsoever for any loss arising from reliance on
the entire or any part of this Prospectus. The re-issuance of the Preferred Shares is subject to the
approval of the Board of Directors of the PSE. Such approval for re-issuance is permissive only and
does not constitute a recommendation or endorsement of the Preferred Shares by the PSE.

The financial information included in this Prospectus has been derived from the financial statements of
the Company. Unless otherwise indicated, financial information in this Prospectus has been prepared
in accordance with Philippine Financial Reporting Standards (“PFRS”).

In this Prospectus, references to “Pesos” or “₱” are to the lawful currency of the Philippines. This
Prospectus contains translations of certain amounts into U.S. Dollars at specified rates solely for the
convenience of the reader. In addition, unless otherwise indicated, US Dollar/Philippine Peso exchange
rates referred to in this Prospectus are Philippine Dealing System weighted average rates for the
indicated period or on the applicable date, as relevant. No representation is made that the Peso, U.S.
Dollar, or other currency amounts referred to herein could have been or could be converted into Pesos,
U.S. Dollars, or any other currency, as the case may be, at this rate, at any particular rate or at all.
Figures in this Prospectus have been subject to rounding adjustments. Accordingly, figures shown for
the same item of information may vary and figures which are totals may not be an arithmetic aggregate
of their components.

This Prospectus includes forward-looking statements. The Company has based these forward-looking
statements largely on its current expectations and projections about future events and financial trends
affecting its business. The words “believes,” “may,” “will,” “estimates,” “continues,” “anticipates,”
“intends,” “expects” and similar words are intended to identify forward-looking statements. In light of
these risks and uncertainties associated with forward-looking statements, investors should be aware
that the forward- looking events and circumstances discussed in this Prospectus might not occur. The
Company’s actual results could differ substantially from those anticipated in The Company’s forward-
looking statements.

A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BEEN DECLARED EFFECTIVE.
NO OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE
PRICE CAN BE ACCEPTED OR RECEIVED UNTIL THE REGISTRATION STATEMENT HAS

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BECOME EFFECTIVE, AND ANY SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT
OBLIGATION OF COMMITMENT OF ANY KIND, AT ANY TIME PRIOR TO NOTICE OF ITS
ACCEPTANCE GIVEN AFTER THE EFFECTIVE DATE. AN INDICATION OF INTEREST IN
RESPONSE HERETO INVOLVES NO OBLIGATION OR COMMITMENT OF ANY KIND. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICATION OF AN
OFFER TO BUY.

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ALL REGISTRATION REQUIREMENTS HAVE BEEN MET AND ALL INFORMATION
CONTAINED HEREIN ARE TRUE AND CORRECT.

AYALA CORPORATION

By:

REPUBLIC OF THE PHILIPPINES )

CITY OF MAKATI )S.S.

Before me, a notary public in and for the city named above, personally appeared [ ] with [ ] issued at [ ]
on [ ], who was identified by me through competent evidence of identity to be the same person who
presented the foregoing instrument and signed the instrument in my presence, and who took an oath
before me as to such instrument.
Witness my hand and seal this day of 2019 at Makati City,
Doc No. :
Book No. _:
Page No. :
Series of 2019

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(this page is intentionally left blank)

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 TABLE OF CONTENTS

FORWARD LOOKING STATEMENTS ...................................................................................................... 10

DEFINITION OF TERMS ............................................................................................................................ 11
EXECUTIVE SUMMARY ............................................................................................................................ 17
SUMMARY OF THE OFFERING ................................................................................................................ 39
DESCRIPTION OF THE SECURITIES ....................................................................................................... 47
RISK FACTORS ......................................................................................................................................... 56
USE OF PROCEEDS .................................................................................................................................. 71
PLAN OF DISTRIBUTION .......................................................................................................................... 73
DIVIDEND POLICY ..................................................................................................................................... 77
CAPITALIZATION ...................................................................................................................................... 84
DILUTION ................................................................................................................................................... 85
DETERMINATION OF OFFER PRICE ....................................................................................................... 86
THE COMPANY .......................................................................................................................................... 87
BUSINESS .................................................................................................................................................. 95
EMPLOYEES AND LABOR RELATIONS ............................................................................................... 287
DESCRIPTION OF PROPERTY ............................................................................................................... 288
LEGAL PROCEEDINGS .......................................................................................................................... 300
REGULATORY FRAMEWORK ................................................................................................................ 314
MARKET PRICE OF AND DIVIDENDS ON THE ISSUER’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS .................................................................................................................... 327
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION .............................................................................................................................................. 332
MANAGEMENT ........................................................................................................................................ 359
MATTERS AFFECTING LIQUIDITY AND CAPITAL EXPENDITURE .................................................... 373
INDEPENDENT AUDITORS AND COUNSEL ......................................................................................... 374
PHILIPPINE TAXATION ........................................................................................................................... 376
THE PHILIPPINE STOCK MARKET ........................................................................................................ 380
FINANCIAL INFORMATION .................................................................................................................... 386

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 FORWARD LOOKING STATEMENTS
This Prospectus contains certain “forward-looking statements”. These forward-looking statements
generally can be identified by use of statements that include words or phrases such as “believes”,
“expects”, “anticipates”, “intends”, “plans”, “foresees”, or other words or phrases of similar import.
Similarly, statements that describe Ayala’s objectives, plans or goals are also forward-looking statements.
All such forward-looking statements are subject to certain risks and uncertainties that the forward-looking
events and circumstances discussed in this Prospectus might not occur. Actual results could differ
materially from those contemplated by the relevant forward-looking statement. Important factors that could
cause actual results to differ materially from the expectations of Ayala include, among others:

• General economic and business conditions in the Philippines;

• Holding company structure;

• Intensive capital requirements of subsidiaries and affiliates of Ayala in the course of business;

• Increasing competition in the industries in which Ayala’s subsidiaries and affiliates operate;

• Industry risk in the areas in which Ayala’s subsidiaries and affiliates operate;

• Changes in laws and regulations that apply to the segments or industries in which Ayala, its subsidiaries
and affiliates operate;

• Changes in political conditions in the Philippines;

• Changes in foreign exchange control regulations in the Philippines; and

• Changes in the value of the Philippine Peso.

For further discussion of such risks, uncertainties and assumptions, see the “Risk Factors” section of this
Prospectus. Prospective purchasers of the Preferred Shares are urged to consider these factors carefully
in evaluating the forward-looking statements. The forward-looking statements included herein are made
only as of the date of this Prospectus, and Ayala undertakes no obligation to update such forward-looking
statements publicly to reflect subsequent events or circumstances.

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 DEFINITION OF TERMS
Unless otherwise indicated, the following terms shall have the meanings set forth below:

3G Third generation radio frequency spectra

AC Energy AC Energy, Inc. (formerly Michigan Power, Inc.)
ACC Alabang Commercial Corporation
ACIFL AC International Finance Ltd.
ACTA Power ACTA Power Corporation
Affiliates Associates and Jointly Controlled Entities
Affinity Express Affinity Express Holdings Limited
AG Holdings AG Holdings Limited
AHI Ayala Hotels, Inc.
AC Industrials or ACI AC Industrial Technology Holdings Inc.
ALI or Ayala Land Ayala Land, Inc.
ALLHC AyalaLand Logistics Holdings Corp.
Alveo Alveo Land Corp.
APMC Ayala Property Management Corporation
Application to Purchase Document to be accomplished by applicants for the
application to purchase the Preferred Shares
Articles of Incorporation Articles of Incorporation of Ayala
ASEAN Association of Southeast Asian Nations
Asiacom Asiacom Philippines, Inc.
Associate/s Entities over which Ayala has significant influence and is
neither a subsidiary nor a joint venture
ASTI ASTICOM Technology, Inc.
ATIGA ASEAN Free Trade Area ASEAN Trade in Goods
Agreement
Attributable Consolidated Net Income Pertains to Net Income attributable to the Parent
Company, after deducting the share of minority owners
from the consolidated net income of the Group.
Auto-LPG Rules DOE Circular No. DC 2007-02-0002
Avida Avida Land Corporation
Ayala Ayala Corporation (also the “Company” or the “Issuer”)
Ayala Greenfield or AGDC Ayala Greenfield Development Corporation
Ayala Group Ayala Corporation and its subsidiaries (also the “Group”)
Azalea International Azalea International Venture Partners Limited
Azalea Technology Azalea Technology Investments, Inc.
Banking Day A day, excluding Saturdays, Sundays and holidays, when
banks are not allowed to close for business in Metro
Manila, Philippines
BAP Bankers Association of the Philippines
Bayan Muna Bayan Muna Party List
Bayantel Bayan Telecommunications Philippines, Inc.
BCC Bonifacio Communications Corporation
Definition of Terms

BCDA Bases Conversion Development Authority

BDO Capital BDO Capital & Investment Corporation
BellTel Bell Telecommunications Inc.
BGC Bonifacio Global City
BIWC Boracay Island Water Company
Board The Board of directors of Ayala
Board Issuer’s Board of Directors
BPI Bank of the Philippine Islands
BPI Capital BPI Capital Corporation
BPI Group BPI and its subsidiaries
BPO Business Processing Outsourcing
BPS Bureau of Product and Standards
Brillant Brillant 1257 GmbH & Co. Vierte Verwaltungs Kg
BSP Bangko Sentral ng Pilipinas
Business Day A day, except Sunday, Saturday or legal holidays, in which
Philippine banks are required to open for business in the
cities of Makati, Manila and Mandaluyong
BVAL Bloomberg Valuation Service”
BWD Balagtas Water District
BWSS Boracay Waterworks and Sewerage System
CA Court of Appeals
CAGR Compounded Annual Growth Rate
CAR Capital Adequacy Ratio
CBAA Central Board of Assessment Appeals
CHI Cebu Holdings, Inc.
China Bank Capital China Bank Capital Corporation
CIWD City of Ilagan Water District
Clean Water Act Philippine Clean Water Act of 2004
CMTS Cellular Mobile Telephone System
CNC Certificate of Non-Coverage
Common shares Ayala’s common shares
Concessionaires refers to both MWC and Maynilad
CPI Philippine Consumer Price Index
CPVDC Cebu Property Ventures Development Corporation
CTA Court of Tax Appeals
DBS Development Bank of Singapore
DENR Department of Environment and Natural Resources
Diamond Generating Asia Diamond Generating Asia Limited
Digitel Digital Telecommunications Philippines, Inc.
Director A director of Ayala
Dividend Payment Date February [●], May [●], August [●], and November [●] of
each year

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Definition of Terms

Dividend Rate [●]% per annum

Dividend Rate Re-Setting Date Refers to the Dividend Rate Re-Setting Date as defined
under the Summary of the Offering
DOE Department of Energy
DOF Department of Finance
DOJ Department of Justice
DOSRI Directors, Officers, Stockholders and other Related
Interests
DOTr Department of Transportation formerly Department of
Transportation and Communications ("DOTC")
DPWH Department of Public Works and Highways
DTI Department of Trade and Industry
EBITDA Earnings Before Interests, Taxes, Depreciation and
Amortization
EIS Environment Impact Statement
EMB Environmental Management Bureau
EMS Electronics Manufacturing Services
EPS Earnings Per Common Share
ERC Energy Regulatory Commission
FBDC Fort Bonifacio Development Corporation
FCDA Foreign Currency Differential Adjustment
First Metro First Metro Investment Corporation
G&A Expense General and Administrative expense
GCPRI Green Circle Properties and Resources, Inc.
Globe Globe Telecom, Inc.
Government Republic of the Philippines
GSPC Green Square Properties Corporation
HRMall HRMall Holdings Limited
IAS International Accounting Standards
ID Independent Director
IDD International Direct Dialing
IEE Initial Environmental Examination
IMI Integrated Micro-Electronics, Inc.
Innove Innove Communications, Inc.
iPeople iPeople, inc.
IPO Initial Public Offering
Issue Date [●], 2019
Joint Issue Managers BDO Capital & Investment Corporation, and BPI Capital
Corporation
Joint Lead Underwriters BDO Capital & Investment Corporation, BPI Capital
Corporation, China Bank Capital Corporation, First Metro
Investment Corporation, and PNB Capital and Investment
Corporation (also the “Underwriters”)

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Definition of Terms

Joint Venture Entities over which Ayala has joint control or has
contractually agreed sharing of control over an economic
activity, and exists only when the strategic financial and
operating decisions relating to the activity require the
unanimous consent of the parties sharing control.
JV Joint Venture
LBAA Local Board of Assessment Appeals
LBNI Liberty Broadcasting Network, Inc.
Liquidation Right The preference granted to the holders of Preferred “B”
shares under the Issuer’s Articles of Incorporation, as
amended, over the holders of common stock in the
distribution of corporate assets in the event of dissolution
and liquidation of the Issuer and in the payment of the
dividend at the rate specified at the time of issuance
LiveIt LiveIt Investments Limited
LMA Local Monthly Allocation
LPG Industry Rules Rules and Regulations Governing the Liquefied Petroleum
Gas Industry
LSI LiveIt Solutions, Inc.
LTI Laguna Technopark, Inc.
LTO Land Transportation Office
MARINA Maritime Industry Authority
Maxus SAIC MAXUS Automotive Co., Ltd.
Maynilad Maynilad Water Services, Inc.
MC Memorandum Circular
MCT MCT Bhd
MDC Makati Development Corporation
Mitsubishi Mitsubishi Corporation
MMS Multimedia Messaging Service
MR Motion for Reconsideration
MW Megawatt
MWC or Manila Water Manila Water Company, Inc.
MWPV Manila Water Philippine Ventures, Inc.
MWSS Metropolitan Waterworks and Sewerage System
NCR National Capital Region
NED Non-Executive Director
NLRC National Labor Relations Commission
NorthWind NorthWind Power Development Corporation
NPL Non-performing Loans
NRW Non-revenue Water
NTC National Telecommunications Commission
OEM Original Equipment Manufacturers
Offer Offer for subscription of up to 30,000,000 Ayala Class “B”
Preferred Shares

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Definition of Terms

Offer Period The Offer shall commence on [●], 2019 and end on [●],
2019
Offer Price P500.00 per Preferred Share (also the “Issue Price”)
OFW Overseas Filipino Worker
Oil Deregulation Law Downstream Oil Industry Deregulation Act of 1998
OIMB Oil Industry Management Bureau
OSG Office of the Solicitor General
OWCHC Obando Water Consortium Holdings Corp.
PAB Pollution Adjudication Board
PAGWAD Pagsanjan Water District
PAS Philippine Accounting Standards
Paying Agent Bank of the Philippine Islands – Stock Transfer Agency
PCA Philippine Competition Act of 2015
PCBA Printed Circuit Board Assembly
PCC Philippine Competition Commission
PDEx Philippine Dealing & Exchange Corp.
PDTC Philippine Depository & Trust Corporation
PFM Philippine FamilyMart CVS, Inc.
PFRS Philippine Financial Reporting Standards
PHEN PHINMA Energy corporation
PLDT PLDT, Inc.
PNS Philippine National Standards
POPI Prime Orion Philippines, Inc.
PPP Public-Private Partnership
Preferred “A” Shares Ayala’s Class “A” preferred shares
Preferred “B” Shares Ayala’s Class “B” preferred shares
Preferred Shares Up to 30,000,000 Preferred Class “B” Preferred Shares of
Ayala Corp. (also “Shares”)
PSA Philippine Standards on Auditing
PSE Philippine Stock Exchange
PSE Trading Participant The PSE’s duly-accredited member brokers (also the
“Trading Participants” and "Selling Agents")
PTA Philippine Tourism Authority
PTMWI PT Manila Water Indonesia
R.A. Republic Act
Record Date Cut-off date in determining holders of the Shares entitled to
receive dividend amount due
Redemption Date The date of actual redemption of the Preferred Shares by
the Company.
[Registrar] and Depository Agent PDTC
Revised Corporation Code Revised Corporation Code of the Philippines
RTC Regional Trial Court
RTGS Real Time Gross Settlement

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Definition of Terms

RWIL Regent Wise Investments Limited

SAIC SAIC Motor Corporation Limited
SC Supreme Court
SCC Standards Compliance Certificate
SEC Securities and Exchange Commission
Securities Regulation Code The Philippines’ Securities Regulation Code, Republic Act
No. 8799 (2000)
SGV & Co. SyCip Gorres Velayo & Co.
SLEX South Luzon Expressway
Smart Smart Telecommunications, Inc.
SMC San Miguel Corporation
SME Small and Medium-Sized Enterprises
SMS Short Message Service
Speedy-Tech Speedy-Tech Electronics Ltd.
SPPI Solely Payments of Principal and Interest
SSTEC Sino-Singapore Tianjin Eco-City Investment and
Development Co., Ltd.
Sta. Clara Power Sta. Clara Power Corporation
Standard Standard Insurance
Subsidiary/ies Entities over which Ayala has control
Tax Code National Internal Revenue Code of 1997, as amended
TBC or The Blue Circle The Blue Circle Pte. Ltd.
TIEZA Tourism Infrastructure and Enterprise Zone Authority
TM Touch Mobile
TRAIN Tax Reform for Acceleration and Inclusion
TRO Temporary Restraining Order
VAT Value-added Tax
VoIP Voice over Internet Protocol
Voting Preferred Ayala’s voting preferred shares
VTI Vega Telecom Inc.
WARM Water for All Refund Movement
Waterwatch Waterwatch Coalition, Inc.
Wi-Fi Wireless Fidelity

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 EXECUTIVE SUMMARY
The following summary is qualified in its entirety by the more detailed information and financial statements
and notes thereto appearing elsewhere in this Prospectus. Because it is a summary, it does not contain all
of the information that a prospective purchaser should consider before investing. Prospective investors
should read the entire Prospectus carefully, including the section entitled “Risk Factors” and the financial
statements and the related notes to those statements included in this Prospectus.

COMPANY OVERVIEW

Ayala was incorporated in the Philippines on January 23, 1968 and is a corporation having a perpetual
corporate term pursuant to Republic Act No. 11232, otherwise known as the Revised Corporation Code
of the Philippines (the “Revised Corporation Code”). The Company is organized as a holding company
holding equity interests in the Ayala Group (the "Group"), one of the largest and most diversified groups
in the Philippines. Ayala's business activities are divided into: (a) real estate, (b) financial services, (c)
telecommunications, (d) water, (e) industrial technologies, (f) power, (g) infrastructure, (h) healthcare, (i)
education and (j) technology ventures.

Ayala’s real estate business is primarily conducted through its subsidiary, Ayala Land, Inc. (“Ayala Land”
or “ALI”), a diversified real estate company in the Philippines. Its involvement in financial services is through
an affiliate, the Bank of the Philippine Islands (“BPI”), which, together with its subsidiaries (together, the
“BPI Group”), form a universal banking group in the Philippines. Ayala’s telecommunications business is
carried out through an affiliate, Globe Telecom, Inc. (“Globe”), a leading telecommunications companies in
the Philippines. Ayala’s investments in water infrastructure is under Manila Water Company, Inc. (“Manila
Water” or “MWC”). Its international business in electronics manufacturing services and vehicle distribution
and retail are under AC Industrial Technology Holdings Inc. (“AC Industrials or ACI”). Ayala’s investments
in the power sector are held under AC Energy, Inc. (“AC Energy” or “ACEI”), while its investments in
transport and logistics infrastructure are housed under AC Infrastructure Holdings Corp. ("AC Infra"). Its
business in healthcare is conducted through Ayala Healthcare Holdings (“AC Health” or “AHHI”). In May 2,
2019, Ayala finalized the merger of its wholly owned subsidiary AC Education Inc. (“AC Education” or “AEI”)
to iPeople Inc. (“iPeople”), with iPeople as the surviving entity. The merger resulted in Ayala owning a
33.5% stake and House of Investments (“HI”) a 51.3% stake in iPeople.

Ayala became a publicly listed corporation in 1976 when it listed its common shares with the then Makati
Stock Exchange. As of June 30, 2019, Ayala had a market capitalization of ₱561 billion based on its
closing price of ₱894.00 per share. In addition, certain members of the Ayala Group, namely ALI, BPI,
Globe, MWC, Integrated Micro-Electronics, Inc. (“IMI”), AyalaLand Logistics Holdings (“ALLHC” or formerly
known as Prime Orion Philippines Inc.(“POPI”), Cebu Holdings, Inc. (“CHI”), Cebu Property Ventures
Development Corporation (“CPVDC”), Phinma Energy (“PHEN”) and Phinma Petroleum and Geothermal,
Inc (“PPG”) are likewise publicly listed corporations. Some of Ayala’s subsidiaries and affiliates have
holdings in the equity of other subsidiaries and affiliates.

Mermac, Inc., a private holding company incorporated in the Philippines (which held [47.28%] of Ayala
common shares as at June 30, 2019), is the dominant shareholder of Ayala. On the other hand, Mitsubishi
Corporation (“Mitsubishi”) (which held [6.02%] of Ayala common shares as at June 30, 2019) is Ayala’s
long-time strategic shareholder.

Strategy

Amid the Philippines’ economic growth, Ayala’s unique portfolio of businesses provides various engines
for growth and diversification. The positive domestic environment has served as a catalyst for Ayala to
unlock opportunities, develop new ideas, incubate new businesses, and explore prospects for disruptive
innovation. Ayala took advantage of this encouraging environment to create a portfolio that creates certain
hedges against specific macroeconomic and socio-political trends and balances our two major pillars: its
publicly-listed industry leaders in real estate, banking, telecom, and water; and its wholly owned emerging
Executive Summary

businesses in power, industrial technologies, infrastructure, healthcare, education and technology

ventures.

Ayala maintains a healthy balance sheet with access to various financing options to meet debt and dividend
obligations as well as fund new investments. A robust risk management system allows the Company to
maximize opportunities for reinvention, and navigate the challenges faced by its business units.

Recent Developments

2019

On January 22, 2019 Laguna AAAWater Corporation, a subsidiary of Manila Water Philippine Ventures,
Inc. (“MWPV”), signed and executed a Contractual Joint Venture Agreement (“JVA”) with Pagsanjan Water
District (“PAGWAD”). Under the JVA, Laguna Water shall serve as the contractor or agent of PAGWAD
tasked with the operations, management, and maintenance as well as the design, improvement, upgrade,
rehabilitation, and expansion of water supply and sanitation facilities within the service area of PAGWAD
in Pagsanjan, Laguna for a period of 16 years.

On January 25, 2019, AC Energy launched its inaugural bond issuance, issuing US$410 million with tenors
of 5-years and 10-years and coupon rates of 4.75% and 5.25%, respectively. These are the first Climate
Bond Initiative-certified, publicly listed US Dollar green bonds in Southeast Asia. The certification provides
assurance that the proceeds will be used to finance projects and assets that are consistent with delivering
a low-carbon and climate resilient economy.

On September 9 and 11, 2019, AC Energy’s subsidiary, PHEN was declared to have one of the best bids
in Meralco’s competitive bidding for baseload and mid-merit supply of electricity, respectively. Subject to
post-qualification evaluation, execution of the power supply agreement, and approval of the Energy
Regulatory Commission (“ERC”), PHEN will supply Meralco’s baseload demand of 200MW from December
26, 2019 until December 25, 2029, and a mid-merit supply of 110MW from December 26, 2019 until
December 25, 2024.

On March 13, 2019, AC Industrials, a wholly-owned subsidiary of Ayala Corporation through its subsidiary
MT Technologies GmbH, executed a share purchase agreement to acquire a 75.1% controlling stake in C-
CON Group (“C-CON”). C-CON significantly advances MT’s goal to offer end-to-end engineering, design,
and manufacturing services to its automotive customers.

On April 25, 2019, Ayala Land, Inc.'s subsidiary, AyalaLand REIT, Inc. ("AREIT"), announced its plans to
publicly list as a Real Estate Investment Trust ("REIT") under the current Implementing Rules and
Regulations of the SEC on REITs and following the minimum public ownership requirement of 67%.

On May 2, 2019, the merger of AC Education and Yuchengo-group led iPeople took effect, with iPeople as
the surviving entity. Post-merger, HI and Ayala will own a stake of 51.3% and 33.5%, respectively.

On May 2, 2019, AC Energy, Ayala's energy platform, completed the sale of a 60% economic interest and
49% voting interest in AA Thermal Inc. to Aboitiz Power Corporation (“AboitizPower”).
The transaction value is at USD 572.9 million after applying agreed adjustments pursuant to the share
purchase agreement. AA Thermal has ownership interest in the 2x300 MW coal-fired power plant in
Mariveles, Bataan owned by GNPower Mariveles Coal Plant Ltd. Co., which has been in operations since
2014, and in the 2x600 MW supercritical coal-fired power plant in Dinginin, Bataan owned by GNPower
Dinginin Ltd. Co., which is currently under construction.

On May 6, 2019, AC Energy and The Blue Circle signed a shareholders’ agreement to construct, own, and
operate the Mui Ne Wind Farm located at the Binh Thuan province, Southeastern coast of Vietnam. The
Mui Ne Wind Farm has an expansion potential of up to 170MW.

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Executive Summary

On May 22, 2019, Ayala under its share buyback program purchased 3,805,644 common shares from
Mitsubishi priced at ₱838 per share. After the transaction, Mitsubishi’s stake in Ayala stands at 6%.

On June 3, 2019, AC Health received approval from the Philippine Competition Commission (“PCC”) for an
increase in stake in the Generika group of companies from 50% to 52.5%.

On June 24, 2019, AC Energy completed the acquisition of PHINMA Inc.’s and PHINMA Corporation’s
combined 51.48% stake in PHEN. Meanwhile, the completion of the mandatory tender offer for PHEN
shares brought AC Energy’s total ownership stake to 66%.

2018

On January 29, 2018, Manila Water and its wholly owned subsidiary, Manila Water Philippine Ventures,
Inc. (“MWPV”), received a Notice of Award from the City of Ilagan Water District (“CIWD”) for the
implementation of the joint venture project for the development, financing, operation, and management of
a raw water source, provision of bulk water supply with system expansion, and the development of septage
management in the City of Ilagan, Isabela.

On January 11, 2018, SIAL CVS Retailers, Inc., the joint venture of Ayala Land, through its ALI Capital
Corp and SSI Group, Inc., FamilyMart Co., Ltd., and ITOCHU Corporation concluded the transaction to sell
100% of the outstanding shares of Philippine FamilyMart CVS, Inc. to Phoenix Petroleum Philippines, Inc.

On February 8, 2018, AC Education and shareholders of National Teachers College (“NTC”) executed a
Share Purchase Agreement for the acquisition of an approximately 96% stake in NTC.

On February 13, 2018, Aboitiz InfraCapital, Inc., AC Infra, Alliance Global Group Inc., AEDC, Filinvest
Development Corporation, JG Summit Holdings, Inc. and Metro Pacific Investments Corporation, otherwise
known as the NAIA Consortium, submitted its unsolicited proposal for the rehabilitation, upgrade,
expansion, operation, and maintenance of the Ninoy Aquino International Airport.

On February 13, 2018, AC Infra signed an investment agreement to invest in a company that will engage
in the provision of fulfillment solutions services. AC Infra will hold up to 60% of the outstanding common
shares of the said company while the remaining 40% is to be held by ZALORA affiliate, Brillant 1257 GmbH
& Co. Vierte Verwaltungs Kg (“Brillant”), a corporation duly organized under the laws of Germany.

On February 20, 2018, Ayala Land., through its wholly-owned subsidiary, Regent Wise Investments Limited
(“RWIL”), took majority control of MCT Bhd (“MCT”). Following the acquisition of an additional stake and
completion of an unconditional mandatory takeover offer, Ayala Land’s shareholdings in MCT stands at
72.3%
On various dates in 2018, AC Industrial Technology Holdings Inc. through its subsidiary ACI Solar
Holdings NA Inc. acquired a total of 98.96% stake in Merlin Solar Technologies, Inc.

On March 23, 2018, Ayala Land increased its stake in POPI (currently known as AyalaLand Logistics
Holdings Corp.) through the exchange of 75% of its equity interest in Laguna Technopark, Inc. (“LTI”) into
additional shares of stock in POPI. The transaction brought Ayala Land’s direct ownership in POPI to
63.90% from 54.91%. Combining LTI and POPI creates a bigger entity that will pursue real estate logistics
and industrial development and reposition POPI to be a leading real estate logistics and industrial estate
developer and operator in the Philippines.

On March 7, 2018, PT Manila Water Indonesia (“PTMWI”), a wholly-owned subsidiary of Manila Water in
Indonesia, signed a share purchase agreement with PT. Triguna Rapindo Mandiri to acquire 4,478 shares
of PT. Sarana Tirta Ungaran (“STU”) for the acquisition of a 20% stake in STU.

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Executive Summary

On April 5, 2018, Ayala Land signed a deed of absolute sale with Central Azucarera de Tarlac, Inc. for the
acquisition of 290 hectares located in Barangay Central, City of Tarlac, Province of Tarlac.

On April 9, 2018, the manufacturing portfolio of AC Industrials, IMI, announced the creation of VTS-
Touchsensor Co., Ltd. (“VTS”), a joint venture between VIA Optronics GmbH and Toppan Printing Co. Ltd.,
which will serve the market for copper-based metal mesh touch sensors.

On April 26, 2018, Manila Water and its wholly-owned subsidiary, MWPV, received a Notice of Award from
the Balagtas Water District for the implementation of a joint venture project for the design, construction,
rehabilitation, maintenance, operation, financing, expansion, and management of the water supply system
and sanitation facilities of the Balagtas Water District in the Municipality of Balagtas in the province of
Bulacan.

On April 30, 2018, AC Education assumed ownership of approximately 96% of the outstanding voting
shares and 88% of the total outstanding shares of NTC. The purchase price amounts to less than 10% of
Ayala’s total shareholders’ equity.

On May 2, 2018, Manila Water and its wholly-owned subsidiary, MWPV, received a Notice of Award from
the Bulacan Water District for the implementation of a joint venture project for the design, construction,
rehabilitation, maintenance, operation, financing, expansion, and management of the water supply system
and sanitation facilities of the Bulacan Water District in the Municipality of Bulakan in the province of
Bulacan.

On May 11, 2018, Ayala Land entered into a Memorandum of Understanding with Green Square Properties
Corporation (“GSPC”) and Green Circle Properties and Resources, Inc. (“GCPRI”) for the formation of a
joint venture company that will own and develop 27,852 hectares of land, specifically located in Dingalan,
Aurora and General Nakar, Province of Quezon. ALI will own 51%, and GSPC and GCPRI will jointly own
49% of the joint venture company. The long-term vision for the Properties is to support the government’s
initiative of developing the country’s eastern coast and promoting inclusive growth through the phased
development of a master planned mixed-use estate, principally oriented towards tourism, commercial,
residential, and institutional uses.

On May 23, 2018, AC Energy participated in the Australian renewables market through the creation of a
joint venture platform with international renewable energy developer, UPC Renewables. AC Energy will
invest US$30 million for a 50% ownership in UPC's Australian business.

On July 5, 2018, Globe approved the creation of a separate tower holding company. The establishment of
a tower company will help speed up the building and deployment of cellular towers in the country.

On July 12, 2018, Laguna AAAWater Corporation, a subsidiary of MWPV, received a notice of award from
the Pagsanjan Water District for the implementation of the joint venture project for the design, improvement,
upgrade, rehabilitation, and expansion of water supply and sanitation facilities including the financing and
construction of such facilities and infrastructure in the service area of the Pagsanjan Water District.

On June 14, 2018, BPI approved the establishment of a Medium-Term Note Program in the aggregate
amount of up to US$2,000,000,000 or its equivalent in other currencies. The Medium-Term Note Program
is part of the bank's initiatives to maximize flexibility in accessing funding expediently. The issuance of notes
shall be subject to market conditions and shall be determined by requirements of the bank’s business.

On June 18, 2018, MWPV, a wholly-owned subsidiary of Manila Water, received a Notice to Proceed from
the Municipality of Sta. Barbara in the Province of Pangasinan for the provision of water supply and the
improvement, operation, maintenance, management, financing, and expansion of water supply facilities,
and the provision of septage management in the muni.

On August 13, 2018, AC Energy in partnership with the BIM Group of Vietnam signed engineering,
procurement, and construction as well as financing documents for the development of BIM Solar Power

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Executive Summary

Plants in Ninh Thuan province, Vietnam. The project is estimated to cost around US$240M, which will be
financed by debt and equity. AC Energy will participate with a 30% voting stake and approximately 50%
economic share in the platform.

On August 14, 2018, AC Infra with Unisys Philippines and Aboitiz InfraCapital, Inc. submitted an unsolicited
proposal to the Philippine Statistics Authority for the design and development of a national identity
infrastructure solution. The 17-year proposal provides an expedient, comprehensive and long-term solution
that will enable the government to realize the full potential of its strategic programs by providing a safe and
secure identification and benefits payment mechanism for individuals transacting with government.

On August 16, 2018, Obando Water Consortium Holdings Corp. (“OWCHC” and now Filipinas Water
Consortium Holdings Corporation, or “Filipinas Water”), the consortium of Manila Water and its wholly
owned subsidiary, MWPV, signed and executed a Joint Venture Agreement with the Bulacan Water District.
Under the JVA, OWCHC and Bulacan Water District shall incorporate a joint venture company, which shall
be granted a concession by Bulacan Water District for the design, construction, rehabilitation, maintenance,
operation, financing, expansion, and management of the water supply system and sanitation facilities of
the Bulacan Water District in the Municipality of Bulakan in the province of Bulacan.

On August 31, 2018, AC Infra, together with Brillant, formed a holding company that will serve as its
investment vehicle for future initiatives relating to courier and freight forwarding services. AC Infra holds
60% equity interest in the said holding company, while Brillant holds 40% equity interest. Brillant is a
corporation duly-organized under the laws of Germany and is a ZALORA affiliate.

On September 7, 2018, the Metropolitan Waterworks and Sewerage System (“MWSS”) has approved
Manila Water’s Rebasing Adjustment for the Fifth Rate Rebasing Period (i.e., from 2018 to 2022). To
mitigate the impact of the tariff, increase on its customers, Manila Water shall stagger its implementation
over a five-year period.

On September 20, 2018, BPI approved the establishment of a Peso Bond and Commercial Paper Program
in the aggregate amount of up to Fifty Billion Philippine Pesos (₱50 billion).

On September 27, 2018, Aboitiz Power entered into a share purchase agreement with Arlington Mariveles
Netherlands Holding BV, an affiliate of AC Energy, and a shareholders’ agreement with AC Energy, a
wholly-owned subsidiary of Ayala, for the proposed acquisition of a 49% voting stake and 60% economic
stake in AA Thermal, AC Energy’s thermal platform in the Philippines. The AA Thermal platform will initially
consist of AC Energy’s limited partnership interests in GNPower Mariveles Coal Plant Ltd. Co., the owner
and operator of an operating 2x316 MW coal plant in Mariveles, Bataan, and in GNPower Dinginin Ltd. Co.,
the developer and owner of a 2x668 MW supercritical coal plant project in Dinginin, Bataan, which is
currently under construction.

On September 13, 2018, the NAIA Consortium composed of Aboitiz InfraCapital, Inc., AC Infrastructure,
Alliance Global Group Inc., Asia’s Emerging Dragon Corporation, Filinvest Development Corporation, JG
Summit Holdings, Inc. and Metro Pacific Investments Corporation, has been granted Original Proponent
Status from the Department of Transportation (the “DOTr” and formerly the Department of Transportation
and Communications (“DOTC”) and the Manila International Airport Authority for its unsolicited proposal to
rehabilitate, upgrade, expand, operate, and maintain the Ninoy Aquino International Airport for a period of
15 years.

Following the grant of Original Proponent Status, the NAIA Consortium’s proposal shall be subject to review
and approval by the NEDA Board and to a Swiss Challenge in accordance with the requirements of Republic
Act No. 7718 or the Build-Operate-Transfer Law.

On September 29, 2018, IMI, the 5th largest automotive electric manufacturing services (“EMS”) in the world
and a subsidiary of AC Industrials recently inaugurated IMI Serbia, its latest manufacturing facility at the
City of Niš, Republic of Serbia. IMI Serbia will be IMI’s 21st factory, and will complement production facilities
in the Philippines, China, Bulgaria, Czech Republic, Germany, Japan, Mexico, the United Kingdom, and

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Executive Summary

the United States in addition to the production facilities of other AC Industrials companies in Germany,
Thailand, the United States, and the Philippines

On October 1, 2018, Manila Water implemented the Foreign Currency Differential Adjustment (“FCDA”)
amounting to ₱1.56 per cubic meter. This adjustment was based on the exchange rates of
USD1:PHP53.433 and JPY1:PHP0.480. The FCDA component of the water bill was adjusted to 6.11% of
the basic charge.

As provided in the Concession Agreement between Manila Water and the MWSS, as amended, the FCDA
is a tariff mechanism formulated to account for foreign exchange losses or gains arising from the payment
by Manila Water of concession loans and foreign currency-denominated borrowings of the MWSS, as well
as loans of Manila Water for service expansion and improvement of its services. The FCDA has no impact
on the projected net income of Manila Water.

On October 1, 2018, SAIC MAXUS Automotive Co., Ltd. (“Maxus”) has appointed AC Industrials, a wholly-
owned unit of Ayala, as the official distributor of Maxus vehicles in the Philippines.

Maxus is a wholly owned subsidiary of SAIC Motor Corporation Limited (“SAIC”), with an emerging portfolio
focused on light commercial vehicles. Launched in 2011 after SAIC’s acquisition of the LDV brand, Maxus
has grown its sales to 70,000 vehicles in 2017 across three major model lines, exporting over 10,000 in the
same year. The addition of Maxus will strengthen and diversify AC Industrials’ portfolio of product offerings
in alignment with evolving Philippine market preferences. As incomes and productivity have grown, Filipino
automotive buyers have increasingly gravitated toward the light commercial vehicle segment, which offers
greater utility, flexibility to accommodate a wide range of business and lifestyle needs, and improved
comfort and drivability.

On October 1, 2018, the Executive Committee of Ayala approved the merger of its subsidiary, AC Education
with iPeople, the education subsidiary of HI. Under the terms and conditions of the merger, listed iPeople
will be the surviving entity.

The merger, which shall be completed as a statutory merger in accordance with Philippine law, shall be
subject to the approval of the respective Boards of Directors and stockholders of AC Education and iPeople
as well as securing the necessary regulatory approvals.

On October 15, 2018, AC Energy in partnership with AMI Renewables Energy Joint Stock Co., signed EPC
and financing documents to build solar farms totaling 80 megawatts in Vietnam’s provinces of Khanh Hoa
and Dak Lak. The solar farms will be commissioned in time for the June 2019 solar feed-in tariff deadline.

The projects are estimated to cost US$ 83 million, financed with debt and equity. AC Energy will participate
with at least 50% economic share.

On October 16, 2018, MWPV, a wholly-owned subsidiary of Manila Water, received a Notice to Proceed
from the Municipality of San Fabian, Pangasinan following the enactment by said Municipality of Ordinance
No. 19, Series of 2018 or “An Ordinance Granting MWPV a Franchise to Establish, Construct, Operate,
Manage, Repair, and Maintain Water Supply System and Facilities, and the Provision of Septage
Management in the Municipality of San Fabian, Pangasinan.”

On October 17, 2018, Ayala Health invested in APPPPS Partners, Inc. (“AIDE”), which provides health
services in the comfort of patients’ homes. Through the AIDE mobile app, patients can book doctors,
nurses, and other medical professionals to render healthcare services in their homes. Services include
medical consultations, nursing care, physical therapy, caregiving, lab extraction and interpretation, and
even veterinary care.

On November 13, 2018, AC Energy through its subsidiary AC Energy International Holdings Pte. Ltd. has
acquired ~25% ownership of The Blue Circle Pte. Ltd. (“TBC” or “The Blue Circle”), as well as co-Investment
rights in TBC projects. AC Energy and TBC will jointly develop, construct, own and operate TBC’s pipeline

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Executive Summary

of around 1,500 MW of wind projects across Southeast Asia, including ~700 MW in Vietnam. TBC
developed and constructed one of the first wind farms in Vietnam.

AC Energy's renewable energy pipeline continues to grow as the joint venture expects to start construction
of around 200 MW of wind farms in Vietnam in 2019. AC Energy has earmarked US$ 100 million of equity
for these projects. TBC focuses on developing and investing in utility scale wind projects in Southeast Asia
with pipeline in Vietnam, Indonesia, Thailand and Cambodia among others. It was founded in 2013 and has
a management team with 79 years of combined renewable energy experience.

On November 16, 2018, Filipinas Water Holdings, Corp., the consortium of Manila Water and its wholly-
owned subsidiary, MWPV, has signed and executed a JVA with the CIWD. Under the JVA, Filipinas Water
Holdings, Corp. and CIWD shall incorporate a joint venture company, which shall implement the
development, construction, operation, and maintenance of Bulk Water Supply with System Expansion and
Septage Management Project for CIWD in the City of Ilagan in the province of Isabela.

On November 16, 2018, MWPV has signed and executed a JVA with Tubig Pilipinas Group, Inc. Under the
JVA, MWPV and Tubig Pilipinas Group, Inc. shall incorporate a joint venture company, which shall
establish, construct, operate, manage, repair, and maintain water supply facilities in the Municipality of
Malasiqui, Pangasinan. The said project was awarded to the joint venture company through a grant of
franchise, under the Municipal Ordinance No. 008-2017.

On November 27, 2018, Manila Water received a Notice of Award from the Calinog Water District for a joint
venture for the design, construction, rehabilitation, maintenance, operation, financing, expansion, and
management of the water supply system of the Calinog Water District in the Municipality of Calinog in the
Province of Iloilo.

On November 27, 2018, Manila Water received a Notice of Award from the Lambunao Water District for a
joint venture for the design, construction, rehabilitation, maintenance, operation, financing, expansion, and
management of the water supply system of the Lambunao Water District in the Municipality of Lambunao
in the Province of Iloilo.

A Share Purchase Agreement was executed on December 6, 2018, the closing of which is subject to the
fulfillment of certain conditions precedent and to securing any necessary regulatory approval.

On December 17, 2018, Board of Directors of the Tourism Infrastructure and Enterprise Zone Authority
(“TIEZA”), in its Resolution No. R-04-12-18-I dated December 4, 2018 has approved an upward adjustment
in the rates charged by Boracay Island Water Company, Inc. (“BIWC”) equivalent to 18.08% of the 2018
Basic Water and Sewer Charge. The adjustment represents the third tranche of the adjustments approved
during the 2017 Rate Rebasing Exercise and the corresponding inflation rate. Further, a 3.00% increase
shall be applied to the Basic Water and Sewer Charge to account for the Foreign Currency Differential
Adjustment.

On December 5, 2018, AC Industrials, through one of its subsidiaries, signed a Distributorship Agreement
with Kia Motors Corporation (“KMC”) to distribute the Kia brand in the Philippines. To undertake this new
business and re-establish the Kia brand in the Philippines, a joint venture company, with AC Industrials as
majority stockholder, will be established in collaboration with the previous distributor, Columbian Autocar
Corporation.

On December 26, 2018, Manila Water, its wholly-owned subsidiary, MWPV, and Tubig Pilipinas Group,
Inc., received a Notice of Award from the San Jose City Water District – Nueva Ecija for the implementation
of the joint venture project for the design, construction, improvement, upgrade, rehabilitation, maintenance,
operation, financing, expansion, and management of the water supply system and the provision of water
and sanitation services of the San Jose City Water District – Nueva Ecija in the City of San Jose in the
province of Nueva Ecija.

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Executive Summary

On December 27, 2018, Manila Water received a Notice of Award from the Calbayog City Water District for
the implementation of the joint venture project for the design, construction, rehabilitation, maintenance,
operation, financing, expansion, and management of the water and wastewater systems of Calbayog City
Water District in the City of Calbayog, as well as other areas which may eventually form part of the service
coverage of Calbayog City Water District in the Province.

Future Plans and Prospects

Ayala believes that the Philippines continues to be fundamentally strong, having remained resilient amid
the challenges in the global economy. Going forward, the Ayala group will continue to execute on its five-
year growth strategy for 2020 as it closely monitors key trends and potential risks in the global and
domestic economies as well as in the industries where it operates. By 2020, Ayala targets to double its
net income to ₱50 billion and generate 20 percent of equity earnings from emerging businesses.

The Company will continue to strengthen its portfolio of emerging businesses, led by AC Energy, which
has started to become a significant component of Ayala’s earnings and value creation. In addition, the
Company will continue to build scale and explore growth areas in indusrial technologies, healthcare, and
infrastructure.

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Executive Summary

SUMMARY FINANCIAL INFORMATION

The following tables set forth financial and operating information on Ayala. Prospective purchasers of the
Preferred Shares should read the summary financial data below together with the financial statements,
including the notes thereto, presented as an Annex and the “Management’s Discussion and Analysis of
Financial Condition and Results of Operation” section of this Prospectus. The summary financial data for
the six-month periods ended June 30, 2019 and 2018 under columns “Unaudited” are derived from Ayala’s
SEC 17Q reports, which are found elsewhere in this Prospectus. These consolidated financial statements
were prepared in accordance with Philippine Accounting Standard (“PAS”) 34, Interim Financial Reporting.

The summary financial data as of December 31, 2018, 2017 and 2016 under columns “Audited” or
“Restated” are derived from Ayala’s audited consolidated financial statements, including the notes thereto,
which are found elsewhere in this Prospectus. These consolidated financial statements were prepared in
accordance with PFRS and were audited by SyCip Gorres Velayo & Co. (“SGV & Co.”) in accordance with
PAS.

This section also includes financial and operating data with respect to Ayala’s subsidiaries (Ayala Land,
IMI, and Manila Water), Associate (BPI) and Joint Venture (Globe). This section should be read in
conjunction with the financial highlights of these Subsidiaries, Associates and Joint Ventures. The financial
highlights as contained in their respective SEC 17Q reports (for financial data as of June 30, 2019 and
2018) and SEC17A reports (for financial data as of December 2018, 2017, and 2016) of these
Subsidiaries, Associates and Joint Ventures are available for viewing at the office of the Philippine SEC
located at the Secretariat Building, PICC Complex, Roxas Boulevard, Pasay City, or at these companies’
respective principal places of business.

The accounting policies adopted in the preparation of the unaudited interim condensed consolidated
financial statements are consistent with those followed in the preparation of the Group’s annual
consolidated financial statements for the year ended December 31, 2018, except for the new PFRS,
amended PFRS, improvements to PFRS and interpretations which were adopted beginning January 1,
2019. The nature and the impact of each new standards and amendments are described below:

• Amendments to PFRS 9, Prepayment Features with Negative Compensation

Under PFRS 9, a debt instrument can be measured at amortized cost or at fair value through other
comprehensive income, provided that the contractual cash flows are ‘solely payments of principal and
interest (“SPPI”) on the principal amount outstanding’ (the “SPPI criterion”) and the instrument is held
within the appropriate business model for that classification. The amendments to PFRS 9 clarify that
a financial asset passes the SPPI criterion regardless of the event or circumstance that causes the
early termination of the contract and irrespective of which party pays or receives reasonable
compensation for the early termination of the contract. The amendments should be applied
retrospectively and are effective from January 1, 2019, with earlier application permitted.

• PFRS 16, Leases

PFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of
leases and requires lessees to account for all leases under a single on-balance sheet model similar to
the accounting for finance leases under PAS 17, Leases. The standard includes two recognition
exemptions for lessees - leases of ’low-value’ assets (e.g., personal computers) and short-term leases
(i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee
will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the
right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be
required to separately recognize the interest expense on the lease liability and the depreciation
expense on the right-of-use asset.

Lessees will also be required to remeasure the lease liability upon the occurrence of certain events
(e.g., a change in the lease term, a change in future lease payments resulting from a change in an
index or rate used to determine those payments). The lessee will generally recognize the amount of
the remeasurement of the lease liability as an adjustment to the right-of-use asset.

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Lessor accounting under PFRS 16 is substantially unchanged from today’s accounting under PAS 17.
Lessors will continue to classify all leases using the same classification principle as in PAS 17 and
distinguish between two types of leases: operating and finance leases.

PFRS 16 also requires lessees and lessors to make more extensive disclosures than under PAS 17.

A lessee can choose to apply the standard using either a full retrospective or a modified retrospective
approach. The standard permit transitional reliefs and practical expedients for the measurements of
lease liabilities and right of use assets arising from leases previously classified as operating lease.

Transition to PFRS 16
The Group has chosen to apply the modified retrospective transition method (i.e., to apply PFRS 16
retrospectively with the cumulative effect of initially applying the standard recognized at the date of
initial application, January 1, 2019).

The Group has elected to use the transition practical expedient in applying PFRS 16 to contracts that
were previously identified as leases applying PAS 17 and IFRIC 4. The Group will therefore not apply
PFRS 16 to contracts that were not previously identified as containing a lease applying PAS 17 and
IFRIC 4.

The standard provides the following practical expedients which the Group adopted:
1. Use of a single discount rate to a portfolio of leases with reasonably similar characteristics,
2. The Group will rely on its assessment of whether leases are onerous immediately before the
date of initial application,
3. The Group will not apply the requirements of PFRS 16 to leases for which the lease term ends
within 12 months from the date of initial application,

The Group has also elected to use the recognition exemptions proposed for lease contracts, that at the
commencement date, have a lease term of 12 months or less and do not contain a purchase option
(short-term leases) and lease contracts for which the underlying asset is of low value (low-value assets).

Impact of PFRS 16
The impact of PFRS 16 adoption is as follows:

a) Nature of the effect of adoption of PFRS 16

The Group has lease contracts for various items of land, office space, facilities, plant, machinery,
vehicles and other equipment. Before the adoption of PFRS 16, the Group classified each of its leases
(as lessee) at the inception date as either a finance lease or an operating lease. A lease was classified
as a finance lease if it transferred substantially all of the risks and rewards incidental to ownership of
the leased asset to the Group; otherwise it was classified as an operating lease. Finance leases were
capitalized at the commencement of the lease at the inception date fair value of the leased property or,
if lower, at the present value of the minimum lease payments. Lease payments were apportioned
between interest (recognized as finance costs) and reduction of the lease liability. In an operating lease,
the leased property was not capitalized and the lease payments were recognized as rent expense in
the statement of income on a straight-line basis over the lease term. Any prepaid rent and accrued rent
were recognized under Prepayments and Trade and other payables, respectively.

• Right-of-use assets
The Group recognizes right-of-use assets at the commencement date of the lease (i.e., the
date the underlying asset is available for use). Right-of-use assets are measured at cost, less
any accumulated depreciation and impairment losses, and adjusted for any remeasurement of
lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities
recognized, initial direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Unless the Group is reasonably
certain to obtain ownership of the leased asset at the end of the lease term, the recognized

26 | P a g e
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right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated
useful life and the lease term. Right-of-use assets are subject to impairment.

• Lease liabilities
At the commencement date of the lease, the Group recognizes lease liabilities measured at the
present value of lease payments to be made over the lease term. The lease payments include
fixed payments (including in-substance fixed payments) less any lease incentives receivable,
variable lease payments that depend on an index or a rate, and amounts expected to be paid
under residual value guarantees. The variable lease payments that do not depend on an index
or a rate are recognized as expense in the period on which the event or condition that triggers
the payment occurs.

Upon adoption of PFRS 16, the Group applied a single recognition and measurement approach for all
leases, except for short-term leases and leases of low-value assets. The standard provides specific
transition requirements and practical expedients, which has been applied by the Group.

Leases previously classified as finance leases

The Group did not change the initial carrying amounts of recognized assets and liabilities at the date of
initial application for leases previously classified as finance leases (i.e., the right-of-use assets and
lease liabilities equal the lease assets and liabilities recognized under PAS 17). The requirements of
PFRS 16 was applied to these leases from January 1, 2019.

Leases previously accounted for as operating leases

The Group recognized right-of-use assets and lease liabilities for those leases previously classified as
operating leases, except for short-term leases and leases of low-value assets. The right-of-use assets
were recognized based on the amount equal to the lease liabilities, adjusted for any related prepaid
and accrued lease payments previously recognized. Lease liabilities were recognized based on the
present value of the remaining lease payments, discounted using the incremental borrowing rate at the
date of initial application.

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at
the lease commencement date if the interest rate implicit in the lease is not readily determinable. After
the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest
and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is
remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed
lease payments or a change in the assessment to purchase the underlying asset.

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its short-term leases (i.e., those leases
that have a lease term of 12 months or less from the commencement date and do not contain a
purchase option). It also applies the lease of low-value assets recognition exemption to leases of office
equipment that are considered of low value as defined in the accounting policies of subsidiaries. Lease
payments on short-term leases and leases of low-value assets are recognized as expense on a straight-
line basis over the lease term.

The following table shows the individual line items in the Group’s financial statements which were
affected by the adjustments from the adoption of PFRS 16 (in thousand pesos).

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Pre-PFRS 16 PFRS 16 Post-PFRS 16

impact
For the period ended June 30, 2019
Income Statement
Increase in rent and depreciation expenses ₱ 562,339 32,627 ₱ 594,966
ROU interest expense - 292,193 292,193
Decrease in share in net profit of
associates and joint ventures - 25,516 25,516
Provision for income tax - deferred (217,073) (217,073)
Decline in Net Income ₱ 562,339 ₱ 133,264 ₱ 695,603

As of January 1, 2019
Balance Sheet
Right-of-use (ROU) asset ₱ - 16,502,763 ₱ 16,502,763
Deferred tax asset - net - 217,449 217,449
Lease liability - 18,232,592 18,232,592
Beginning Retained Earnings 196,914,989 128,915 197,043,904

Due to the adoption of PFRS 16, the Group’s net income declined arising from increase in expenses
and interest expense, and slight decline in share in equity earnings of associates and joint ventures.
The adoption of PFRS 16 also had an impact on equity, specifically opening Retained Earnings.

The following table meantime shows the movement in the right-of-use asset and lease liability for the
first half of year 2019 (in thousand pesos).

ROU Assets Lease Liabilities

Beginning balances, January 1, 2019 ₱ 16,502,763 ₱ 18,232,592
Additions during the year including interest 65,949 497,018
Depreciation (551,448)
Payments (487,648)
Ending Balance, June 30, 2019 ₱ 16,017,264 ₱ 18,241,962

For the first half of year 2019, the Group’s rental or lease expenses arising from certain contracts and
are exempted from PFRS 16 amounted to: from short-term leases - ₱235.1 million, from variable lease
payments - ₱86.5 million and low value items - ₱1.9 million.

• Amendments to PAS 19, Employee Benefits, Plan Amendment, Curtailment or Settlement

The amendments to PAS 19 address the accounting when a plan amendment, curtailment or settlement
occurs during a reporting period. The amendments specify that when a plan amendment, curtailment
or settlement occurs during the annual reporting period, an entity is required to:

• Determine current service cost for the remainder of the period after the plan amendment, curtailment
or settlement, using the actuarial assumptions used to remeasure the net defined benefit liability
(asset) reflecting the benefits offered under the plan and the plan assets after that event.
• Determine net interest for the remainder of the period after the plan amendment, curtailment or
settlement using: the net defined benefit liability (asset) reflecting the benefits offered under the plan
and the plan assets after that event; and the discount rate used to remeasure that net defined benefit
liability (asset).

The amendments also clarify that an entity first determines any past service cost, or a gain or loss on
settlement, without considering the effect of the asset ceiling. This amount is recognized in profit or
loss. An entity then determines the effect of the asset ceiling after the plan amendment, curtailment or

28 | P a g e
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settlement. Any change in that effect, excluding amounts included in the net interest, is recognized in
other comprehensive income.

The amendments apply to plan amendments, curtailments, or settlements occurring on or after the
beginning of the first annual reporting period that begins on or after January 1, 2019, with early
application permitted. These amendments will apply only to any future plan amendments, curtailments,
or settlements of the Group.

• Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures

The amendments clarify that an entity applies PFRS 9 to long-term interests in an associate or joint
venture to which the equity method is not applied but that, in substance, form part of the net investment
in the associate or joint venture (long-term interests). This clarification is relevant because it implies
that the expected credit loss model in PFRS 9 applies to such long-term interests.

The amendments also clarified that, in applying PFRS 9, an entity does not take account of any losses
of the associate or joint venture, or any impairment losses on the net investment, recognized as
adjustments to the net investment in the associate or joint venture that arise from applying PAS 28,
Investments in Associates and Joint Ventures.

• Philippine Interpretation IFRIC-23, Uncertainty over Income Tax Treatments

The interpretation addresses the accounting for income taxes when tax treatments involve uncertainty
that affects the application of PAS 12 and does not apply to taxes or levies outside the scope of PAS
12, nor does it specifically include requirements relating to interest and penalties associated with
uncertain tax treatments.

The interpretation specifically addresses the following:

• Whether an entity considers uncertain tax treatments separately

• The assumptions an entity makes about the examination of tax treatments by taxation authorities
• How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits
and tax rates
• How an entity considers changes in facts and circumstances

An entity must determine whether to consider each uncertain tax treatment separately or together with
one or more other uncertain tax treatments. The approach that better predicts the resolution of the
uncertainty should be followed.

• Annual Improvements to PFRSs 2015-2017 Cycle

• Amendments to PFRS 3, Business Combinations, and PFRS 11, Joint Arrangements, Previously
Held Interest in a Joint Operation
The amendments clarify that, when an entity obtains control of a business that is a joint operation, it
applies the requirements for a business combination achieved in stages, including remeasuring
previously held interests in the assets and liabilities of the joint operation at fair value. In doing so,
the acquirer remeasures its entire previously held interest in the joint operation.

A party that participates in, but does not have joint control of, a joint operation might obtain joint
control of the joint operation in which the activity of the joint operation constitutes a business as
defined in PFRS 3. The amendments clarify that the previously held interests in that joint operation
are not remeasured.

An entity applies those amendments to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after January 1, 2019 and to
transactions in which it obtains joint control on or after the beginning of the first annual reporting
period beginning on or after January 1, 2019, with early application permitted. These amendments
are currently not applicable to the Group but may apply to future transactions.

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• Amendments to PAS 12, Income Tax Consequences of Payments on Financial Instruments

Classified as Equity
The amendments clarify that the income tax consequences of dividends are linked more directly to
past transactions or events that generated distributable profits than to distributions to owners.
Therefore, an entity recognizes the income tax consequences of dividends in profit or loss, other
comprehensive income or equity according to where the entity originally recognized those past
transactions or events.

An entity applies those amendments for annual reporting periods beginning on or after January 1,
2019, with early application is permitted. These amendments are not relevant to the Group because
dividends declared by the Group do not give rise to tax obligations under the current tax laws.

• Amendments to PAS 23, Borrowing Costs, Borrowing Costs Eligible for Capitalization
The amendments clarify that an entity treats as part of general borrowings any borrowing originally
made to develop a qualifying asset when substantially all of the activities necessary to prepare that
asset for its intended use or sale are complete.

An entity applies those amendments to borrowing costs incurred on or after the beginning of the
annual reporting period in which the entity first applies those amendments. An entity applies those
amendments for annual reporting periods beginning on or after January 1, 2019, with early application
permitted.

Other than PFRS 16 which impacts the Group and is fully described in the foregoing, all the other
amendments, improvements and interpretations listed above that became effective starting January 1, 2019
do not have significant impact on the consolidated financial statements of the Group. However, the Group
will continue to assess the impact and other areas of adopting these.

Effective beginning on or after January 1, 2020

• Amendments to PFRS 3, Definition of a Business

The amendments to PFRS 3 clarify the minimum requirements to be a business, remove the
assessment of a market participant’s ability to replace missing elements, and narrow the definition of
outputs. The amendments also add guidance to assess whether an acquired process is substantive
and add illustrative examples. An optional fair value concentration test is introduced which permits a
simplified assessment of whether an acquired set of activities and assets is not a business.

An entity applies those amendments prospectively for annual reporting periods beginning on or after
January 1, 2020, with earlier application permitted.

These amendments will apply on future business combinations of the Group.

• Amendments to PAS 1, Presentation of Financial Statements, and PAS 8, Accounting Policies,

Changes in Accounting Estimates and Errors, Definition of Material
The amendments refine the definition of material in PAS 1 and align the definitions used across PFRSs
and other pronouncements. They are intended to improve the understanding of the existing
requirements rather than to significantly impact an entity’s materiality judgements.

An entity applies those amendments prospectively for annual reporting periods beginning on or after
January 1, 2020, with earlier application permitted.

Effective beginning on or after January 1, 2021

• PFRS 17, Insurance Contracts

PFRS 17 is a comprehensive new accounting standard for insurance contracts covering recognition
and measurement, presentation and disclosure. Once effective, PFRS 17 will replace PFRS 4,

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Insurance Contracts. This new standard on insurance contracts applies to all types of insurance
contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that
issue them, as well as to certain guarantees and financial instruments with discretionary participation
features. A few scope exceptions will apply.

The overall objective of PFRS 17 is to provide an accounting model for insurance contracts that is more
useful and consistent for insurers. In contrast to the requirements in PFRS 4, which are largely based
on grandfathering previous local accounting policies, PFRS 17 provides a comprehensive model for
insurance contracts, covering all relevant accounting aspects. The core of PFRS 17 is the general
model, supplemented by:

• A specific adaptation for contracts with direct participation features (the variable fee approach)

• A simplified approach (the premium allocation approach) mainly for short-duration contracts
PFRS 17 is effective for reporting periods beginning on or after January 1, 2021, with comparative
figures required. Early application is permitted.

The new standard is not applicable to the Group since none of the entities within the Group have
activities that are predominantly connected with insurance or issue insurance contracts.

Deferred Effectivity

• Amendments to PFRS 10, Consolidated Financial Statements, and PAS 28, Sale or Contribution
of Assets between an Investor and its Associate or Joint Venture
The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss of
control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments
clarify that a full gain or loss is recognized when a transfer to an associate or joint venture involves
a business as defined in PFRS 3. Any gain or loss resulting from the sale or contribution of assets
that does not constitute a business, however, is recognized only to the extent of unrelated investors’
interests in the associate or joint venture.

On January 13, 2016, the Financial Reporting Standards Council deferred the original effective
date of January 1, 2016 of the said amendments until the International Accounting Standards Board
(IASB) completes its broader review of the research project on equity accounting that may result in
the simplification of accounting for such transactions and of other aspects of accounting for
associates and joint ventures.

The Group is currently assessing the impact of adopting these amendments.

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The following table summarizes the financial highlights of Ayala’s consolidated financial position and
results of operation as of and for the years ended December 31, 2018, 2017, and 2016 and for the six-
month periods ended June 30, 2019 and June 30, 2018:

CONSOLIDATED Six Months Ended Year Ended

STATEMENTS OF INCOME June 30 December 31
(Unaudited) (Unaudited) (Audited) (Audited) (Audited)
(Amounts in ₱ Thousands Except
Earnings per Share) 2019 2018 2018 2017 2016

INCOME
Sale of goods and rendering of
services ₱137,510,946 ₱134,523,593 ₱274,881,486 ₱242,227,640 ₱199,208,899
Share in net profits of associates
and joint ventures 11,145,735 10,049,323 20,459,804 18,494,458 18,153,893
Interest income 5,212,390 3,556,341 9,747,726 6,813,481 6,776,936
Dividend income 77,092 577,279 106,803 653,721 570,455
153,946,163 148,706,536 305,195,819 268,189,300 224,710,183
COSTS AND EXPENSES

Cost of sales and services 96,263,397 96,352,817 196,607,561 175,674,469 141,350,400

General and administrative 16,082,916 13,825,890 29,822,058 25,213,100 20,932,709
112,346,313 110,178,707 226,429,619 200,887,569 162,283,109
OTHER INCOME (CHARGES)
Other income 30,941,116 10,873,845 20,181,693 20,938,274 12,575,606
Interest and other financing
charges (11,346,606) (9,018,394) (19,101,077) (14,441,334) (14,258,189)
Other charges (3,653,690) (4,791,830) (9,661,977) (11,672,137) (6,804,908)
15,940,820 (2,936,379) (8,581,361) (5,175,197) (8,487,491)
INCOME BEFORE INCOME TAX 57,540,670 35,591,450 70,184,839 62,126,534 53,939,583
PROVISION FOR INCOME TAX
Current 8,223,479 7,690,649 16,330,821 14,629,398 11,357,136
Deferred (396,098) 259,934 (1,211,096) (2,369,639) (850,162)
7,827,381 7,950,583 15,119,725 12,259,759 10,506,974
NET INCOME ₱49,713,289 ₱27,640,867 ₱55,065,114 ₱49,866,775 ₱43,432,609

ATTRIBUTABLE TO:
Owners of the parent ₱37,837,536 ₱16,067,956 ₱31,817,721 ₱30,263,842 ₱26,011,263
Non-controlling interests 11,875,753 11,572,911 23,247,393 19,602,933 17,421,346
₱49,713,289 ₱27,640,867 ₱55,065,114 ₱49,866,775 ₱43,432,609
EARNINGS PER SHARE
Basic ₱59.06 ₱24.82 48.80 46.67 39.88
Diluted ₱58.89 ₱24.44 48.21 45.99 39.31

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STATEMENT OF FINANCIAL Six Months Ended Year Ended

POSITION June 30 December 31
(Unaudited) (Audited) (Restated) (Audited)
(Amounts in ₱ Thousands) 2019 2018 2017 2016

ASSETS
Current Assets
Cash and cash equivalents ₱85,778,826 ₱60,624,263 ₱64,259,279 ₱60,223,324
Short-term investments 2,244,285 5,956,489 5,400,239 1,008,705
Accounts and notes receivable 105,349,903 105,518,572 100,242,845 116,841,963
Contract assets 39,667,088 52,209,458 − −
Inventories 109,083,341 120,560,493 105,195,768 76,752,875
Other current assets 74,986,320 67,890,147 61,854,311 33,638,483
Total Current Assets 417,109,763 412,759,422 336,952,442 288,465,350

Noncurrent Assets
Noncurrent accounts and notes
receivable 29,720,698 6,366,250 45,774,058 36,484,347
Noncurrent contract assets 19,218,866 35,929,990 − −
Land and improvements − − − 101,049,171
Investments in associates and
joint ventures 251,306,557 240,140,558 202,649,300 180,313,743
Investment properties 246,854,568 227,645,548 202,873,411 110,916,644
Property, plant and equipment 130,297,821 104,492,357 85,430,631 64,074,471
Service concession assets 101,522,257 98,404,486 91,049,570 82,422,249
Intangible assets 16,820,576 16,553,369 16,705,000 9,716,403
Right-of-use assets 16,017,264 − −
Deferred tax assets 15,801,659 15,546,040 12,720,910 12,414,647
Other noncurrent assets 52,336,396 40,087,599 27,390,430 25,847,478
Total Noncurrent Assets 879,896,662 785,166,197 684,593,310 623,239,153
Total Assets ₱1,297,006,425 ₱1,197,925,619 ₱1,021,545,752 ₱911,704,503

LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current Liabilities
Short-term debt ₱34,609,691 ₱39,518,245 ₱29,904,723 30,858,137
Accounts payable and accrued
expenses 178,059,870 204,758,244 169,652,527 164,600,578
Contract liabilities 6,299,346 21,988,850 − −
Lease liabilities 951,535 − − −
Income tax payable 4,256,325 3,406,921 1,710,260 2,270,315
Other current liabilities 29,625,937 11,129,234 25,983,794 17,522,984
Current portion of:
Long-term debt 23,400,357 48,480,559 13,731,967 19,792,669
Service concession obligation 667,321 820,802 803,898 754,519
Total Current Liabilities 277,870,382 330,102,855 241,787,169 235,799,202

Noncurrent Liabilities
Long-term debt – net of current
portion 384,157,399 324,262,828 306,975,262 245,203,145
Contract liabilities - net of current
portion 8,432,289 8,630,235 − −
Service concession obligation –
net of current portion 7,719,323 7,018,211 7,748,056 6,822,862
Lease liabilities - net of current
portion 17,290,427 − − −
Deferred tax liabilities - net 11,046,943 10,999,354 8,108,305 9,543,754
Pension liabilities 2,734,211 2,589,852 2,600,756 2,469,140
Other noncurrent liabilities 53,733,573 45,213,929 43,233,816 40,870,522
Total Noncurrent Liabilities 485,114,165 398,714,409 368,666,195 304,909,423
Total Liabilities 762,984,547 728,817,264 610,453,364 540,708,625

33 | P a g e
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Equity
Total equity attributable to the
parent company
Paid-in Capital 83,612,970 83,361,675 75,001,174 74,379,760
Share-based payments 234,181 238,871 248,212 495,759
Remeasurement
gains/(losses) on defined
benefit plans (1,262,920) (1,299,319) (1,303,288) (1,548,192)
Fair value reserve of financial
assets at fair value through
other comprehensive income 417,096 (544,555) − −
Net unrealized gain/(loss) on
available-for- sale financial
assets − − (1,107,962) (466,676)
Cumulative translation
adjustments 498,230 2,276,669 2,794,303 1,414,550
Equity reserve 25,906,626 10,872,124 11,600,281 12,211,275
Equity – conversion option - 1,087,015 1,113,003 1,113,745
Retained earnings 234,892,239 196,914,989 170,302,028 145,622,311
Treasury stock (5,492,319) (2,300,000) (2,300,000) (2,300,000)
338,806,103 290,607,469 256,347,751 230,922,532
Non-controlling interests 195,215,775 178,500,886 154,744,637 140,073,346
Total Equity 534,021,878 469,108,355 411,092,388 370,995,878
Total Liabilities and Equity ₱1,297,006,425 ₱1,197,925,619 ₱1,021,545,752 ₱911,704,503

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THE OFFER

Ayala, through the Underwriters and Selling Agents named herein, is offering for sale to the public by way
of a re-issuance 20,000,000 Preferred Class "B" Shares, with an Oversubscription Option of up to an
additional 10,000,000 additional Preferred Class "B" Shares with a par value of ₱100.00 per share, at an
Offer Price of ₱500.00 per share. The Preferred Shares will be issued from the Company’s 38,000,000
Preferred Class "B" treasury shares. The Preferred Shares are being offered for subscription solely in the
Philippines.

As of June 30, 2019, the Company had an authorized capital stock consisting of (a) 900,000,000 common
shares with a par value of ₱50.00 per share, of which 627,346,015 were issued and outstanding; (b)
12,000,000 Class “A” preferred shares (the “Class “A” Preferred Shares”) with a par value of ₱100.00 per
share, of which none were outstanding, (c) 58,000,000 Class “B” Preferred Shares with a par value of
₱100.00 per share, of which 47,000,000 are issued and outstanding, (d) 40,000,000 Class “C” preferred
shares (the “Class “C” Preferred Shares”) with a par value of ₱100.00 per share, of which none were
outstanding, and (e) 200,000,000 Voting Preferred Shares with a par value of ₱1.00 per share, all of which
are issued and outstanding. The Company has (a) 3,805,644 common shares; (b) 12,000,000 Class “A”
Preferred Shares; and (c) 11,000,000 Class “B” Preferred Shares, held in Treasury.
After the Offer, and assuming the Oversubscription Option is exercised in full, the Company will have
the following issued and outstanding shares: (a) 627,346,015 of 900,000,000 authorized common shares,
(b) 0 of 12,000,000 authorized Class “A” Preferred Shares, (c) up to 50,000,000 of 58,000,000 authorized
Class “B” Preferred Shares, (d) 0 of 40,000,000 authorized Class “C” Preferred Shares, and (e) 200,000,000
of 200,000,000 authorized Voting Preferred Shares. The Company will have (a) 3,805,644 common shares;
(b) 12,000,000 Class “A” Preferred Shares; and (c) 8,000,000 Class “B” Preferred Shares, held in Treasury.
The Offer : 20,000,000 Preferred Class “B” Shares, with an Oversubscription
Option of up to an additional 1 0,000,000 Class “B” Preferred
Shares
Offer Price : ₱500.00 per share.

Terms of Payment : Full payment upon application.

Minimum Subscription : One hundred (100) Shares. Additional Preferred Shares may be
bought in multiples of ten (10) Shares.

Offer Period : The Offer Period will commence at 9:00 a.m. on [November 11], 2019
and end at 12:00 p.m. on [November 22], 2019, unless shortened or
extended by agreement among the Company and the Underwriters,
subject to the approval of the SEC and the PSE (see “Summary of the
Offering”).

35 | P a g e
Executive Summary

NET PROCEEDS FROM THE OFFER

The net proceeds from the Offer of 20,000,000 Class “B” Preferred Shares is estimated to be
₱[9,921,269,911], or ₱[14,888,090,207] if the Oversubscription Option if exercised in full, after deducting
expenses related to the Offer. Said expenses are as follows:

Base Issue Size With

Oversubscription
Issue Size ₱ 10,000,000,000 15,000,000,000
SEC Registration Fees ₱ [3,062,500] [4,312,500]
SEC Legal Research Fee ₱ [30,625] [43,125]
SEC DST ₱ [30] [30]
PSE Filing Fee ₱ [10,000,000] [15,000,000]
PSE VAT ₱ [1,200,000] [1,800,000]
SEC Listing Fee ₱ [2,525] [2,525]
Documentary Stamp Tax ₱ [15,000,000] [22,500,000]
Issue Management, Underwriting, and Selling Fees ₱ [37,634,409] [56,451,613]
Professional Expenses ₱ [10,800,000] [10,800,000]
Other related expenses ₱ [1,000,000] [1,000,000]
Total Estimated Expenses ₱ [78,730,089] [111,909,793]
Net Proceeds ₱ [9,921,269,911] [14,888,090,207]

A detailed discussion on the proceeds of the Offer appears on the “Use of Proceeds” of this Prospectus.

36 | P a g e
Executive Summary

STATISTICS RELATING TO THE PREFERRED SHARES

Total authorized number of Class “A” and “B” Preferred

Shares as of June 30, 2019
Class “A” 12,000,000
Class “B” 58,000,000

Total number of Preferred Class “B” Shares outstanding 40,000,000

after the Offer (without oversubscription)

Total number of Class “B” Preferred Shares outstanding up to 50,000,000

after the Offer (with oversubscription*)

Total number of Class “A” Preferred Shares outstanding NIL

after the Offer

Market Capitalization of Class “A” Preferred Shares1 NIL

Market Capitalization of Class “B” Preferred Shares2 ₱23,111,000,000.00

* Assuming oversubscription option is exercised in full

1The Class “A” Preferred Shares’ were redeemed on November 25, 2013.
2The Class “B” Preferred Shares’ capitalization is computed as at June 30, 2019 with a price of ₱484.6 per share for Series 1 and of
₱497.0 per share for Series 2.

37 | P a g e
Executive Summary

RISKS OF INVESTING

An investment in the Preferred Shares involves a certain degree of risk. A prospective purchaser of the
Shares should carefully consider the following factors, in addition to the other information contained in this
Prospectus, in deciding whether or not to invest in the Shares.

Risks Associated with the Company

• Holding Company Structure
• Intensive Capital Requirements
• Foreign Exchange Risk
• Competition
• Industry Risks
• Government Regulation
• Litigation
• Data Management Systems

Risks Associated with the Organization

• High Dependence on Services of Management Team
• Unauthorized, Negligent or Fraudulent Acts of Employees

Risks Associated with the Philippines

• Political and Social Instability
• Slowdown in the Economic Growth, High Inflation and Interest Rate
• Depreciation in the Value of the Peso Against Other Currencies

Risks Associated with the Preferred Shares

• Non-payment of Dividends
• Subordinated Status of Preferred Shares
• Restricted Claims against Assets of Subsidiaries
• No Voting Rights
• Insufficient Distribution upon Liquidation
• Payment Constraints Due to Restrictions in the Term of Ayalas’s Other Indebtedness
• No Maturity Date
• Lack of Public Market for the Preferred Shares
• Limited Liquidity
• Price Volatility
• Inability to Reinvest at Similar Rate of Return upon Redemption
• Foreign Ownership Restrictions
A detailed discussion on the above enumerated risks appears on the “Risk Factors” of this Prospectus.
This Prospectus contains forward-looking statements that involve risks and uncertainties. Ayala adopts
what it considers conservative financial and operational controls and policies to manage its business risks.
Ayala’s actual results may differ significantly from the results discussed in the forward-looking statements.
See section “Forward-Looking Statements” of this Prospectus. Factors that might cause such differences,
thereby making the offering speculative or risky, may be summarized into those that pertain to the business
and operations of Ayala, in particular, and those that pertain to the over-all political, economic, and
business environment, in general.

38 | P a g e
 SUMMARY OF THE OFFERING
The following does not purport to be a complete listing of all the rights, obligations, and privileges attaching to
or arising from the Class “B” Preferred Shares. Some rights, obligations, or privileges may be further limited
or restricted by other documents and subject to final documentation. Prospective investors are enjoined to
perform their own independent investigation and analysis of the Company and the Class “B” Preferred Shares.
Each prospective investor must rely on its own appraisal of the Company and the Class “B” Preferred Shares and
its own independent verification of the information contained herein and any other investigation it may deem
appropriate for the purpose of determining whether to invest in the Class “B” Preferred Shares and must not rely
solely on any statement or the significance, adequacy, or accuracy of any information contained herein. The
information and data contained herein are not a substitute for the prospective investor’s independent evaluation
and analysis.

The Offer Ayala, through the Joint Lead Underwriters and Selling Agents named
herein, is offering, by way of a re-issuance from treasury, 20,000,000
cumulative, non-voting, perpetual and peso-denominated Class “B”
Preferred Shares, with an oversubscription option of up to an
additional 10,000,000 Class “B” Preferred Shares, with a par value of
₱100.00 per Share (the “Shares”) at an offer price of ₱500.00 per
Share (the “Offer Price”).

Initial Dividend Rate The Shares will, subject to the Dividend Payment Conditions (see
below), bear cumulative non-participating dividends based on the Offer
Price, payable quarterly in arrears on the Dividend Payment Date (as
defined below) at the rate equivalent to the 5-year Reference Rate
(as defined below) plus a spread of 60 - 95 bps per annum from the
Issue Date, as may be subsequently adjusted on a Dividend Rate Re-
Setting Date (as defined below). Dividends will be calculated on a
30/360-day basis.

Dividend Rate Re-Setting Unless such date is a Redemption Date, the Initial Dividend Rate will
Date be re-set on the payment date of the twentieth (20th) Dividend Period
(the “Dividend Rate Re-Setting Date”), indicatively on the 5th
anniversary of the Issue Date.

Dividend Rate On and from the Dividend Rate Re-Setting Date, the Dividend Rate for
Adjustment all following Dividend Periods (as defined below), shall be the higher
of:

(a) the Initial Dividend Rate; or

(b) the Reference Rate prevailing 10-year BVAL on Dividend Rate

Re-Setting Date plus the Step-Up Spread 300 bps.

Reference Rate The per annum rate that is the simple average of three (3) closing per
annum rates as shown on the “PHP BVAL Reference Rate” page on
the Philippine Dealing System Holdings Corp. (“PDS”) website or the
PDS market page (or such successor page or successor electronic
service provider), as relevant:

(a) for the Initial Dividend Rate, the 5-year PHP Bloomberg
Valuation Service (“BVAL”) reference rate for each of three (3)
consecutive days ending on (and including) the Initial Dividend
Rate Setting Date; or

(b) for the Dividend Rate Adjustment, the 10-year PHP BVAL
reference rate for each three (3) consecutive days ending on
(and including) the Dividend Rate Re-Setting Date.

In the event that BVAL is replaced by a new benchmark rate as

determined by the Bankers Association of the Philippines (“BAP”) or
Summary of the Offering

the Bangko Sentral ng Pilipinas (“BSP”), such new benchmark rate

shall be adopted for purposes of determining the Dividend Rate (the
“New Benchmark Rate”). In the absence of such new replacement
benchmark rate as determined by the BAP or the BSP and there is a
mandatory directive by the BAP or the BSP to no longer use or apply
BVAL, the Company and the Joint Lead Underwriters shall negotiate
to adopt an alternative rate that will serve as the New Benchmark Rate.

Step-Up Spread The fixed per annum rate to be used for calculating the Dividend Rate
Adjustment being 3.00% per annum.

Conditions for the Ayala has full discretion over the declaration and payment of dividends
Declaration and on the Shares, to the extent permitted by law. Ayala’s Board of
Payment of Dividends Directors will not declare and pay dividends on any Dividend Payment
Date where (a) payment of the Dividend would cause Ayala to breach
any of its financial covenants; or (b) the unrestricted retained earnings
available to Ayala for distribution as dividends are not sufficient to
enable Ayala to pay the dividends in full on all other classes of Ayala’s
outstanding shares that are scheduled to be paid on or before any
Dividend Payment Date and that have an equal right and priority to
dividends as the Shares.

If the unrestricted retained earnings available to distribute as dividends

are, in Ayala’s Board of Directors’ opinion, not sufficient to enable
Ayala to pay both dividends on the Shares and the dividends on other
shares that have an equal right and priority to dividends as the Shares,
in full and on the same date, then Ayala may: first, pay in full, or to set
aside an amount equal to, all dividends scheduled to be paid on or
before that dividend payment date on any shares with a right to
dividends ranking higher in priority to that of the Shares; and second,
to pay dividends on the Shares and any other shares ranking equally
with the Shares as to participation in such retained earnings pro rata
to the amount of the cash dividends scheduled to be paid to them. The
amount scheduled to be paid will include the amount of any dividend
payable on that date and any arrears on any past cumulative dividends
on any shares ranking equal in priority with the Shares to receive
dividends.

The profits available for distribution are, in general and with some
adjustments, equal to Ayala’s accumulated, realized profits less
accumulated, realized losses.

If for any reason Ayala’s Board of Directors does not declare a dividend
on the Shares for a dividend period, Ayala will not pay a dividend on
the Dividend Payment Date for that dividend period. However, on any
future Dividend Payment Date on which dividends are declared, the
Shareholders must receive the Dividends due them on such Dividend
Payment Date as well as all Dividends accrued and unpaid to the
Shareholders prior to such Dividend Payment Date. Shareholders
shall not be entitled to participate in any other or further dividends
beyond the dividends specifically payable on the Shares.

Dividend Payment Dividends will be payable on [•], [•], [•] and [•] of each year (each a
Dates “Dividend Payment Date”), being the last day of each 3-month dividend
period (a “Dividend Period”), as and if declared by Ayala in accordance
with the terms and conditions of the Shares. If the Dividend Payment
Date is not a Banking Day, Dividends will be paid on the next
succeeding Banking Day, without adjustment as to the amount of
dividends to be paid.

40 | P a g e
Summary of the Offering

Payment on the All payments of dividends and any other amounts under the Shares
Shares shall be paid by Ayala in Philippine Pesos. On the relevant payment
dates, the
Paying Agent shall make available to Shareholders, checks drawn
against the Payment Settlement Account in the amount due to each
Shareholder of record as of the relevant Record Date, either (i) for pick-
up by the Shareholder or its duly authorized representative at the office
of the Paying Agent or (ii) delivery via courier or, if courier service is
unavailable for deliveries to the address of the relevant Shareholder,
via mail, at the Shareholder’s risk, to the address of the Shareholder
appearing in the Register of Shareholders.

Optional Redemption Ayala has the option, but not the obligation, to redeem all (but not part)
and Purchase of outstanding Shares (having given not less than thirty (30) days’
notice) on:

(a) the Divided Rate Re-Setting Date; or

(b) any Dividend Payment Date after the Dividend Rate Re-
Setting Date.

Exercise of Ayala’s redemption option shall be completed by payment

of the redemption price equal to the Offer Price plus any accrued and
unpaid dividends after deduction for any tax and customary transfer
costs to effect the redemption (the “Redemption Payment”).
Administrative costs and expenses, including the cost of checks used,
supplies, paying agent services, courier and mailing costs in relation
to effecting the redemption shall be for the account of Ayala. The
Redemption Payment shall be made to the Shareholders as of the
record date set by Ayala for such redemption.

Subject to compliance with law, Ayala may purchase the Shares at any
time at any price either through the PSE, by public tender or through
negotiated transactions.

Any Shares redeemed or purchased by Ayala shall be recorded as

treasury stock of Ayala and may be re-issued in the future at such
terms and at such time as Ayala may determine.

Early Redemption If payments become subject to additional withholding or any new tax
Due to Occurrence of as a result of certain changes in law, rule or regulation, or in the
a Tax Event interpretation thereof, and such tax cannot be avoided by use of
reasonable measures available to Ayala, Ayala may redeem the
Shares in whole, but not in part, on any Dividend Payment Date
(having given not less than thirty (30) nor more than sixty (60) days’
notice) at the Offer Price plus all accrued and unpaid dividends, if any.

Early Redemption Due to If an Accounting Event occurs that will result in a change in accounting
Changes in Accounting treatment of the Shares, the Issuer may redeem the Shares in whole,
Treatment of the Shares but not in part, on any Dividend Payment Date (having given not more
than 60 nor less than 30 days’ prior notice) at the Offer Price plus all
accrued and unpaid dividends, if any.

An Accounting Event shall occur if in the opinion of Ayala with due

consultation with its independent auditors, at the relevant time there is
a change in applicable accounting standards that result in more than
an insubstantial risk that either Shares or the funds raised through the
issuance of the Shares may no longer be recorded as “equity” to the
full extent as at the Issue Date pursuant to PFRS, or such other

41 | P a g e
Summary of the Offering

accounting standards, which succeed PFRS, as adopted in the

Philippines, applied by the Issuer for drawing up its financial
statements for the relevant financial year.

No Sinking Fund Ayala has not established, and currently does not intend to establish,
a sinking fund for the redemption of the Shares.

Philippine Taxation All payments in respect of the Shares are to be made free and clear of
any deductions or withholding for or on account of any present or future
taxes or duties imposed by or on behalf of Republic of the Philippines,
including but not limited to, documentary stamp, issue, registration,
value added or any similar tax or other taxes and duties, including
interest and penalties. If such taxes or duties are imposed, Ayala will
pay additional amounts so that Shareholders will receive the full
amount of the relevant payment which otherwise would have been due
and payable. Provided, however, that Ayala shall not be liable for:

(a) any withholding tax applicable on dividends earned or on any

amounts payable to the holders of the Preferred Shares
prescribed under the Tax Code including any additional tax on
such dividends imposed by changes in law, rule, or regulation;

(b) any income tax (whether or not subject to withholding);

percentage tax (such as stock transaction tax), documentary
stamp tax or other applicable taxes on the redemption (or
receipt of the redemption price) of the Preferred Shares;

(c) any expanded value-added tax which may be payable by any

holder of the Preferred Shares on any amount to be received
from the Issuer under the Offer;

(d) any withholding tax, including any additional tax imposed by

change in law, rules, or regulation, on any dividend payable to
any holder of Preferred Shares or any entity which is a non-
resident foreign corporation; and

(e) any applicable taxes on any subsequent sale or transfer of

the Preferred Shares by any holder of the Preferred Shares
which shall be for the account of such holder (or the buyer in
case such buyer shall have agreed to be responsible for the
payment of such taxes).

Any documentary stamp tax for the recording of the Shares in the
name of an investor under the Offer shall be paid for by Ayala. After
the Issue Date, taxes generally applicable to a subsequent sale of the
Shares by any Shareholder, including receipt by such Shareholder of
a Redemption Payment, shall be for the account of the said
Shareholder.

Liquidation Rights In the event of a return of capital in respect of Ayala’s winding up or

otherwise (whether voluntarily or involuntarily) (but not on a
redemption or purchase by Ayala of any of its share capital), the
Shareholders at the time outstanding will be entitled to receive, in
Philippine Pesos out of Ayala’s assets available for distribution to
shareholders, together with the holders of any other of Ayala’s shares
ranking, as regards repayment of capital, pari passu with the Preferred
Shares and before any distribution of assets is made to holders of any
class of Ayala’s shares ranking junior to the Preferred Shares as
regards repayment of capital, liquidating distributions in an amount of

42 | P a g e
Summary of the Offering

₱500.00 per Preferred Share plus an amount equal to any dividends

declared but unpaid in respect of the previous dividend period and any
accrued and unpaid dividends for the then-current dividend period to
(and including) the date of commencement of Ayala’s winding up or
the date of any such other return of capital, as the case may be. If,
upon any return of capital in Ayala’s winding up, the amount payable
with respect to the Preferred Shares and any other of Ayala’s shares
ranking as to any such distribution pari passu with the Preferred
Shares are not paid in full, the holders of the Preferred Shares and of
such other shares will share rateably in any such distribution of Ayala’s
assets in proportion to the full respective preferential amounts to which
they are entitled. After payment of the full amount of the liquidating
distribution to which they are entitled, the Shareholders will have no
right or claim to any of Ayala’s remaining assets and will not be entitled
to any further participation or return of capital in a winding up.

Form, Title and The Preferred Shares are recorded in scripless form through the
Registration of the electronic bookentry system of the Philippine Depository & Trust Corp.
Shares (“PDTC”) as Registrar for the Offer, and will be lodged with PDTC as
Depository Agent on Issue Date through PSE Trading Participants
nominated by the accepted Applicants. For this purpose, Applicants
shall indicate in the proper space provided for in the Application Form
the name of the PSE Trading Participant under whose name their
Preferred Shares will be registered.

After Issue Date, Shareholders may request the Registrar, through

their nominated PSE Trading Participant, to (a) open a scripless
registry account and have their holdings of the Preferred Shares
registered under their name (“name-on-registry account”), or (b) issue
stock certificates evidencing their investment in Preferred Shares. Any
expense that will be incurred in relation to such registration or issuance
shall be for the account of the requesting Shareholder.

Legal title to the Preferred Shares will be shown in an electronic

register of shareholders (the “Registry of Shareholders”) which shall
be maintained by the Registrar. The Registrar shall send a transaction
confirmation advice confirming every receipt or transfer of the
Preferred Shares that is effected in the Registry of Shareholders (at
the cost of the requesting Shareholder). The Registrar shall send (at
the cost of Ayala) at least once every quarter a Statement of Account
to all Shareholders named in the Registry of Shareholders, except
certificated Shareholders and Depository Participants, confirming the
number of Preferred Shares held by each Shareholder on record in the
Registry of Shareholders. Such Statement of Account shall serve as
evidence of ownership of the relevant Shareholder as of a given date
thereof. Any request by Shareholders for certifications, reports or other
documents from the Registrar, except as provided herein, shall be for
the account of the requesting Shareholder.

Status of the Shares The Preferred Shares will constitute the direct and unsecured
in the Distribution of subordinated obligations of Ayala ranking at least pari passu in all
Assets in the Event of respects and rateably without preference or priority among themselves
Dissolution with all other preferred shares issued by Ayala.

Selling and Transfer Initial placement of the Preferred Shares and subsequent transfers of
Restrictions interests in the Preferred Shares shall be subject to applicable selling
restrictions and registration requirements for equity securities as may
prevail in the Philippines from time to time.

43 | P a g e
Summary of the Offering

Title and Transfer Legal title to the Preferred Shares shall pass by endorsement and
delivery to the transferee and registration in the Registry of
Shareholders to be maintained by the Registrar. Settlement of the
Preferred Shares in respect of such transfer or change of title to the
Shares, including the settlement of documentary stamp taxes, if any,
arising from subsequent transfers, shall be similar to the transfer of title
and settlement procedures for listed securities in the PSE.

Governing Law The Preferred Shares will be issued pursuant to, and terms and
conditions of the Shares will be governed by, the laws of the Republic
of the Philippines.

Offer Period The Offer Period shall commence at 9:00 a.m. on [November 11, 2019]
and end at 12:00 p.m. on [November 22, 2019], or on such other dates
as may be agreed upon between the Issuer and the Joint Lead
Underwriters. Ayala and the Joint Lead Underwriters reserve the right
to extend or terminate the Offer Period with the approval of the SEC
and the PSE.

Minimum Subscription to Each Application shall be for a minimum of one hundred (100) Shares,
the Shares and thereafter, in multiples of ten (10) Shares. No Application for
multiples of any other number of Shares will be considered.

Eligible Investors The Shares may be owned or subscribed to by any person,

partnership, association or corporation regardless of nationality,
provided that at any time, at least 60% of the outstanding capital stock
of Ayala shall be owned by citizens of the Philippines or by
partnerships, associations or corporations at least 60% of whose
voting stock or voting power is owned and controlled by citizens of the
Philippines. In addition, under certain circumstances Ayala may reject
an Application or reduce the number of Shares applied for subscription
or purchase.

Subscription to the Shares may be restricted by law or in certain

jurisdictions. Foreign investors interested in subscribing to or
purchasing the Shares should inform themselves of the applicable
legal requirements under the laws and regulations of the countries of
their nationality, residence or domicile, and as to any relevant tax or
foreign exchange control laws and regulations affecting them
personally. Foreign investors, both corporate and individual, warrant
that their purchase of the Shares will not violate the laws of their
jurisdiction and that they are allowed to acquire, purchase and hold the
Shares.

Application Procedure Application Forms may be obtained from a Joint Lead Underwriter or
Selling Agent. All applications shall be evidenced by the Application
Form, duly executed in each case by an authorized signatory of the
applicant and accompanied by two (2) completed signature cards, the
corresponding payment for the Shares covered by the application and
all other required documents including documents required for registry
with the Registrar and Depository Agent. The duly executed
Application Form and required documents should be submitted to the
Joint Lead Underwriters or Selling Agents on or prior to the set
deadline for submission of Applications for the Joint Lead Underwriters
and Selling Agents, respectively. If the Applicant is a corporation,
partnership, or trust account, the application must be accompanied by
the required documents indicated on the Application Form.

44 | P a g e
Summary of the Offering

Payment for the Shares The Shares must be paid for in full upon submission of the Application.
The purchase price must be paid in full in Pesos upon the submission
of the duly completed and signed Application Form and specimen
signature card together with the requisite attachments. Payment for
the Shares shall be made by manager’s check/cashier’s check,
corporate check or personal check drawn against any BSP authorized
bank or any branch thereof. All checks should be made payable to
[“●”], crossed “Payee’s Account Only”, and dated on or before the date
as the Application. The Applications and the related payments will be
received at any of the offices of the Underwriters or Selling Agents.
Applicants submitting their Application to an Underwriter may also
remit payment for their Shares through the Real Time Gross
Settlement (“RTGS”) facility of the BSP to the Underwriter to whom
such Application was submitted or via direct debit to their deposit
account maintained with such Underwriter. Cash payments shall not
be accepted.

Should the Applicant elect to pay through RTGS, the Application

should be accompanied by an instruction issued by the Applicant to
effect payment through RTGS in an amount equal to the total Offer
Price of the Shares applied for, to be effected and fully funded not later
than 12:00 p.m. on [●], 2019.

Should the Applicant elect to pay by a debit memo or instruction, the

Application should be accompanied by a debit memo or instruction
issued by the Applicant in an amount equal to the total Offer Price
applied for in favor of the Underwriter to whom the Application is
submitted, to be effected no later than 12:00 p.m. on [●], 2019.

Acceptance/Rejection The actual number of Shares that an Applicant will be allowed to

of Applications subscribe to is subject to the confirmation of the Joint Lead
Underwriters. Ayala reserves the right to accept or reject, in whole or
in part, or to reduce any Application due to any grounds specified in
the Issue Management and Underwriting Agreement entered into by
Ayala, the Joint Issue Managers and Joint Lead Underwriters.

Applications which were unpaid or where payments were insufficient

and those that do not comply with the terms of the Offer shall be
rejected. Moreover, any payment received pursuant to the Application
does not ensure or indicate approval or acceptance by Ayala of the
Application.

An Application, when accepted, shall constitute an agreement

between the Applicant and Ayala for the subscription to the Shares at
the time, in the manner and subject to terms and conditions set forth
in the Application Form and those described in the Prospectus.
Notwithstanding the acceptance of any Application by Ayala, the actual
subscription by the Applicant for the Shares will become effective only
upon re-issuance of the Shares on the PSE and upon the obligations
of the Joint Lead Underwriters under the Issue Management and
Underwriting Agreement becoming unconditional and not being
suspended, terminated or cancelled, on or before the Issue Date, in
accordance with the provision of the said agreements. If such
conditions have not been fulfilled on or before the periods provided
above, all Application payments will be returned to the Applicants
without interest.

Refunds of In the event that the number of Shares to be allotted to an Applicant,

Application Payments as

45 | P a g e
Summary of the Offering

confirmed by a Joint Lead Underwriter, is less than the number

covered by its Application, or if an Application is wholly or partially
rejected by Ayala, then Ayala shall refund, without interest, within five
(5) Banking Days from the end of the Offer Period, all, or a portion of
the payment corresponding to the number of Shares wholly or partially
rejected. All refunds shall be made through the Joint Lead Underwriter
or Selling Agent with whom the Applicant has filed the Application.

Registration of Foreign The BSP requires that investments in shares of stock funded by inward
Investments remittance of foreign currency be registered with the BSP if the foreign
exchange needed to service capital repatriation or dividend remittance
will be sourced from the domestic banking system. The registration
with the BSP of all foreign investments in the Shares shall be the
responsibility of the foreign investor.

Receiving Agent BPI Capital Corporation

Registrar Philippine Depository & Trust Corporation

Paying Agent Bank of the Philippine Islands – Stock Transfer Agency

Indicative Schedule of The Offer is scheduled as follows:

the Offer
SEC en banc meeting [October 17, 2019]
PSE Board Approval [October 23, 2019]
[Book-Building Period] [September 17 to November 6,
2019]
Price Setting Date [November 6, 2019]
Offer Period [November 11 to 22, 2019]
Submission of Firm Order from
Trading Participants

(a) delivered through (a) [November 15, 2019]

Selling Agents
(b) delivered through the (b) [November 18, 2019]
Underwriters
Listing Date [November 29, 2019]

Indicative Issue Date The Shares are expected to be recorded in the name of accepted
applicants and listed on the PSE on November [●], 2019, or on such
other date as may be agreed upon between the Issuer and the Joint
Lead Underwriters. Trading of the Shares will commence on the same
date.

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 DESCRIPTION OF THE SECURITIES
The following are general information relating to the Company’s capital stock and does not purport to be a complete
listing of all the features, rights, obligations, or privileges of the Class “B” Preferred Shares, and is qualified in its
entirety by reference to applicable provisions of the Company’s amended Articles of Incorporation and amended By-
laws, as well as the Stock Transfer, Receiving and Paying Agency Agreement. Some rights, obligations, or
privileges may be further limited or restricted by other documents.

AYALA’S SHARE CAPITAL

A Philippine corporation may issue common or preferred shares, or such other classes of shares with such
rights, privileges or restrictions as may be provided for in the articles of incorporation and the by-laws of the
corporation.

The Board of Directors approved on September 13, 2019 the re-issuance of up to 30 million Class “B”
Preferred Shares with a par value of ₱100.00 per share.
Following the Offer, the Company will have (a) 627,346,015* of 900,000,000 authorized common shares,
(b) 0 of 12,000,000 authorized Class “A” Preferred Shares, (c) up to 50,000,000 of 58,000,000 authorized
Class “B” Preferred Shares, (d) 0 of 40,000,000 authorized Class “C” Preferred Shares, and (e) 200,000,000
of 200,000,000 authorized Voting Preferred Shares, issued and outstanding. The holders of the Preferred
Shares do not have identical rights and privileges with holders of the existing common shares of the
Company (*based on outstanding shares as of August 29, 2019).
As of June 30, 2019, the Company had an authorized capital stock consisting of (a) 900,000,000 common
shares with a par value of ₱50.00 per share, of which 627,346,015 were issued and outstanding; (b)
12,000,000 Class “A” Preferred Shares with a par value of ₱100.00 per share, of which none were
outstanding, (c) 58,000,000 Class “B” Preferred Shares with a par value of ₱100.00 per share, of which
47,000,000 are issued and outstanding, (d) 40,000,000 Class “C” Preferred Shares with a par value of
₱100.00 per share, of which none were outstanding, and (e) 200,000,000 Voting Preferred Shares with a
par value of ₱1.00 per share, all of which are issued and outstanding. The Company has (a) 3,805,644
common shares; (b) 12,000,000 Class “A” Preferred Shares; and (c) 11,000,000 Class “B” Preferred Shares,
held in Treasury.

THE PREFERRED SHARES

General Features

Under the amended Articles of Incorporation, Preferred Class “B” Shares (which include the Class “B”
Preferred Shares) have the following features, rights and privileges:

• The issue value of the Preferred Class “B” Shares will be determined by the Board at
the time of issuance;
• The dividend yield of the Preferred Class “B” Shares will be determined by the Board
at the time of issuance;
• Cumulative in payment of current dividends as well as any unpaid back dividends;
• Non-convertible into common shares;
• Preference over holders of common stock in the distribution of corporate assets in the
event of dissolution and liquidation of the Company and in the payment of the dividend
at the rate specified at the time of issuance;
• Non-participating in any other or further dividends beyond the dividends specifically
payable on the Preferred Class “B” Shares;
• Non-voting except in those cases specifically provided by law;
• No pre-emptive rights to any issue of the Company’s shares, whether common or Preferred;
Description of the Securities

• Redeemable at the option of the Company under such terms as the Board may
approve at the time of the issuance of the Preferred Class “B” Shares; and
• Re-issuable when fully redeemed.

The holders of the Preferred Shares do not have identical rights and privileges with holders of the existing
common shares of the Company.

Features Specific or Particular to the Preferred Shares

Following are certain features specific or particular to the Preferred Shares.

In General: No Voting Rights

Under the amended Articles of Incorporation, the holders of the Preferred Shares shall have no voting
rights except as specifically provided by law. Thus, holders of the Preferred Shares shall not be eligible,
for example, to vote for or elect the Company’s Directors or to vote for or against the issuance of a stock
dividend.

Holders of Preferred Shares, however, may vote on matters which the Revised Corporation Code
considers significant corporate acts that may be implemented only with the approval of shareholders,
including those holding shares denominated as non-voting in the articles of incorporation. These acts,
which require the approval of shareholders representing at least two- thirds of the issued and outstanding
capital stock of the Company in a meeting duly called for the purpose, are as follows:

• Amendment of the Articles (including any increase or decrease in capital stock);

• Amendment of the Company’s By-laws;
• Sale, lease, exchange, mortgage, pledge or other disposition of all or a substantial
part of the Company’s assets;
• Incurring, creating or increasing bonded indebtedness;
• Increase or decrease of capital stock;
• Merger or consolidation of the Company with another corporation or corporations;
• Investment of corporate funds in any other corporation or business or for any
purpose other than the primary purpose for which the Company was organized; and
• Dissolution of the Company.

Dividend Policy in Respect of the Preferred Shares

The declaration and payment of dividends on each Dividend Payment Date will be subject to the sole and
absolute discretion of the Board to the extent permitted by law.

As and if declared by the Board, dividends on the Shares shall be at a fixed rate of [•]% per annum
calculated in respect of each Share by reference to the Offer Price thereof (the “Initial Dividend Rate”).

Unless the Preferred Shares are redeemed by the Company on the relevant Dividend Rate Re-Setting
Date, the Dividend Rate for all following Dividend Periods shall be the higher of (a) the Initial Dividend
Rate on such Dividend Rate Re-Setting Date or (b) the sum of (i) the relevant Reference Rate applicable
for such Dividend Rate Re-Setting Date, and (ii) the relevant Step-Up Spread applicable for such Dividend
Rate Re-Setting Date.

As and if declared by the Board, the dividends on the Shares will be calculated on a 30/360 day basis and
will be paid quarterly in arrears on a Dividend Payment Date, which is the last day of each 3- month
Dividend Period. Subject to limitations described in this Prospectus, dividends on the Shares will be
payable on February [•], May [•], August [•] and November [•] of each year (each, a “Dividend Payment
Date”).

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Description of the Securities

If the Dividend Payment Date is not a Banking Day, Dividends will be paid on the next succeeding Banking
Day, without adjustment as to the amount of dividends to be paid.

The Board will not declare and pay dividends on any Dividend Payment Date where (a) payment of the
Dividend would cause the Issuer to breach any of its financial covenants or (b) the profits available to the
Issuer to distribute as dividends are not sufficient to enable the Issuer to pay in full both the dividends on
the Preferred Shares and the dividends on all other classes of the Issuer’s shares that are scheduled to
be paid on or before the same date as the Dividends on the Preferred Shares and that have an equal right
to dividends as the Preferred Shares.

If the profits available to distribute as dividends are, in the Board’s opinion, not sufficient to enable the
Issuer to pay in full on the same date both dividends on the Preferred Shares and the dividends on other
shares that have an equal right to dividends as the Preferred Shares, the Issuer is required first, to pay in
full, or to set aside an amount equal to, all dividends scheduled to be paid on or before that dividend
payment date on any shares with a right to dividends ranking in priority to that of the Preferred Shares;
and second, to pay dividends on the Preferred Shares and any other shares ranking equally with the
Preferred Shares as to participation in profits pro rata to the amount of the cash dividends scheduled to
be paid to them. The amount scheduled to be paid will include the amount of any dividend payable on
that date and any arrears on past cumulative dividends on any shares ranking equal in the right to
dividends with the Preferred Shares.

The profits available for distribution are, in general and with some adjustments, equal to the Issuer’s
accumulated, realized profits less accumulated, realized loss. In general, under Philippine law, a
corporation can only declare dividends to the extent that it has unrestricted retained earnings. Unrestricted
retained earnings represent the undistributed earnings of the corporation which have not been allocated
for any managerial, contractual or legal purposes and which are free for distribution to the shareholders
as dividends.

Dividends on the Preferred Shares will be cumulative. If for any reason the Issuer’s Board does not declare
a dividend on the Shares for a dividend period, the Issuer will not pay a dividend on the Dividend Payment
Date for that dividend period. However, on any future Dividend Payment Date on which dividends are
declared, holders of the Shares must receive the Dividends due them on such Dividend Payment Date as
well as all Dividends accrued and unpaid to the holders of the Shares prior to such Dividend Payment
Date.

Holders of Preferred Shares shall not be entitled to participate in any other or further dividends beyond the
dividends specifically payable on the Preferred Shares.

Redemption of the Preferred Shares

As and if declared by the Board, the Issuer may redeem the Preferred Shares on any Dividend Rate Re-
Setting Date or on any Dividend Payment Date (the “Optional Redemption Date”) thereafter in whole (but
not in part only), at the Redemption Payment. The Redemption Payment shall be made to holders of the
Shares as of the record date set by Ayala for such redemption. The Issuer has not established, and
currently has no plans to establish, a sinking fund for the redemption of the Preferred Shares.

The Issuer may purchase the Shares at any time in the open market or by public tender or by private
contract at any price through the PSE. The Shares so purchased may either be redeemed and cancelled
(after the Redemption Date) or kept as treasury shares.

The Issuer shall give not less than thirty (30) or more than sixty (60) days prior written notice of its intention
to redeem the Preferred Shares, which notice shall be irrevocable and binding upon the Issuer to effect
such early redemption of the Preferred Shares at the Redemption Date stated in such notice.

In the event an Optional Redemption Date which the Issuer has chosen as the date to redeem the Preferred
Shares on a day that is not a Banking Day, the redemption shall be made on the next succeeding day that

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Description of the Securities

is a Banking Day, without adjustment as to the Redemption Payment and the amount of dividends to be
paid.

Early Redemption Due to Taxation

If payments become subject to additional withholding or any new tax as a result of certain changes in law,
rule or regulation, or in the interpretation thereof, and such tax cannot be avoided by use of reasonable
measures available to the Issuer, the Issuer may redeem the Preferred Shares in whole, but not in part,
on any Dividend Payment Date (having given not more than 60 nor less than 30 days’ notice by publication
in two national newspapers) at the Issue Price plus all accrued and unpaid dividends, if any.

Documentary stamp tax for the re-issuance of the Preferred Shares and the documentation, if any, shall
be for the Issuer’s account.

Early Redemption Due to an Accounting Event

If an Accounting Event occurs that will result in a change in accounting treatment of the Shares, the Issuer
may redeem the Shares in whole, but not in part, on any Dividend Payment Date (having given not more
than 60 nor less than 30 days’ prior notice) at the Offer Price plus all accrued and unpaid dividends, if any.

An Accounting Event shall occur if in the opinion of Ayala with due consultation with its independent
auditors, at the relevant time there is a change in applicable accounting standards that result in more than
an insubstantial risk that either Shares or the funds raised through the issuance of the Shares may no
longer be recorded as “equity” to the full extent as at the Issue Date pursuant to PFRS, or such other
accounting standards, which succeed PFRS, as adopted in the Philippines, applied by the Issuer for
drawing up its financial statements for the relevant financial year.

Liquidation Rights in Respect of the Preferred Shares

The Preferred Shares will constitute direct and unsecured subordinated obligations of the Issuer ranking
at least pari passu in all respects and rateably without preference or priority among themselves with all
other preferred shares issued by the Issuer.

In the event of a return of capital in respect of the Issuer’s winding up or otherwise (whether voluntarily or
involuntarily) (but not on a redemption or purchase by the Issuer of any of its share capital), the holders
of the Preferred Shares at the time outstanding will be entitled to receive, in Pesos out of the Issuer’s
assets available for distribution to shareholders, together with the holders of any other of the Issuer’s
shares ranking, as regards repayment of capital, pari passu with the Preferred Shares and before any
distribution of assets is made to holders of any class of the Issuer’s shares ranking after the Preferred
Shares as regards repayment of capital, liquidating distributions in an amount of ₱500.00 per Preferred
Share plus an amount equal to any dividends declared but unpaid in respect of the previous dividend
period and any accrued and unpaid dividends for the then current dividend period to (and including) the
date of commencement of the Issuer’s winding up or the date of any such other return of capital, as the
case may be. If, upon any return of capital in the Issuer’s winding up, the amount payable with respect to
the Preferred Shares and any other of the Issuer’s shares ranking as to any such distribution pari passu
with the Preferred Shares are not paid in full, the holders of the Preferred Shares and of such other shares
will share rateably in any such distribution of the Issuer’s assets in proportion to the full respective
preferential amounts to which they are entitled. After payment of the full amount of the liquidating
distribution to which they are entitled, the holders of the Preferred Shares will have no right or claim to any
of the Issuer’s remaining assets and will not be entitled to any further participation or return of capital in a
winding up.

Payments of the Preferred Shares

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Description of the Securities

All payments in respect of the Preferred Shares are to be made free and clear of any deductions or
withholding for or on account of any present or future taxes or duties imposed by or on behalf of Republic
of the Philippines, including but not limited to, stamp, issue, registration, documentary, value added or any
similar tax or other taxes and duties, including interest and penalties. If such taxes or duties are imposed,
the Issuer will pay additional amounts so that holders of the Preferred Shares will receive the full amount
of the relevant payment which otherwise would have been due and payable. Provided, however, that the
Issuer shall not be liable for: (a) the final withholding tax applicable on dividends earned on the Preferred
Shares prescribed under the Tax Code, (b) expanded value added tax which may be payable by any
holder of the Preferred Shares on any amount to be received from the Issuer under the Preferred Shares
and (c) any withholding tax on any amount payable to any holder of the Share or any entity which is a non-
resident foreign corporation.

Documentary stamp tax for the re-issuance of the Shares and the documentation, if any, shall be for the
account of the Issuer.

The standard taxes applicable to the subsequent sale of the Preferred Shares by any holder of the
Preferred Shares shall be for the account of the said holder.

No Pre-emptive Rights

The Articles currently deny pre-emptive rights to holders of Preferred Shares over all issuances of the
Company’s common, Class “A” Preferred Shares, Class “B” Preferred Shares and Class “C” Preferred
Shares. However, shareholders representing at least two-thirds of the Company’s issued and outstanding
capital stock voting at a shareholders’ meeting duly called for the purpose may amend the Articles to grant
pre-emptive rights to subscribe to a particular issue or other disposition of shares from Ayala’s capital.
Pre-emptive rights may not extend to shares to be issued in compliance with laws requiring stock offerings
or minimum stock ownership by the public; or to shares to be issued in good faith with the approval of the
shareholders representing two-thirds of the outstanding capital stock in exchange for property needed for
corporate purposes or in payment of a previously contracted debt.

Transfer of Shares and Share Register

The Preferred Shares will be issued in scripless form.

Legal title to the Preferred Shares will be shown in the Register of Shareholders which shall be maintained
by the Registrar. The Registrar shall send (at the cost of the Issuer) at least once every quarter a Statement
of Account to all Shareholders named in the Register of Shareholders confirming the number of Shares
held by each Shareholder on record in the Register of Shareholders. Such Statement of Account shall
serve as evidence of ownership of the relevant Shareholder as of a given date thereof. Any request by
Shareholders for certifications, reports or other documents from the Registrar, except as provided herein,
shall be for the account of the requesting Shareholder.

Initial placement of the Preferred Shares and subsequent transfers of interests in the Preferred Shares
shall be subject to normal Philippine selling restrictions for listed securities as may prevail from time to
time.

After Issue Date, Shareholders of the Preferred Shares may request the Registrar and Depository Agent
to issue stock certificates evidencing their investment in the Preferred Shares. Any expense that will be
incurred in relation to such issuance shall be for the account of the requesting shareholder.

Philippine law does not require transfers of the Preferred Shares to be effected on the PSE, but any off-
exchange transfers will subject the transferor to a capital gains tax and documentary stamp tax that may
be significantly greater than the stock transfer tax applicable to transfers effected on an exchange. See
“Philippine Taxation”. All transfers of shares on the PSE must be effected through a licensed stock broker
in the Philippines.

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Description of the Securities

Not Convertible into Common Shares

The Preferred Shares shall not be convertible into Ayala’s common shares.

Other Rights and Incidents Relating to the Preferred Shares

Following are other rights and incidents relating to the Preferred Shares, which may also apply to other
classes of Ayala’s stock.

Restrictions on Foreign Ownership of Ayala’s Shares by Non-Philippine Nationals

Under Philippine law, no more than 40% of the capital of corporations holding land may be owned by non-
Philippine nationals. Ayala currently owns certain parcels of land. Accordingly, the Preferred Shares and
Ayala’s other shares may be owned or subscribed by or transferred to any person, partnership, association
or corporation regardless of nationality, provided that at any time at least 60% of the Company’s
outstanding capital stock shall be owned by citizens of the Philippines or by partnerships, associations or
corporations 60% of the voting stock or voting power of which is owned and controlled by citizens of the
Philippines.

Directors

Unless otherwise provided by law or the Articles, the Company’s corporate powers are exercised, its
business is conducted, and its property is controlled by the Board. Ayala has seven Directors who are
elected by holders of shares entitled to voting rights under the Articles during each annual meeting of the
shareholders for a term of one year. As mentioned, holders of Preferred Shares are not entitled to vote for
and elect the Company’s Directors.

Ayala’s By-laws currently disqualify or deem ineligible for nomination or election to the Board any person
who is engaged in any business which competes with or is antagonistic to that of the Company. Without
limiting the generality of the foregoing, a person shall be deemed so engaged:

a. If he is an officer, manager or controlling person of, or the owner (either of record or

beneficially) of 10% or more of any outstanding class of shares of, any corporation
(other than one in which the Company owns at least 30% of the capital stock) engaged
in a business which the Board, by at least three-fourths vote, determines to be
competitive or antagonistic to that of the Company;
b. If he is an officer, manager, controlling person of, or the owner (either of record or
beneficially of 10% or more of any outstanding class of shares of any other corporation
or entity engaged in any line of business of the Company, when in the judgment of the
Board, by at least three-fourths vote, the laws against combinations in restraint of trade
shall be violated by such person’s membership in the Board; and
c. If the Board, in the exercise of its judgment in good faith, determines by at least three-
fourths vote that he is the nominee of any person set forth in (a) or (b).

In determining whether or not a person is a controlling person, beneficial owner, or the nominee of another,
the Board may take into account such factors as business and family relations.

The Company conforms to the requirement to have at least one independent director or such number of
independent directors as may be required by law. As of the date of this Prospectus, the Company’s
independent directors are Ramon R. del Rosario, Jr., Xavier P. Loinaz and Antonio Jose U. Periquet.

Directors may only act collectively; individual Directors have no power as such. A majority of the Directors
constitutes a quorum for the transaction of corporate business and every decision of a majority of the
quorum duly assembled as a board is valid as a corporate act. Any vacancy created by the death or

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Description of the Securities

resignation of a Director prior to expiration of his term may be filled by the remaining members of the
Board, if still constituting a quorum. Any Director elected in this manner by the Board shall serve only for
the unexpired term of the Director whom he replaces. Any such vacancy may also be filled by the
shareholders entitled to vote, by ballot, at any meeting or adjourned meeting held during such vacancy,
provided that the notice of the meeting mentions such vacancy or expected vacancy.

Appraisal Rights

Philippine law recognizes the right of a shareholder to institute, under certain circumstances, proceedings
on behalf of the corporation in a derivative action in circumstances where the corporation itself is unable
or unwilling to institute the necessary proceedings to redress wrongs committed against the corporation
or to vindicate corporate rights, as for example, where the directors themselves are the malefactors.

In addition, the Corporation Code grants a shareholder a right of appraisal in certain circumstances where
he has dissented and voted against a proposed corporate action, including:

• an amendment of the articles of incorporation which has the effect of adversely

affecting the rights attached to his shares or of authorizing preferences in any respect
superior to those of outstanding shares of any class or of extending or shortening the
term of corporate existence;
• the sale, lease, exchange, transfer, mortgage, pledge or other disposal of all or
substantially all the assets of the corporation;
• the investment of corporate funds in another corporation or business or for any
purpose other than the primary purpose for which the corporation was organized; and
• a merger or consolidation.

In these circumstances, the dissenting shareholder may require the corporation to purchase his shares at
a fair value which, in default of agreement, is determined by three disinterested persons, one of whom
shall be named by the stockholder, one by the corporation, and the third by the two thus chosen. The SEC
will, in the event of a dispute, determine any question about whether a dissenting shareholder is entitled
to this right of appraisal. The dissenting stockholder will be paid if the corporate action in question is
implemented and the corporation has unrestricted retained earnings sufficient to support the purchase of
the shares of the dissenting shareholders.

Shareholders’ Meeting

At the annual meeting or at any special meeting of the Company’s shareholders, the latter may be asked
to approve actions requiring shareholder approval under Philippine law.

Quorum

The Revised Corporation Code provides that, except in instances where the assent of shareholders
representing two-thirds of the outstanding capital stock is required to approve a corporate act (usually
involving the significant corporate acts where even non-voting shares may vote, as identified above) or
where the by-laws provide otherwise, a quorum for a meeting of shareholders will exist if shareholders
representing a majority of the capital stock are present in person or by proxy.

Voting

At each shareholders’ meeting, each shareholder shall be entitled to vote in person, or by proxy, all shares
held by him which have voting power, upon any matter duly raised in such meeting.

The Company’s By-laws provide that proxies shall be in writing and signed and in accordance with the
existing laws, rules and regulations of the SEC. Duly accomplished proxies must be submitted to the office
of the Corporate Secretary not later than seven business days prior to the date of the stockholders’

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meeting. Validation of proxies shall be conducted by the Proxy Validation Committee at least five business
days prior to the date of the stockholders’ meeting.

Fixing Record Dates

The Board has the authority to fix in advance the record date for shareholders entitled: (a) to notice of, to
vote at, or to have their votes voted at, any shareholders’ meeting; (b) to receive payment of dividends or
other distributions or allotment of any rights; or (c) for any lawful action or for making any other proper
determination of shareholders’ rights. No transfer will be recorded in the stock and transfer book on the
date of a shareholders’ meeting and within five working days from the record date of such meeting.

Issues of Shares

Subject to applicable limitations, the Company may issue additional shares to any person for consideration
deemed fair by the Board, provided that such consideration shall not be less than the par value of the
issued shares.

Mandatory Tender Offers

Under the Securities Regulation Code and its implementing rules, subject to certain exceptions:

A. Any person or group of persons acting in concert, who intends to acquire thirty five
percent (35%) or more of equity shares in a public company shall disclose such
intention and contemporaneously make a tender offer for the percent sought to all
holders of such class. In the event that the tender offer is oversubscribed, the
aggregate amount of securities to be acquired at the close of such tender offer shall
be proportionately distributed across both selling shareholder with whom the acquirer
may have been in private negotiations and minority shareholders.

B. Any person or group of persons acting in concert, who intends to acquire thirty five
percent (35%) or more of equity shares in a public company in one or more
transactions within a period of twelve (12) months, shall be required to make a tender
offer to all holders of such class for the number of shares so acquired within the said
period.

C. If any acquisition of even less than thirty five percent (35%) would result in ownership
of over fifty one percent (51%) of the total outstanding equity securities of a public
company, the acquirer shall be required to make a tender offer for all the outstanding
equity securities to all remaining stockholders of the said company at a price
supported by a fairness opinion provided by an independent financial advisor or
equivalent third party.
The acquirer in such a tender offer shall be required to accept any and all securities thus tendered.

Accounting and Auditing Requirements / Rights of Inspection

Philippine stock corporations are required to file copies of their annual financial statements with the SEC
and the Philippine Bureau of Internal Revenue (“BIR”). Corporations whose shares are listed on the PSE
are also required to file quarterly and annual reports with the SEC and the PSE. Shareholders are entitled
to request copies of the most recent financial statements of the corporation which include a balance sheet
as of the end of the most recent tax year and a profit and loss statement for that year. Shareholders are
also entitled to inspect and examine the books and records that the corporation is required by law to
maintain.

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Description of the Securities

The Board is required to present to shareholders at every annual meeting a financial report of the
operations of the corporation for the preceding year. This report is required to include audited financial
statements

Notice to the Preferred Shareholders

Notices to the Preferred Shareholders shall be sent to their mailing address, as appearing in the Registry
of Shareholders, by the Registrar when required to be made through registered mail, surface mail or
personal delivery. Except where a specific mode or notification is provided for herein, notices to
Shareholders shall be sufficient when made in writing and transmitted in any one of the following modes:
(a) registered mail; (b) surface mail; (c) by one-time publication in a newspaper of general circulation in
the Philippines; (d) personal delivery to the address on record in the Registry of Shareholders or (e)
disclosure through the Online Disclosure System of the Philippine Dealing & Exchange Corp. (“PDEx”) or
the PSE. The Registrar shall rely on the Registry of Shareholders in determining the Shareholders entitled
to the notice. All notices shall be deemed to have been received (a) ten (10) days from posting if
transmitted by registered mail; (b) fifteen (15) days from mailing, if transmitted by surface mail; (c) on date
of publication; (d) on date of delivery, by personal delivery; or (e) on the date that the disclosure is uploaded
on the website of the PDEx or the PSE.

The publication in a newspaper of general circulation in the Philippines of a press release or news item
about a communication or disclosure made by Ayala to the SEC, the PDEx or the PSE on a matter relating
to the Preferred Shares shall be deemed a notice to the Shareholders of said matter on the date of the
first publication.

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 RISK FACTORS
GENERAL RISK WARNING

• The price of securities can and does fluctuate, and any individual security may experience upward or
downward movements, and may even become valueless. There is an inherent risk that losses may be
incurred rather than profit made as a result of buying and selling securities.
• Past performance is not a guide to future performance. There may be a big difference between the
buying price and the selling price of these securities.
• Investors deal in a range of investments, each of which may carry a different level of risk.

PRUDENCE REQUIRED

This risk disclosure does not purport to disclose all the risks and other significant aspects of investing in
these securities. Investors should undertake independent research and study on the trading of securities
before commencing any trading activity. Investors may request publicly available information on the
Preferred Shares and the Issuer thereof from the SEC and PSE.

PROFESSIONAL ADVICE

Investors should seek professional advice if they are uncertain of, or have not understood any aspect of
the securities to invest in or the nature of risks involved in trading of securities, especially high risk
securities.

RISK FACTORS

An investment in the Preferred Shares described in this Prospectus involves a certain degree of risk. A
prospective purchaser of the Preferred Shares should carefully consider the following factors, in addition
to the other information contained in this Prospectus, in deciding whether or not to invest in the Preferred
Shares. This Prospectus contains forward-looking statements that involve risks and uncertainties. Ayala
adopts what it considers conservative financial and operational controls and policies to manage its
business risks. Ayala’s actual results may differ significantly from the results discussed in the forward-
looking statements. See section “Forward- Looking Statements” of this Prospectus. Factors that might
cause such differences, thereby making the offering speculative or risky, may be summarized into those
that pertain to the business and operations of Ayala, in particular, and those that pertain to the over-all
political, economic, and business environment, in general. These risk factors and the manner by which
these risks shall be managed are presented below.

Investors should carefully consider all the information contained in this Prospectus including the risk
factors described below, before deciding to invest in the Preferred Shares. The Company's business,
financial condition and results of operations could be materially adversely affected by any of these risk
factors.
Risk Factors

RISKS ASSOCIATED WITH THE COMPANY AND THE GROUP

The Group is active in many regulated sectors and failure to adequately anticipate and/or address
regulatory changes may adversely impact the Group.

The Group, one of the largest conglomerates in the Philippines, engages in the following sectors: real
estate, financial services, telecommunications, water, industrial technologies, power, infrastructure,
healthcare, education, and others. Some of its business activities are in regulated industries that regularly
undergo a significant amount of regulatory and/or political changes. While Ayala and certain member
companies of the Ayala Group have dedicated resources and personnel to monitor, study and influence
policymaking in their respective industries in the Philippines, Ayala cannot fully ensure the accuracy of
such studies or the effectiveness of such attempts in a constantly-shifting environment. Any failure to
accurately predict or successfully influence or address policy outcomes may have a material adverse effect
on the Group’s business, financial condition and results of operations.

Ayala is actively monitoring the regulatory landscape for current regulations and any changes that may
have an impact on its existing and potential markets. Ayala’s Public Policy Unit and the group’s Regulatory
Council regularly identify, monitor, and evaluate new policy issues across sectors and industries. The unit
is also in-charge of maintaining and strengthening relationships with all levels of government by conducting
policy dialogues and consultations among others .

Any restriction or prohibition on Ayala’s Subsidiaries’, Associates’ or Joint Ventures’ ability to

distribute dividends would have a negative effect on its financial condition and results of
operations and its ability to fulfil its obligations under the Preferred Shares.

Ayala is a holding company that conducts its operations through its Subsidiaries, Associates and Joint
Ventures. As a holding company, Ayala’s income is derived primarily from dividends paid to Ayala by its
Subsidiaries, Associates and Joint Ventures. For the year ended December 31, 2018 and as of June 30,
2019, Ayala received ₱11,622 million and ₱5,927 million dividends, respectively. Meanwhile, the Company
paid ₱4,333 million dividends for common shareholders in 2018. For preferred shareholders, the Company
paid ₱1,285 million and ₱646 million dividends in 2018 and first half of 2019, respectively.

Ayala is reliant on these sources of funds with respect to its obligations and in order to finance its
Subsidiaries. The ability of Ayala’s direct and indirect Subsidiaries, Associates and Joint Ventures to pay
dividends to Ayala (and their shareholders in general) is subject to applicable law and may be subject to
restrictions contained in loans and/or debt instruments of such Subsidiaries and may also be subject to
the deduction of taxes. Currently, the payment of dividends by a Philippine corporation to another
Philippine corporation is not subject to tax.

Any restriction or prohibition on the ability of some or all of Ayala’s Subsidiaries, Associates and/or Joint
Ventures to distribute dividends or make other distributions to Ayala, either due to regulatory restrictions,
debt covenants, operating or financial difficulties or other limitations, could have a negative effect on
Ayala’s cash flow and therefore, its financial condition. Furthermore, such restrictions could likewise impact
Ayala’s ability to fulfil its obligations under the Preferred Shares.

Claims of creditors of Ayala’s subsidiaries and affiliates, including trade creditors, bank lenders and other
creditors, will have priority over any claims of Ayala with respect to the assets of such subsidiaries and
affiliates.

To ensure that Ayala has the capability to honor its obligations, it monitors the level of its Net Debt to Value
and Cash Flow Adequacy ratios. The Board of Directors has set an internal limit of 20% for its Net Debt to
Value. This ratio measures Ayala’s capability to repay maturing debt with its assets. On the other hand, the
Cash Flow Adequacy ratiomeasures the percentage of incoming cash (includes dividends, rentals, interest,
among others) to operating expenses and interest payments. The Net Debt to Value and Cash Flow
Adequacy ratios at the end of June 2019 were 13% and 1.81x, respectively.

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The Group is subject to cyclical risks.

A significant majority of the Group’s revenues are derived from its real estate and financial services
businesses. Traditionally, these industries have been subject to cyclical risks relating to the broader
economic environment. As a result, the Group is subject to cyclical risks and its financial condition may be
materially and adversely impacted as a result of any economic slowdown or stagnation in growth in the
Philippines.

Furthermore, the receivables and inventories of Ayala Land, Ayala’s largest subsidiary, have historically
exhibited cyclical trends based on the timing and progress of its projects and their respective stages of
development. Historically, such cyclical trends have in turn resulted in similar cyclical trends in the cash
flows of Ayala. There is no assurance that Ayala Land’s receivables and inventories will not continue to
fluctuate in the future, which may adversely impact Ayala’s financial condition.

The Investment and Finance Committees review the performance of each business unit at least twice a
year: a general review, which covers Ayala’s portfolio of businesses; and a specific business unit review.
In the latter, the business unit’s performance is measured against several metrics including the current
budget, the latest medium-term plan and often, against competitors. The objective of these reviews is to
refine capital allocation depending on performance, and if needed, suggest changes to the business plans
or strategies.

Ayala is increasing its investments in the industrial technologies, infrastructure, healthcare and
other sectors and may not realize short or long term gains from these planned investments.

As part of its business strategy, Ayala is rebalancing its portfolio by investing in sectors that it believes are
key growth areas in the Philippines, including, but not limited to, power, industrial technologies,
infrastructure, healthcare, education and other ventures. Additionally, Ayala, through its Subsidiaries,
Associates and Joint Ventures has increased and may continue to increase its investments in other
businesses. These investments may not realize short or long term gains for multiple reasons. As a result,
it is possible that the expected benefits of these investments may not materialize within the time periods
or to the extent anticipated or at all, thus affecting Ayala’s financial condition.

Ayala’s core businesses in real estate, banking, and telecommunications are dominant industry players that
will continue to drive a significant component of its earnings and value in the medium term. Over the past
decade, Ayala has been establishing a presence in new sectors from which it can derive new sources of
growth and value creation. Part of its five-year strategic targets for 2020 is to generate 20% contribution to
its equity earnings from emerging businesses, namely power, industrial technologies, education, and
healthcare.

While Ayala is always open to new areas of investment, it employs a rigorous gating process at the
management level, with final evaluation and approval at the board level. During this process, a thorough
discussion of the business plan, strategy for execution, and risks is carried out and responsible persons
are identified.

In addition, Ayala has adopted a capital allocation process where the board’s Finance Committee, upon
recommendation of management, determine the amount of capital assigned to the various business
ventures. Capital is allocated and committed over a set time frame (usually three to five years), which
ensures that management has the funds to execute their proposed business plan. The Finance Committee
endorses the recommended capital allocation to the Board of Directors which has final approval over all
investments.

Ayala is controlled by the Controlling Shareholders, whose interests may not be the same as those
of other shareholders.

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Messrs. Jaime Augusto Zobel de Ayala and Fernando Zobel de Ayala, individually and through their control
of Mermac, Inc. (“Mermac”), a private holding company incorporated in the Philippines, are the majority
shareholders (the “Controlling Shareholders”) of, and effectively control, Ayala. Mermac held 47.0366%
and 82.0412% of the outstanding Common Shares, and 47.2826% and 86.3894% of the outstanding
voting preferred shares of Ayala (the “Voting Preferred Shares”), as of December 31, 2018 and June 30,
2019, respectively. Accordingly, as of June 30, 2019, the Controlling Shareholders effectively have control
over 56.7362% of Ayala’s voting shares and are able to elect members of the Board of Directors of Ayala
(the “Board”) and pass shareholder resolutions (not including special resolutions, which require a two-
thirds majority), which under the By-laws generally require a majority vote by its shareholders. If the
interests of the Controlling Shareholders conflict with the interests of other shareholders of Ayala, there
can be no assurance that the Controlling Shareholders would not cause Ayala to take action in a manner
which might differ from the interests of other shareholders.
Given the large scale of Ayala’s operations, its decision-making process has to be inclusive and responsive
to the needs of shareholders and address a wide base of interests. Ayala seeks to maximize good
governance to ultimately guarantee that long-term considerations are prioritized over short-term gains.
Toward these goals, Ayala strives to adhere to regulatory requirements and global best practices. In
addition to compliance with regulations, Ayala develops governance summits and internal councils,
supports scholarly efforts on good governance and advanced shared value business models aiming to
voluntarily embed global frameworks into Ayala’s operations and support sustainable development.

Failure to obtain financing on reasonable terms or at all could adversely impact the execution of
Ayala’s expansion and growth plans.

Ayala’s expansion and growth plans are expected to require significant fund raising from external sources.
Ayala’s continued access to debt and equity financing as a source of funding for new projects and
acquisitions and for refinancing maturing debt is subject to many factors, including: (a) Philippine
regulations limiting bank exposure (including single borrower limits) to a single borrower or related group
of borrowers; (b) the Issuer’s and Group’s compliance with existing debt covenants; (c) the ability of Ayala
to service new debt; (d) the macroeconomic fundamentals driving credit ratings of the Philippines; and (e)
perceptions in the capital markets regarding the Group and the industries in which it operates and other
factors, some of which may be outside of its control, including general conditions in the debt and equity
capital markets, political instability, an economic downturn, social unrest, changes in the Philippine
regulatory environment or the bankruptcy of an unrelated company operating in one or more of the same
industries as the Group, any of which could increase borrowing costs or restrict Ayala’s ability to obtain
debt or equity financing. There is no assurance that Ayala will be able to arrange financing on acceptable
terms, if at all. Any inability of Ayala to obtain financing from banks and other financial institutions or from
capital markets would adversely affect Ayala’s ability to execute its expansion and growth strategies.

Ayala maintains a conservative and diversified funding strategy, mitigating the company’s financing risks
for its expansion plans. Ayala sets a maximum amount of debt maturities guided by a strategic capital
allocation plan to anticipate funding requirements, manage refinancing, and related market liquidity risks.
The Company maintains strong relationships with both domestic and foreign banks, providing wide access
for Philippine Peso and U.S. Dollar loans, through committed standby bilateral facilities.
Ayala’s strong balance sheet provides the flexibility to tap both debt and equity capital markets in various
stages of the economic cycle. Ayala, through a sound asset management strategy, may also recycle capital
and realize value from its various investments providing additional source of financing for new projects,
acquisitions and continued growth plans.
Ayala has conducted and may continue to conduct acquisitions, the impact of which could be less
favorable than anticipated or which could affect its financial situation.

As part of its business strategy, Ayala has conducted and continues to carry out acquisitions of varying
sizes, some of which are significant at the Group level. These acquisitions involve numerous risks,

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including, without limitation, the following: (a) the assumptions used in the underlying business plans may
not prove to be accurate, in particular with respect to synergies and expected commercial demand; (b)
Ayala may not integrate acquired businesses, technologies, products, personnel, and operations
effectively; (c) Ayala may fail to retain key employees, customers and suppliers of the companies acquired;
(d) Ayala may be required or wish to terminate pre-existing contractual relationships, which could be costly
and/or on unfavorable terms; and (e) Ayala may increase its indebtedness to finance these acquisitions.
As a result, it is possible that the expected benefits of completed or future acquisitions may not materialize
within the time periods or to the extent anticipated, or affect Ayala’s financial condition.

To mitigate this risk, Ayala through its Strategic Planning Unit provides market intelligence, compares key
metrics with competition, analyzes annual innovation trends and new sectors, and strengthens Ayala’s
gating process, where all possible business ventures are discussed and monitored. The CFO, through the
Financial Planning and Corporate Finance and Asset Management teams, complements these activities
with regular deep-dive analysis of portfolio and business unit performance. The Senior Management Team
is also expected to strengthen relationships and establish networks with potential partners and advisers.

Members of the Group enter into numerous transactions with related parties.

In the ordinary course of business, Ayala transacts with its related parties, such as its Subsidiaries and
certain of its Associates and Joint Ventures, and members of the Group enter into transactions with each
other. These transactions have principally consisted of advances, loans, bank deposits, reimbursement of
expenses, purchase and sale of real estate and other properties, guarantees, construction contracts and
various services such as consultancy, project development, management, marketing and administrative
support. Certain members of the Group maintain current and savings accounts, money market placements
and other short-term investments with BPI, and have short-term and long-term debt payable to BPI, which
are governed by BSP regulations on loans to directors, officers, stockholders and other related interests.
In addition, members of the Group have receivables from officers and employees relating to housing, car,
salary and other loans, which are collectible through salary deductions.

Although Ayala has instituted internal policies with respect to related party transactions, including
establishing a board committee to oversee such matters, and believes that all past related party
transactions have been conducted at arm’s length on commercially reasonable terms, these transactions
may involve conflicts of interest, which, although not contrary to law, may negatively impact the Group.

For further information on the Group’s related party transactions, see Note [22] to Ayala’s audited
consolidated financial information included in this Prospectus. Except for those discussed in the said
unaudited consolidated financial statements, no other transaction, other than as appropriately disclosed by
Ayala, was undertaken by the Group involving any director or executive officer, any nominee for election
as director, any beneficial owner of more than 5% of Ayala’s outstanding shares (direct or indirect) or any
member of his immediate family was involved or had a direct or indirect material interest. Ayala’s employees
are required to promptly disclose any business and family-related transactions with Ayala to ensure that
potential conflicts of interest are reviewed and disclosed as appropriate.

Certain Group companies are subject to restrictive debt covenants.

Certain Group companies are subject to debt covenants for their respective existing debt. Failure to comply
with these covenants may result in an event of default, which if not waived, could result in debt becoming
immediately due and payable. This could affect the relevant company’s liquidity and ability to generally
fund its day-to-day operations. In the event this occurs, it may be difficult to repay or refinance such debt
on acceptable terms or at all. Furthermore, if the debt is unsecured debt, then it will be effectively
subordinated in right of payment to such company’s secured debt to the extent of the value of the assets
securing such debt and all debt that is evidenced by a public instrument under Article 2244(14) of the Civil
Code of the Philippines without a waiver of preference or priority.

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Ayala and its subsidiaries are prudently managing its debt obligations by ensuring that any corporate act,
whether or not performed in the ordinary course of business, does not violate any existing debt covenants.
Prior to securing any debt, a thorough review of both mid-term and long-term operating, cashflow and
performance metrics projections or targets is performed to support the use and settlement of debt.
Furthermore, Ayala ensures that its debt maturities are well-spread out and in compliance with its internal
policy of not having maturities exceeding 20% of total debt on a yearly basis.

During the life of the debt and major obligations, alongside the semi-annual and annual review of operating
results, certain related performance metrics are assessed to ensure these are aligned with targets and
would ultimately honor obligations from its creditors, bond holders and shareholders. Metrics include cash
level, cash flow adequacy ratio, debt-to-equity ratios and loan to value ratio (please see additional
discussion on parent and the Group’s cash and debt in the Management’s Discussion and Analysis section
of this report).

Ayala may not be able to adequately influence the operations of its Associates and Joint Ventures.

Ayala derives a substantial portion of its income from Associates and Joint Ventures. Ayala does not have
majority voting control of its Associates and Joint Ventures and, therefore, may not be able to direct the
operations of these entities. As a result, cooperation among its partners or consensus with other
shareholders in these entities is crucial to these businesses’ sound operation and financial success.
Disagreements with these partners or other shareholders over business strategy and direction may lead
to a material impact on Ayala’s results of operations.

In order for Ayala to operate on the same principles of timeliness, integrity, and transparency, its senior
management team regularly engages with business partners and affiliates through high-level meetings
and dialogues to address topics of concern on financial performance, governance, commercial viability,
business outlook, and management strategies. Further, Ayala and its senior management participate in
relevant global organizations to keep abreast of developments and trends in various sectors.

Ayala is highly dependent on the continued service of key senior management individuals, in
particular the Zobel de Ayala brothers.

Ayala relies on certain key individuals in senior management for leadership. In particular, Jaime Augusto
Zobel de Ayala, Chairman and CEO of Ayala, and his brother Fernando Zobel de Ayala, President and
Chief Operating Officer of Ayala, have been integral in expanding the Group and its revenues and
profitability. The experience, knowledge, business relationships and expertise that would be lost should
these or other key individuals depart the business could be difficult to replace and could result in a
decrease in Ayala’s financial performance.

However, Ayala’s management team is composed of seasoned professionals with a proven track record
of success both within and outside the group. In addition, Ayala has a well-defined succession bench to
ensure the presence of strong leaders for the group. Each independent business unit is also led by its own
deep bench of skilled executives. The Ayala Group Management Committee, comprised of Ayala
Corporation’s senior management team and the CEOs of the Ayala group companies, ensure alignment
of individual business unit priorities to group-wide targets while maximizing synergies across the group.
Ayala acknowledges that its ability to execute strategies is driven by its people who have the experience,
expertise and discipline. In order to have such pool of talents, Ayala provides continuing training and
development programs, from specific job skills to long-term professional development provided by in-
house and external partners to ensure that there is continuity of business in the event that key personnel
decide to retire or pursue interests outside Ayala. Ayala periodically implements initiatives to identify
potential successors to key senior management position and prepares talent for taking on greater
responsibilities as the circumstances may require.
Ayala and the Group Companies may be unable to attract and retain skilled personnel in a
competitive job market.

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Any loss of key personnel and an inability of Ayala or the individual Group companies to replace personnel
and to train and retain replacement personnel, could materially and adversely affect the Group’s ability to
provide products and services to its customers. Losses of trained personnel could also result in the Group
incurring additional expenses in hiring and training replacement personnel and it may take time for these
new personnel to reach the level of technical skill and expertise of the personnel they are replacing. Any
of the foregoing could have a material adverse effect on the Group’s business, financial condition and
results of operations. In addition, the Group has relied and will continue to rely significantly on the
continued individual and collective contributions of its senior management team. If any of the Group’s key
personnel are unable or unwilling to continue in their present positions, or if they join a competitor or form
a competing business, the Group may not be able to replace them easily, and its business may be
significantly disrupted and its business, financial condition, results of operations and prospects could be
materially and adversely affected.

Ayala continually seeks to hire talented and dedicated professionals and believes that it is well positioned
in the market for talented personnel as it offers opportunities for professional growth in businesses across
the Group. Toward this goal, Ayala provides market-competitive compensation and benefits, which are
aligned to corporate goals, annual targets, and long-term strategic plans. At Ayala, a performance based
variable compensation scheme uses the Key Result Area scorecard accomplishments as metrics. Ayala
measures employee engagement every two years and creates and enhances people initiatives to address
the employees’ evolving priorities.

The transactions of the Group may be subject to review under the Philippine Competition Act.

Republic Act No. 10667, the Philippine Competition Act (the “PCA”) became effective on August 8, 2015.
The PCA prohibits and penalizes anti-competitive agreements and abuse of dominance; however, it
provides that administrative, civil and criminal penalties may only be imposed if violations are not cured
upon the expiration of two years after the effectivity of the PCA. This transition period ended on August
8, 2017. Under the PCA, there is a rebuttable presumption of dominance when an entity has a market
share of 50% or more. Members of the Group that possess a market share of 50% or more are proscribed
from committing any of the acts listed as abuse of dominance. As of June 30, 2017, Globe’s share of
revenues in the wireless industry, based on its internal analysis using public information, was 53.7%. In
addition, as the Group continues its strategy of acquisitions and joint ventures, there could be more reason
for certain of its transactions to be subject to the PCA. There can be no assurance that none of Ayala’s
existing or future businesses or strategies will not be subject to PCA scrutiny, and the result of any such
scrutiny, whether in terms of review, penalties or any conditions imposed on Ayala, may have a material
adverse effect on its business and strategies. See “— Risks relating to the Group’s Telecommunications
business — Globe may be subject to adverse rulings by the Competition Commission” and “[●]”.

Given the usual volume of the members of the Group’s transactions, mergers or acquisitions undertaken
by the members of the Group would likely meet the notification threshold under the PCA and its
Implementing Rules and Regulations (“IRR”). The members of the Group will comply with the requirements
of the PCA and its IRR.

Certain financial information of the Group contained in this offering circular has not been audited.

The Company’s unaudited, interim condensed consolidated financial statement as of 30 June 2019
included in this offering circular has not been audited in accordance with Philippine Standards on Auditing
or otherwise. The unaudited, interim condensed consolidated financial statement as of 30 June 2019, were
approved by Audit Committee of Board of Directors prior to public disclosure.

Ayala’s consolidated financial statements for interim cut-offs like June 30, 2019 are prepared in
accordance with PAS 34, Interim Financial Reporting. The unaudited interim condensed consolidated
financial statements do not include all of the information and disclosures required in the audited financial
statements but highlights those key financial statement accounts, information and disclosures which are

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significant and material in the overall financial statements for the interim cut-off. In addition, each
component or account of the financial statements, either disclosed or not, highlighted in the interim
financials, are treated consistently with the way these are presented in the audited financial statements of
the Group. This allows readers comparability with prior year and year-on-year financials. Supplementing
presentation of key accounts and consistency in treatment are disclosures on the regular process for its
interim unaudited financial statements like, but not limited to: use of management estimates, assumptions
and judgments; and presentation to, review of and approval for release of the financials by the Audit
Committee of the Company’s Board of Directors.

The Offering Circular contains certain statistical and industry information.

Certain statistical or industry information in this Offering Circular relating to the Philippines, other Southeast
Asian economies, the industries and markets in which the businesses of the Group compete, and other
data used in this Offering Circular was obtained or derived from internal surveys, market research,
governmental data, publicly available information and/or industry publications. Industry publications
generally state that the information they contain has been obtained from sources believed to be reliable.
However, there is no assurance that such information is accurate or complete. Similarly, internal surveys,
industry forecasts and market research have not been independently verified by the Group and may not
be accurate, complete, up-to-date, balanced or consistent with other information compiled within or outside
the Philippines.

The Company’s subsidiaries and affiliates are subject to specific industry risks.
Ayala operates in several key sectors: real estate, financial services, telecommunications, water, industrial
technologies, power, infrastructure, healthcare, education and other ventures. These various industries
have inherent risks, which ultimately exposes the Group. Below are some of the key risks that Ayala’s
subsidiaries face in their day-to-day operations.

• High level of competition;

• Slowdown in business activity due to global financial and local political, socio-economic
turmoil, and security concerns;

• Lack of skilled and properly-trained workforce to deploy to its various business operations
• Risks associated with information and technology infrastructure;

• Risks associated with market disruptors and changes or shifts in technology and market
preferences;

• Non-compliance to, or breach of, regulatory limits imposed on some of its highly-regulated
businesses;

• Changes in tax policies, government regulations, laws, or the interpretation thereof, and
sudden shifts in government policies and initiatives that could adversely affect Ayala’s
businesses;

• Loss of key personnel or the inability to attract and retain them;

• Litigation risks both on business dealings with the private and public sectors, which could
result in financial losses or harm its businesses;

• Natural catastrophes;

• Shortages in raw materials or feedstock, or the increase in the prices thereof, that can limit
the production and operations of some of its subsidiaries and affiliates; and

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• Inability to implement growth strategies across its various business segments, including, but
not limited to, realizing value from its various acquisitions and business integrations, securing
of business contracts, concessions, and business partnerships, completing its business
expansion plans, etc.

To mitigate such risks, Ayala ensures that each of the operating companies has a full management team
which is responsible for having their own plan to manage risk which is reviewed by their respective Risk
Management Committees and periodically by Ayala.
For a more detailed description of these industry-specific risks, please refer to the [Business] section on
page [•].

RISKS RELATING TO THE PHILIPPINES

Substantially all of Ayala’s operations and assets are based in the Philippines and, therefore, a
slowdown in economic growth in the Philippines could materially and adversely affect Company’s
business, financial position and results of operations.

A substantial component of Ayala’s business activities and assets are based in the Philippines, which
exposes Ayala to risks associated with the country, including the performance of the Philippine economy.
Historically, Ayala derived substantially its revenues and operating profits from the Philippines and, as
such, their businesses are highly dependent on the state of the Philippine economy. Demand for Ayala’s
products and services are all directly related to the strength of the Philippine economy (including its overall
growth and income levels), and the overall levels of business activity in the Philippines. Factors that may
adversely affect the Philippine economy include:

• decreases in business, manufacturing or financial activities in the Philippines, the Southeast

Asian region or globally;

• scarcity of credit or other financing, resulting in lower demand for products and services
provided by companies in the Philippines, the Southeast Asian region or globally;

• exchange rate fluctuations and foreign exchange controls;

• rising inflation or increases in interest rates;

• levels of employment, consumer confidence and income;

• changes in the Government’s fiscal and regulatory policies;

• Government budget deficits;

• adverse trends in the current accounts and balance of payments of the Philippine economy;

• natural disasters, including but not limited to tsunamis, typhoons, earthquakes, fires, floods
and similar events;

• geopolitical tensions between the Philippines and other claimant countries concerning
disputed territories in the South China Sea;

• trade tensions and the rise of protectionism among trade partners of the Philippines;

• political instability, terrorism or military conflict in the Philippines, other countries in the
region (including North Korea) or globally; and

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• other regulatory, social, political or economic developments in or affecting the Philippines.

There can be no assurance that the Philippines will maintain strong economic fundamentals in the future.
Changes in the conditions of the Philippine economy could materially and adversely affect Ayala’s
business, financial condition and results of operations.

The sovereign credit ratings of the Philippines may adversely affect Ayala’s business.

The sovereign credit ratings of the Philippines directly affect companies resident and domiciled in the
Philippines as international credit rating agencies issue credit ratings by reference to that of the sovereign.
In 2013, the Philippines earned investment grade status from all three major credit ratings agencies —
Fitch (BBB-), Standard and Poor’s (BBB) and Moody’s (Baa3). In 2014, Standard & Poor’s Financial
Services (“S&P”) and Moody’s upgraded their ratings to “BBB” with a positive outlook and “Baa2” in May
and December, respectively, with Moody’s affirming its rating in May 2019. Meanwhile, Fitch upgraded the
Philippines’ credit rating from “BBB-” to “BBB” in December 2018, and affirmed the rating in May 2019. In
addition, S&P also further upgraded the country’s rating by a notch from “BBB” to “BBB+” in April 2019. All
ratings are above investment grade and the highest that the country has received so far.

International credit rating agencies issue credit ratings for companies with reference to the country in which
they are resident. As a result, the sovereign credit ratings of the Philippines directly affect companies that
are resident in the Philippines, such as Ayala. There is no assurance that Fitch, Moody’s, S&P or other
international credit rating agencies will not downgrade the credit rating of the Philippines in the future. Any
such downgrade could have a material adverse effect on liquidity in the Philippine financial markets and
the ability of the Philippine Government and Philippine companies, including Ayala, to raise additional
financing, and will increase borrowing and other costs.

Fluctuation in the value of the Peso against the U.S. Dollar and other currencies may affect Ayala’s
business.

Ayala’s revenues are predominantly denominated in Pesos, while some investment initiatives and certain
expenses, including debt obligations, are denominated in other currencies (principally U.S. Dollars). To
fund its foreign currency requirements, Ayala taps the international market to raise needed funds and
capitalize on the offshore market’s flexibility in volume and in pricing. Ayala only incurs foreign currency
debt for foreign currency assets. To hedge against minimal foreign currency exposure, Ayala may utilize
short to medium term hedges to protect itself from any Peso depreciation. Furthermore, Ayala also keeps
short-term U.S. Dollar investment as part of its liquid assets.

At present, the country’s exchange rate policy supports a freely floating exchange rate system whereby
the BSP leaves the determination of the exchange rate to market forces. Under a market-determined
exchange rate framework, the BSP does not set the foreign exchange rate but instead allows the value of
the Peso to be determined by the supply and demand of foreign exchange. The implementation of the
revised Foreign Exchange rules eased the purchase of foreign currencies in the banking system. There is
no assurance that the Peso will not depreciate further against other currencies and that such depreciation
will not have an adverse effect on the Philippine economy and the Group’s financial condition and results
of operation.

The Group’s business operations may be affected by any political and military instability in the
Philippines

The Philippines has from time to time experienced political and military instability. The Philippine
Constitution provides that in times of national emergency, when the public interest so requires, the
Government may take over and direct the operation of any privately owned public utility or business. In the

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last few years, there has been political instability in the Philippines, including public and military protests
arising from alleged misconduct by the previous administration.

In March 2019 and February 2019, journalist Maria Ressa was ordered arrested on charges of violations
of anti-dummy law and cyber libel, respectively. Her arrest elicited concern from the international community
and has been criticized by various groups as an attempt by the government to silence critical press
coverage against President Rodrigo Duterte and his administration. In December 2018, Senator Antonio
Trillanes III was ordered arrested in connection with a libel case filed by presidential son Paolo Duterte. In
February 2017, Senator Leila de Lima was arrested after charges were filed in court accusing her of
orchestrating a drug-trafficking ring during her term as Secretary of the Department of Justice (“DOJ”) from
2010 to 2015. Senator Trillanes and Senator de Lima are outspoken critics of the Duterte administration.
In May 2018, the Supreme Court of the Philippines ousted Chief Justice Maria Lourdes Sereno by ruling in
a quo warranto proceeding that her appointment was invalid. The removal of Chief Justice Sereno became
controversial because it was not coursed through the constitutionally mandated process of impeachment.
On June 2018, former President Benigno Aquino III was indicted for usurpation of legislative powers
concerning the Disbursement Acceleration Program during his term. Moreover, several individuals who
were high-ranking officers under the administration of President Aquino have also been indicted for graft
and corruption charges and drug trafficking among other offenses. In addition, since the commencement
of the current administration, more than 1,000 alleged drug dealers and users have been killed in police
operations, and more than 1,300 drug dealers and drug users have been killed by supposed vigilantes.

Currently, the Duterte administration is pushing for a shift to a federal form of government. For this purpose,
the President created a consultative committee to review the 1987 Constitution and draft a federal
constitution.

Philippine legislative and local elections were held on May 2019. The Company may be affected by political
and social developments in the Philippines and changes in the political leadership and/or government
policies in the Philippines. Such political or regulatory changes may include (but are not limited to) the
introduction of new laws and regulations that could impact the Company’s business.

No assurance can be given that any changes in such regulations or policies imposed by the Government
from time to time or the future political environment in the Philippines will be stable or that current or future
administrations will adopt economic policies conducive to sustaining economic growth. Political instability
in the future could reduce consumer demand for retail and consumer goods to the Group’s disadvantage,
or result in inconsistent or sudden changes in regulations and policies that affect the Company’s business
operations, which could have a material adverse impact on the results of operations and financial condition
of the Group.

Any economic slowdown or deterioration in economic conditions in the Philippines may adversely
affect the Group’s business and operations in the Philippines

In the past, the Philippines has experienced periods of slow or negative growth, high inflation, significant
devaluation of the Philippine currency, imposition of exchange controls, debt restructuring and electricity
shortages and blackouts.

The regional Asian financial crisis in 1997 resulted in, among others, the depreciation of the Philippine
peso, higher interest rates, slower growth and a reduction in the country’s credit ratings. Since the Asian
financial crisis, the country experienced a ballooning budget deficit, volatile exchange rates and a relatively
weak banking sector. Likewise, the 2008 global financial crisis affected the emerging markets that include
the Philippines, as global investors limited their exposure in the region to minimize risks. By end-2018, the
Philippine Stock Exchange Index (PSEi) was down 48%. The 2008 GDP was at 4.2% lower than the 2007
GDP print of 6.6%. The country’s GDP output further deteriorated to 1.1% in 2009. Furthermore, in 2018,
the Philippines recorded faster inflation hitting 6.7% in September and October after the government
implemented the TRAIN Law in January 1, 2018 as well as rice supply issues in the second and third
quarters of that year.

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Risk Factors

The government instituted several reform measures in the fiscal and banking sectors, among others, that
strengthened the country’s economic fundamentals, resulting in improved investor confidence and
increased economic activities. The Philippines was granted a Baa2 Stable Investment Grade rating from
Moody’s Investors Service on December 14, 2015. On April 24, 2015, S&P reaffirmed the BBB Stable long-
term sovereign credit rating of the Philippines, the highest rating ever recorded in the country’s history. The
rating was upgraded by S&P to “BBB+” in April 2019. Likewise, Fitch Ratings (“Fitch”), upgraded the
Philippines to BBB from BBB- with a stable outlook rating on December 11, 2017 and reaffirmed this last
May 2019.The Philippines’ stable and positive investment grade status makes the Philippines more
internationally competitive and more attractive to investments. Together with strong demand drivers, real
gross domestic product (“GDP”) growth was at 6.2% in 2018 and 5.5% in the second quarter of 2019,
primarily driven by government spending and private sector capital formation.

To mitigate the abovementioned risks, the Ayala Group shall continue to adopt what it considers
conservative financial and operational controls and policies within the context of the prevailing business,
economic, and political environments taking into consideration the interests of its customers, stakeholders
and creditors.

The Group may be affected by the Comprehensive Tax Reform Program

On December 19, 2017, the President of the Philippines signed into law the Tax Reform for Acceleration
and Inclusion or Republic Act No. 10963 (“TRAIN Law”) which took effect on January 1, 2018. The TRAIN
Law amends certain provisions of the Tax Code and is the first package of the Comprehensive Tax Reform
Program (“CTRP”) of the Duterte administration. The relevant changes of the TRAIN Law are incorporated
in the section titled “Philippine Taxation” beginning on page [•] of this Prospectus

On February 14, 2019, the President signed into law the Tax Amnesty Act of 2019 or Republic Act No.
11213 (“Tax Amnesty Law”), which was intended to complement the provisions of the TRAIN Law.

However, following the President’s veto of the provisions granting general tax amnesty for all unpaid
national internal revenue taxes for taxable year 2017 and prior years, the current Tax Amnesty Law only
grants estate tax amnesty for estates of decedents who died on or before December 31, 2017 and whose
estate taxes have remained unpaid or have accrued as of December 31, 2017 and tax amnesty on
delinquencies covering all national internal revenue taxes for taxable year 2017 and prior years. Congress,
by two-thirds vote of all Members of each House, voting separately, may pass the vetoed provisions over
the President’s veto. In which case, the vetoed provisions will become law.

The second package of the CTRP (the “TRABAHO Bill”) aims to lower corporate income taxes while
rationalizing fiscal incentives for corporations, such as income tax holidays, special rates, and custom duty
exemptions. If passed into law, the fiscal incentives enjoyed by specific members of the Group may be
affected. Since the TRABAHO Bill was not passed before the adjournment of Congress on June 8, 2019, it
will have to be refiled with the next Congress.

RISKS ASSOCIATED WITH THE PREFERRED SHARES

The Preferred Shares may not be a suitable investment for all investors

Each potential investor in the Preferred Shares must determine the suitability of that investment in light of
its own circumstances and risk tolerance. In particular, each potential investor should:

• have sufficient knowledge and experience to make a meaningful evaluation of the Preferred
Shares, the merits and risks of investing in the Preferred Shares and the information
contained in this Prospectus;

• have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of
its particular financial situation, an investment in the Preferred Shares and the impact the
Preferred Shares will have on its overall investment portfolio;

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Risk Factors

• have sufficient financial resources and liquidity to bear all of the risks of an investment in the
Preferred Shares, including where the currency for principal or dividend payments is
different from the potential investor’s currency;

• understand thoroughly the terms of the Preferred Shares and be familiar with the behavior
of any relevant financial markets; and

• be able to evaluate (either alone or with the help of a financial adviser) possible scenarios
for economic, interest rate, foreign exchange rate and other factors that may affect its
investment and its ability to bear the applicable risks.

Payment on Dividends of Preferred Shares

Dividends on the Preferred Shares may not be paid in full, or at all. Under the terms and conditions
governing the Preferred Shares, the Company may pay no dividends or less than full dividends on a
Dividend Payment Date. Holders of the Preferred Shares will not receive dividends on a Dividend Payment
Date or for any period during which the Issuer does not have retained earnings out of which to pay
dividends.

If the profits available to distribute as dividends are, in Ayala’s Board opinion, not sufficient to enable the
Issuer to pay in full on the same date both dividends on the Preferred Shares and the dividends on other
shares that have an equal right to dividends as the Preferred Shares, the Issuer is required first, to pay in
full, or to set aside an amount equal to, all dividends scheduled to be paid on or before that dividend
payment date on any shares with a right to dividends ranking in priority to that of the Preferred Shares;
and second, to pay dividends on the Preferred Shares and any other shares ranking equally with the
Preferred Shares as to participation in profits pro rata to the amount of the cash dividends scheduled to
be paid to them. The amount scheduled to be paid will include the amount of any dividend payable on that
date and any arrears on past cumulative dividends on any shares ranking equal in the right to dividends
with the Preferred Shares.

Subordination to the Issuer’s Other Indebtedness

Ayala’s obligations in respect of the Preferred Shares are subordinated to all of the Company’s
indebtedness, and it will not make any payments under the Preferred Shares unless it can satisfy in full all
of its other obligations that rank senior to the Preferred Shares.

Ayala’s obligations under the Preferred Shares are unsecured and will, in the event of the winding- up of
the Company, rank junior in right of payment to all indebtedness of the Company and junior in right of
payment to securities of, or claims against, the Company which rank or are expressed to rank senior to
the Preferred Shares. Accordingly, Ayala’s obligations under the Preferred Shares will not be satisfied
unless Ayala can satisfy in full all of its other obligations ranking senior to the Preferred Shares.

There are no terms in the Preferred Shares that limit Ayala’s ability to incur additional indebtedness,
including indebtedness that ranks senior to or pari passu with the Preferred Shares.

Unavailability of the Assets of Subsidiaries for Making Payments under the Preferred Shares

A significant portion of Ayala’s business is operated through its subsidiaries, and Ayala’s right to participate
in any distribution of the assets of certain of its subsidiaries, upon a subsidiary’s dissolution, winding-up,
liquidation or reorganization or otherwise, and thus a Preferred Share holder’s ability to benefit indirectly
from such distribution, is subject to the prior claims of creditors of that subsidiary, except to the extent that
Ayala may be a creditor of that subsidiary and its claims are recognized. There are legal limitations to the
extent to which some of Ayala’s subsidiaries may extend credit, pay dividends or otherwise supply funds
to, or engage in transactions with, the Company or some of its other subsidiaries. Accordingly, the
Preferred Shares will be effectively subordinated to all existing and future liabilities of Ayala’s subsidiaries.

68 | P a g e
Risk Factors

Insufficient Distributions upon Liquidation

Upon any voluntary or involuntary dissolution, liquidation or winding up of Ayala, holders of Preferred
Shares will be entitled only to the available assets of the Company remaining after the Company’s
indebtedness is satisfied. If any such assets are insufficient to pay the full amount due to the holders of
the Preferred Shares, then holders of Preferred Shares shall share ratably in any such distribution of
assets in proportion to the full distributions to which they would otherwise be respectively entitled.

Ability to Make Payments under the Preferred Shares is Limited by Terms of Ayala’s Other
Indebtedness

Ayala has and will continue to have a certain amount of outstanding indebtedness. The current terms of
Ayala’s financing agreements contain provisions that could limit the ability of the Company to make
payments on the Preferred Shares. For example, if Ayala were in default on its payment obligations to one
or more of its lenders, or if it is non-compliant with certain covenants and such non-compliance is uncured
for a period of 30 days, the Company may be prohibited from making cash payments in respect of the
Preferred Shares. Also, Ayala may in the future, directly or indirectly through its subsidiaries, enter into
other financing agreements which may restrict or prohibit the ability of the Company to make payments on
the Preferred Shares. There can be no assurance that existing or future financing arrangements will not
adversely affect Ayala’s ability to make payments on the Preferred Shares.

The market price of the Preferred Shares may be volatile, which may result in the decline in the
value of investments of the investors.

The market price of the Preferred Shares could be affected by several factors, including: (a) general
market, political and economic conditions; (b) changes in earnings estimates and recommendations by
financial analysts; (c) changes in market valuations of listed stocks in general and other retail stocks in
particular; (d) the market value of our assets; (e) changes to Government policy, legislation or regulations;
and (f) general operational and business risks.

In addition, many of the risks described elsewhere in this Prospectus could materially and adversely affect
the market price of the Preferred Shares.

In part as a result of the global economic downturn, the global equity markets have experienced price and
volume volatility that has affected the share prices of many companies. Share prices for many companies
have experienced wide fluctuations that have often been unrelated to the operating performance of those
companies. Fluctuations such as these may adversely affect the market price of the Preferred Shares.

No Stated Maturity date and Ayala has the Sole Right to Redemption

The Preferred Shares have no fixed maturity date, and the Preferred Shares are not repayable in cash
unless the Issuer, at its sole discretion, redeems them for cash. Furthermore, holders of the Preferred
Shares have no right to require the Issuer to redeem the Preferred Shares. The Preferred Shares are only
redeemable at the option of the Issuer on the Optional Redemption Date, or at any time in the event that
Dividend Payments become subject to additional withholding tax as a result of certain changes in law, rule
or regulation, or in the interpretation thereof, and such tax cannot be avoided by use of reasonable
measures available to Ayala. Accordingly, if a Preferred Share holder wishes to obtain the cash value of
the investment, the holder will have to sell the Preferred Shares in the secondary market.

Lack of Public Market for the Shares

The Philippine securities markets are substantially less liquid and more volatile than major securities
markets in other jurisdictions, and are not as highly regulated or supervised as some of these other
markets. The Company cannot guarantee that the market for the Preferred Shares will always be active

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Risk Factors

or liquid upon commencement of their trading on the PSE. The nationality restriction on ownership of the
Preferred Shares may also restrict the trading and liquidity of the Shares.

Limited Liquidity

The Underwriters are not obligated to create a trading market for the Preferred Shares and any such
market making will be subject to the limits imposed by applicable law, and may be interrupted or
discontinued at any time without notice. Accordingly, the Company cannot predict whether an active or
liquid trading market for the Preferred Shares will develop or if such a market develops, if it can be
sustained. Consequently, a holder may be required to hold his Preferred Shares for an indefinite period of
time or sell them for an amount less than the Offer Price.

Non-payment of Dividends May Affect the Trading Price of the Preferred Shares

If dividends on the Preferred Shares are not paid in full, or at all, the Preferred Shares may trade at a lower
price than they might otherwise have traded if dividends had been paid. The sale of Preferred Shares
during such a period by a holder of Preferred Shares may result in such holder receiving lower returns on
the investment than a holder who continues to hold the Preferred Shares until dividend payments resume.
In addition, because of the dividend limitations, the market price for the Preferred Shares may be more
volatile than that of other securities that do not have these limitations.

Inability to Reinvest at a Similar Return on Investment

On the fifth anniversary of the Issue Date, or any Dividend Payment Date thereafter, or at any time
redemption due to taxation occurs, Ayala may redeem the Preferred Shares for cash at the redemption
price, as described in ‘‘Description of the Shares’’. At the time of redemption, interest rates may be lower
than at the time of the issuance of the Preferred Shares and, consequently, the holders of the Preferred
Shares may not be able to reinvest the proceeds at a comparable rate of return or purchase securities
otherwise comparable to the Preferred Shares.

No Voting Rights

Holders of Preferred Shares will not be entitled to elect the Directors of the Company. Except as specifically
set forth in the Articles and as provided by Philippine law, holders of Preferred Shares will have no voting
rights (see ‘‘Description of the Preferred Shares’’).

Restrictions on Foreign Ownership of the Preferred Shares by Non-Philippine Nationals

Under Philippine law, no more than 40% of the capital of corporations holding land may be owned by non-
Philippine nationals. Ayala currently owns certain parcels of land. Accordingly, the Preferred Shares may
be owned or purchased by or transferred to any person, partnership, association or corporation regardless
of nationality, provided that at any time at least 60% of the Company’s outstanding capital stock shall be
owned by citizens of the Philippines or by partnerships, associations or corporations, 60% of the voting
stock or voting power of which is owned and controlled by citizens of the Philippines.

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 USE OF PROCEEDS

Ayala expects to raise gross proceeds of approximately up to ₱10,000,000,000.00 from the Offer. In the
event that the Oversubscription Option is exercised in full, the Company expects to raise gross proceeds
from the Offer of up to ₱15,000,000,000.00.

The following are the estimated expenses to be incurred in relation to the Offer:

Base Issue Size With

Oversubscription
Issue Size ₱ 10,000,000,000 15,000,000,000
SEC Registration Fees ₱ [3,062,500] [4,312,500]
SEC Legal Research Fee ₱ [30,625] [43,125]
SEC DST ₱ [30] [30]
PSE Filing Fee ₱ [10,000,000] [15,000,000]
PSE VAT ₱ [1,200,000] [1,800,000]
SEC Listing Fee ₱ [2,525] [2,525]
Documentary Stamp Tax ₱ [15,000,000] [22,500,000]
Issue Management, Underwriting, and Selling Fees ₱ [37,634,409] [56,451,613]
Professional Expenses ₱ [10,800,000] [10,800,000]
Other related expenses ₱ [1,000,000] [1,000,000]
Total Estimated Expenses ₱ [78,730,089] [111,909,793]
Net Proceeds ₱ [9,921,269,911] [14,888,090,207]
Ayala expects to use the net proceeds from the Offer, estimated to be ₱[•] or ₱[•] if the Oversubscription
Option is exercised in full, after deducting the expenses, to refinance outstanding credit facilities drawn on
[•], 2019 for the November 5, 2019 redemption of [27,000,000] Class “B” Series 2 Preferred Shares issued
on November 5, 2014 and for the general corporate purposes of Ayala. In aggregate, the total outstanding
credit facilities to be refinanced amount to ₱[•]. The details of each are described below:

Facility Maturity Date Interest Amount Pre-Payment Premium

Rate

Total ₱[•]

[There are no prepayment penalties for the above loans, except as indicated above]. Ayala expects to
apply the proceeds toward such refinancing within [•] months from the Issue Date. To the extent that the
net proceeds exceed the total above, [such excess will be used for the general corporate purposes of
Ayala. Correspondingly, if the net proceeds are less than the above total, Ayala will satisfy the balance of
these from internally generated funds and/or other credit facilities including bank borrowings as Ayala
considers commercially favorable at the relevant time].

Adjustments in the Use of Proceeds

In the event of any deviation or adjustment in the planned use of proceeds, the Company shall inform the
SEC and issue all appropriate disclosures within thirty (30) days prior to its implementation. Any material
or substantial adjustment to the use of proceeds, as indicated above, shall be approved by Ayala’s Board
of Directors and shall be publicly disclosed. In addition, Ayala shall report the following through the PSE’s
Electronic Disclosure Generation Technology (“PSE EDGE”):
Use of Proceeds

a. Any disbursement made in connection with the planned use of proceeds from the Offer;

b. Quarterly Progress Report on the application of the proceeds from the Offer or on or before the
first fifteen (15) days of the following quarter; and

c. Annual Summary of the application of proceeds on or before January 31 of the year following the
public offering.

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 PLAN OF DISTRIBUTION
Ayala plans to issue the Shares to institutional and retail investors through a public offering to be conducted
through the Underwriters.

Underwriters

The Underwriters: BDO Capital & Investment Corporation (“BDO Capital”), BPI Capital Corporation (“BPI
Capital”) China Bank Capital Corporation (“China Bank Capital”), First Metro Investment Corporation (“First
Metro”), and PNB Capital and Investment Corporation (“PNB Capital”), have agreed to distribute and sell
the Shares at the Offer Price, pursuant to an Issue Management and Underwriting Agreement to be entered
into with Ayala (the “Underwriting Agreement”). Subject to the fulfillment of the conditions provided in the
Underwriting Agreement, the Underwriters have committed to underwrite the following amounts on a firm
basis:

BDO Capital ₱2,525,000,000.00

BPI Capital ₱2,525,000,000.00
China Bank Capital ₱1,650,000,000.00
First Metro ₱1,650,000,000.00
PNB Capital ₱1,650,000,000.00
TOTAL ₱10,000,000,000.00

The Underwriting Agreement may be terminated in certain circumstances prior to payment being made
to Ayala of the net proceeds of the Preferred Shares.

Prior approval from the SEC is required to effect a termination of the Underwriting Agreement.

The Joint Lead Underwriters may enter into other sub-underwriting agreements with other underwriters
who may want to participate in the issuance.

The Joint Lead Underwriters are duly licensed by the SEC to engage in the underwriting or distribution of
the Preferred Shares. The Joint Lead Underwriters may, from time to time, engage in transactions with
and perform services in the ordinary course of its business for the Company or other members of the
Ayala Group.

Except for BPI Capital, the Joint Lead Underwriters have no direct relations with Ayala in terms of
ownership by either of their respective major stockholder/s. BPI Capital is a wholly owned subsidiary of
BPI, an affiliate of Ayala in which Ayala has an effective ownership of [48.57]% as of June 30, 2019.

BDO Capital, BPI Capital, China Bank Capital, First Metro, and PNB Capital have undertaken the requisite
due diligence over Ayala as Joint Lead Underwriters of the Preferred Shares. BPI Capital’s relationship
with the Issuer had no effect in its conduct of due diligence.

The Joint Lead Underwriters do not have a contract or other arrangement with the Company under which
any of the Joint Lead Underwriters may return to the Company any unsold securities of the Offer. The
Underwriters do not have any direct or indirect interest in the Company or in any securities thereof
including options, warrants or rights thereto. The Joint Lead Underwriters do not have any right to
designate or nominate any member of the Company’s Board.

BDO CAPITAL AND INVESTMENT CORPORATION

Plan of Distribution

BDO Capital was incorporated in the Philippines in December 1998. It is duly licensed by the SEC to
operate as an investment house and was licensed by the SEC to engage in underwriting or distribution of
securities to the public. As of June 30, 2019, BDO Capital had total assets of ₱6.7 billion, total liabilities
of ₱2.5 billion and total equity of ₱4.2 billion. BDO Capital is the wholly-owned investment banking
subsidiary of BDO Unibank, Inc.

BPI CAPITAL CORPORATION

BPI Capital is the wholly-owned investment banking subsidiary of the Bank of the Philippine Islands. BPI
Capital is an investment house focused on corporate finance and the securities distribution business. It
began operations as an investment house in December 1994 and has grown to be one of the biggest
investment banks in the country. As of June 30, 2019, BPI Capital had total assets of ₱3.966 billion and
total capital funds of ₱3.926 billion.

CHINA BANK CAPITAL CORPORATION

China Bank Capital is the wholly-owned investment banking subsidiary of the China Banking Corporation
(“China Bank”). It was registered and licensed as an investment house on November 27, 2015 as a result
of the spin-off of China Bank’s Investment Banking Group. China Bank Capital offers a wide array of
advisory and capital-raising services to corporate clients. For capital raising, China Bank Capital is
involved in arranging, managing or underwriting debt or equity transactions. Its expertise in debt
transactions range from loan syndications, bilateral loans and project financing to retail bonds, corporate
notes, commercial paper issuances and asset securitizations. For equity transactions, these include,
among others, initial public offerings, follow-on offerings, private placements, and issuances of convertible
or other equity-linked instruments. It also provides financial advisory services to its clients, which cover
various assignments such as deal structuring, valuation exercises, and the execution of mergers,
acquisitions, divestitures, joint ventures, recapitalizations, and other corporate transactions.

FIRST METRO INVESTMENT CORPORATION

Founded in 1972, First Metro Investment Corporation is a leading investment bank in the country with over
40 years of service in the development of the Philippine capital markets. It is the investment banking arm
of the Metrobank Group, one of the largest financial conglomerates in the country. It provides high-quality
investment banking and financial services through its strategic business units – Investment Banking,
Financial Markets, Investment Advisory and Trust. With assets of around ₱43.2 billion as of 2018, it is one
of the largest investment banks in the country today. As an institution, First Metro was awarded as the
Best Corporate & Investment Bank for the year 2019 by Asiamoney, Best Equity House for the years 2019
and 2018, Best M&A House for the years 2018 and 2017 and Best Investment Bank for the year 2017 by
Alpha Southeast Asia, Top Bank Arranger, Investors’ Choice for Primary Issues in Asian Currency Bonds,
Corporate Bonds and Government Bonds, Philippines for the year 2018 by The Asset, respectively.

PNB CAPITAL AND INVESTMENT CORPORATION

PNB Capital, an investment house, was incorporated on July 30, 1997 and commenced operations on
October 8, 1997. It is a wholly-owned subsidiary of the Philippine National Bank. Its principal business is
providing investment banking services, namely: debt underwriting (bonds, commercial papers), equity
underwriting, private placements, loan syndications, project finance, and financial advisory services. PNB
Capital is authorized to buy and sell for its own account, securities issued by private corporations and the
government of the Philippines.

SALE AND DISTRIBUTION

The distribution and sale of the Preferred Shares shall be undertaken by the Underwriters who shall sell
and distribute the Preferred Shares to third party buyers/investors. The Underwriters are authorized to

74 | P a g e
Plan of Distribution

organize a syndicate of sub-underwriters, soliciting dealers and/or agents for the purpose of the Offer. Of
the 20,000,000 Preferred Shares to be offered, [●]% or [●] shares are being offered through the
Underwriters for subscription and sale to Qualified Institutional Buyers and the general public. The
Company plans to make available [●]% or [●] shares for distribution to the respective clients of the [129]
Trading Participants of the PSE, acting as Selling Agents. The total number of Offer Shares allocated to
the PSE Trading Participants will be distributed following the procedures indicated in the implementing
guidelines for the Offer Shares to be announced in the PSE EDGE by the PSE. Each Trading Participant
shall be allocated [•] shares (computed by dividing the Preferred Shares allocated to the Trading
Participants by [129]), subject to reallocation as may be determined by the Receiving Agent. Trading
Participants may undertake to purchase more than their allocation of [●] shares. Any requests for shares in
excess of [●] may be satisfied via the reallocation of any Preferred Shares not taken up by other Trading
Participants. PSE Trading Participants who take up the Offer Shares shall be entitled to a selling fee of [●]
of the Offer Shares taken up and purchased by the relevant trading participant. The selling fee, less a
withholding tax of [●], will be paid to the PSE Trading Participants within [●] Banking Days after the Listing
Date.

The Company will not allocate any Preferred Shares for the Local Small Investors.

Prior to the close of the Offer Period, any Preferred Shares not taken up by the Trading Participants shall
be distributed by the Underwriters directly to their clients and the general public.

All Preferred Shares not taken up by the Trading Participants, general public and the Underwriters’ clients
shall be purchased by the Underwriters pursuant to the terms and conditions of the Underwriting
Agreement. Nothing herein or in the Underwriting Agreement shall limit the rights of the Underwriters from
purchasing the Preferred Shares for their own respective accounts.

The obligations of each of the Underwriters will be several, and not joint and solidary, and nothing in the
Underwriting Agreement shall be deemed to create a partnership or joint venture between and among any
of the Underwriters. Unless otherwise expressly provided in the Underwriting Agreement, the failure by
any Underwriter to carry out its obligations thereunder shall not relieve any other Underwriter of its
obligations thereunder, nor shall any Underwriter be responsible for the obligations of any other
Underwriter thereunder.

TERM OF APPOINTMENT

The engagement of the Underwriters shall subsist so long as the SEC’s permit to sell the Preferred Shares
remains valid, unless otherwise terminated pursuant to the Underwriting Agreement.

The underwriting and selling fees to be paid by the Company to the Joint Lead Underwriters in relation to
the Offer shall be equivalent to 0.35% of the gross proceeds of the Offer. This shall be inclusive of
underwriting fees to be paid to the Underwriters, sub-underwriters, if any, and selling commissions to be
paid to the Trading Participants, which selling commissions shall be equivalent to [●]% of the total
proceeds from the sale of the Preferred Shares by such Selling Agent.

The Underwriting Agreement may be terminated by the Underwriters prior to payment being made to the
Company of the net proceeds of the Preferred Shares under certain circumstances such as (a) a
cancellation order from a Government authority, (b) a change or an impending change of law that would
materially and adversely affect Ayala’s profitability or (c) financial, political or economic conditions in the
Philippines which would materially and adversely affect the Offer.

MANNER OF DISTRIBUTION

The Underwriters shall, at their discretion, determine the manner by which proposals for subscriptions to,
and issuances of, Preferred Shares shall be solicited, with the sale of the re-issued Preferred Shares to
be effected only through the Underwriters and Selling Agents.

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Plan of Distribution

OFFER PERIOD

The Offer Period shall commence at 9:00 a.m. on [November 11], 2019 and end at 12:00 p.m. on
[November 22], 2019. The Company and the Underwriters reserve the right to extend or terminate the
Offer Period with the approval of the SEC and the PSE.

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 DIVIDEND POLICY

Overview

Under Philippine law, dividends may be declared out of a corporation’s unrestricted retained earnings which
shall be payable in cash, in property, or in stock to all stockholders on the basis of outstanding stock held by
them. “Unrestricted Retained Earnings” refer to “the undistributed earnings of a corporation which have not
been allocated for any managerial, contractual or legal purpose and which are free for distribution to the
shareholders as dividends.” The amount of retained earnings available for declaration as dividends may be
determined pursuant to regulations issued by the SEC. The approval of the Board of Directors is generally
sufficient to approve the distribution of dividends, except in the case of stock dividends which requires the
approval of stockholders representing not less than two-thirds of the outstanding capital stock at a regular or
special meeting duly called for the purpose.

The Revised Corporation Code prohibits stock corporations from retaining surplus profits in excess of 100%
of their paid-in capital stock, except when justified by definite corporate expansion projects or programs
approved by the Board of Directors, or when the corporation is prohibited under any loan agreement with any
financial institution or creditor, whether local or foreign, from declaring dividends without their consent, and
such consent has not yet been secured, or when it can be clearly shown that such retention is necessary
under special circumstances obtaining in the corporation, such as when there is a need for special reserve for
probable contingencies.

Dividend Policy

Dividends declared by the Company on its shares of stocks are payable in cash or in additional shares of
stock. The Company does not have a minimum dividend policy: the payment of dividends in the future will
depend upon the earnings, cash flow and financial condition of the Company and other factors.

Pursuant to the Article VII, Section 1 of the Company’s Amended By-Laws approved by the SEC on February
27, 2015, the net profits before taxes shall be distributed as follows:

a. An amount for management bonus to be recommended by the compensation committee of the

Board of Directors and approved by the Board of Directors, and

b. The balance shall be made available for distribution as dividends to stockholders.

As indicated in Ayala’s Amended Articles of Incorporation approved by the SEC on June 17, 2011, the
dividend rate shall be determined by the Board of Directors at the time of issuance of the shares.

The following table summarizes the dividends declared and paid by Ayala:

On Common Shares

Stock Dividends
Percent Record Date Payment Date
20% May 22, 2007 June 18, 2007
20% April 24, 2008 May 21, 2008
20% July 5, 2011 July 29, 2011

Cash Dividends
Year Payment Date Rate (PhP) Record Date
2017 July 22, 2017 3.46/share July 7, 2017
December 31, 2017 3.46/share December 15, 2017
2018 July 22, 2018 3.46/share July 6, 2018
Dividend Policy

January 5, 2019 3.46/share December 20, 2018

2019 August 15, 2019 4.15/share July 30, 2019

On Preferred B Series 1 Shares

Cash Dividends
Year Payment Date Rate (PhP) Record Date
2017 February 15, 2017 ¼ of 5.2500% January 20, 2017
May 15, 2017 per annum, or April 18, 2017
August 15, 2017 6.56250/per July 20, 2017
November 15, 2017 share October 18, 2017
2018 February 15, 2018 ¼ of 5.2500% January 22, 2018
May 15, 2018 per annum, or April 18, 2018
August 15, 2018 6.56250/per July 20, 2018
November 15, 2018 share October 18, 2018
2019 February 15, 2019 ¼ of 5.2500% January 22, 2019
May 15, 2019 per annum, or April 16, 2019
August 15, 2019 6.56250/per July 22, 2019
November 15, 2019 share October 21, 2019

On Preferred B Series 2 Shares

Cash Dividends
Year Payment Date Rate (PhP) Record Date
2017 February 5, 2017 ¼ of 5.5750% January 11, 2017
May 5, 2017 per annum, or April 6, 2017
August 5, 2017 6.96875/per July 12, 2017
November 5, 2017 share October 9, 2017
2018 February 5, 2018 ¼ of 5.5750% January 10, 2018
May 5, 2018 per annum, or April 10, 2018
August 5, 2018 6.96875/per July 11, 2018
November 5, 2018 share October 8, 2018
2019 February 5, 2019 ¼ of 5.5750% January 10, 2019
May 5, 2019 per annum, or April 4, 2019
August 5, 2019 6.96875/per July 10, 2019
November 5, 2019 share October 9, 2019

On Voting Preferred Shares

Cash Dividends
Year Payment Date Rate (PhP) Record Date
2017 May 20, 2017 0.03695/share April 25, 2017
2018 May 20, 2018 0.03695/share April 24, 2018
2019 May 20, 2019 0.03695/share April 23, 2019

Ayala Land

Dividends declared by ALI on its shares of stocks are payable in cash or in additional shares of stock. The
payment of dividends in the future will depend upon the earnings, cash flow and financial condition of ALI
and other factors.

78 | P a g e
Dividend Policy

Special cash dividends are declared depending on the availability of cash, taking into account ALI’s capital
expenditure and project requirements and the progress of its ongoing asset rationalization program.

Cash dividends are subject to approval by ALI’s Board of Directors but no stockholder approval is required.
Property dividends which may come in the form of additional shares of stock are subject to approval by
both ALI’s Board of Directors and ALI’s stockholders. In addition, the payment of stock dividends is likewise
subject to the approval of the SEC and the PSE.

STOCK DIVIDEND (Per Share)

PERCENT DECLARATION DATE RECORD DATE PAYMENT DATE

20% February 1, 2007 May 22, 2007 June 18, 2007

CASH DIVIDEND (Per Common Share)

PESO AMOUNT DECLARATION DATE RECORD DATE PAYMENT DATE

0.2400 February 20, 2017 March 6, 2017 March 22, 2017

0.2400 August 18, 2017 September 5, 2017 September 15, 2017
0.2520 February 20, 2018 March 12, 2018 April 3, 2018
0.2520 August 17, 2018 September 6, 2018 October 2, 2018
0.2600 February 27, 2019 March 13, 2019 March 29, 2019

CASH DIVIDEND (Per Voting Preferred Share)

PESO AMOUNT DECLARATION DATE RECORD DATE PAYMENT DATE

0.00474786 February 20, 2017 June 15, 2017 June 29, 2017
0.00474786 February 20, 2018 June 15, 2018 June 29, 2018
0.00474786 May 24, 2019 June 7, 2019 June 21, 2019

Bank of the Philippine Islands

Cash dividends declared and paid in 2017, 2018, 2019 are as follows:

PESO AMOUNT DECLARATION DATE RECORD DATE PAYMENT DATE

0.90 June 21, 2017 July 6, 2017 July 27, 2017

0.90 December 13, 2017 December 28, 2017 January 19, 2018
0.90 June 20, 2018 July 4, 2018 July 25, 2018
0.90 December 19, 2018 January 8, 2019 January 29, 2019
0.90 May 16, 2019 May 29, 2019 June 19, 2019

The difference between the amount declared and paid per year is due to the time lag in obtaining
BSP approval to pay out the dividends.

There are no known restrictions or impediments to the company's ability to pay dividends on common
equity, whether current or future.

79 | P a g e
Dividend Policy

Globe Telecom, Inc.

Dividends declared by Globe on its stocks are payable in cash or in additional shares of stock. The
payment of dividends in the future will depend upon the earnings, cash flow and financial condition of
Globe and other factors. As a policy and as much as practicable, Globe observes a 30-day period for the
payment of dividends to shareholders from declaration date of such dividends.

Cash dividends are subject to approval by Globe’s Board of Directors but no stockholder approval is
required. Total cash dividends distributed for the past 3 years are listed below.

COMMON CASH DIVIDEND (Per Share)

AMOUNT
DECLARATION DATE RECORD DATE PAYMENT DATE
(Php)
22.00 February 5, 2016 February 22, 2016 March 4, 2016
22.00 May 4, 2016 May 19, 2016 June 3, 2016
22.00 August 2, 2016 August 16, 2016 September 1, 2016
22.00 November 4, 2016 November 18, 2016 December 2, 2016
22.75 February 7, 2017 February 21, 2017 March 8, 2017
22.75 May 9, 2017 May 23, 2017 June 7, 2017
22.75 August 7, 2017 August 22, 2017 September 6, 2017
22.75 November 3, 2017 November 17, 2017 December 1, 2017
22.75 February 5, 2018 February 20, 2018 March 5, 2018
22.75 May 7, 2018 May 21, 2018 June 1, 2018
22.75 August 7, 2018 August 24, 2018 September 6, 2018
22.75 November 5, 2018 November 19, 2018 December 5, 2018
22.75 February 11, 2019 February 26, 2019 March 13, 2019
22.75 May 3, 2019 May 20, 2019 May 31, 2019
22.75 August 2, 2019 August 19, 2019 August 30, 2019

VOTING PREFERRED STOCK CASH DIVIDEND (Per Share)

AMOUNT
DECLARATION DATE RECORD DATE PAYMENT DATE
(Php)
0.20 November 4, 2016 November 18, 2016 December 2, 2016
0.21 November 3, 2017 November 17, 2017 December 1, 2017
0.26 November 5, 2018 November 19, 2018 December 5, 2018

NON-VOTING PREFERRED STOCK CASH DIVIDEND (Per Share)

AMOUNT
DECLARATION DATE RECORD DATE PAYMENT DATE
(Php)
13.00 May 4, 2016 August 10, 2016 August 22, 2016
13.00 December 7, 2016 January 27, 2017 February 22, 2017
13.00 May 9, 2017 August 10, 2017 August 22, 2017
13.00 December 5, 2017 January 26, 2018 February 22, 2018
13.00 May 4, 2018 August 10, 2018 August 22, 2018
13.00 December 6, 2018 January 28, 2019 February 22, 2019
13.00 May 3, 2019 July 26, 2019 August 22, 2019

The Board of Directors of Globe approved in separate approvals the declaration of four quarterly
distributions of cash dividends of ₱22.75 per common share paid each last March 5, June 1, September
6 and December 5, 2018. On an annualized basis, the dividend distributions would represent about 75%
of 2017 core net income. Each cash dividend payment totals to about ₱3.0 billion, bringing total distribution
by the end of December 2018 to ₱12.0 billion.

80 | P a g e
Dividend Policy

On May 4, 2018, the Board of Directors of Globe approved the declaration of the second semi-annual
cash dividend for holders of its non-voting preferred shares on record as of August 10, 2018. The amount
of the cash dividend shall be at a fixed rate of 5.2006% per annum calculated in respect of each share by
reference to the offer price of ₱500.00 per share on a 30/360 day basis for the six-month dividend period.
Total amount of the cash dividend was paid last August 22, 2018.

On November 5, 2018, the Board of Directors of Globe likewise approved the declaration of annual cash
dividend payable to voting preferred stockholders of record as of November 19, 2018. The amount of the
cash dividend was based on the average 30-day PDST-R2, as computed by the Philippine Dealing and
Exchange Corporation plus 2%. Dividend payment was made last December 5, 2018.

In addition, the Board of Directors of Globe recently approved the proposed change in the dividend policy
from 75% to 90% of prior year’s core net income to 60% to 75% of prior year’s core net income, to be
applied to the 2019 dividend declaration. The amended policy will provide Globe with increased flexibility
with respect to capital management. This adjustment will also ensure the sustainability of the operations
in this investment-heavy environment, while protecting future dividends, once planned expansion yields
beneficial results.

On December 5, 2018, Globe’s Board of Directors approved the declaration and payment of the first semi-
annual cash dividends for the Globe’s non-voting preferred shareholders on record as of January 28, 2019.
The amount of the cash dividend was at a fixed rate of 5.2006% per annum calculated in respect of each
share by reference to the offer price of ₱500.00 per share on a 30/360 day basis for the six-month dividend
period. Payment date was February 22, 2019.

Stock dividends, which come in the form of additional shares of stock, are subject to approval by both
Globe’s Board of Directors and its stockholders. No stock dividends have been distributed since the 25%
stock dividend back in 2002.

Manila Water Company, Inc.

Subject to the preferential dividend rights of the participating preferred shares (“PPS”), each holder of a
share of stock is entitled to such dividends as may be declared in accordance with MWC’s dividend policy.
Under MWC’s cash dividend policy, common shares shall be entitled to annual cash dividends equivalent
to 35% of the prior year’s net income, payable semi-annually in March and October. MWC’s Board may
change the cash dividend policy at any time.

MWC’s Board is authorized to declare cash dividends. A cash dividend declaration does not require any
further approval from the stockholders in accordance with the Corporation Code. A stock dividend
declaration requires the further approval of stockholders representing not less than two-thirds (2/3) of
MWC’s outstanding capital stock. The Corporation Code defines the term “outstanding capital stock” to
mean the “total shares of stock issued”, regardless of nomenclature, classification or voting rights, except
treasury shares. Such stockholders’ approval may be given at a general or special meeting duly called
for the purpose. Dividends may be declared only from unrestricted retained earnings. Some of MWC’s
loan agreements carry covenants that restrict declaration of payments of dividends under certain
circumstances, such as in the event of default or if payment would cause an event of default, if certain
financial ratios are not met or if payment would cause them not to be met, requiring revenues of MWC to
be applied toward certain expenses prior to the payment of dividends, and other circumstances.

Within the last three years, the Company has declared the following dividends:

Amount*
Declaration Date Payment Date (₱ Nature of Dividends Declared
thousands)

81 | P a g e
Dividend Policy

February 26, 2019 March 28, 2019 939,709 0.4551 cash dividends to common
shares
February 26, 2019 March 28, 2019 182,000 0.04551 cash dividends to PPS
November 20, 2018 December 20, 2018 40,000
10% cash dividends to PPS
October 2, 2018 October 31, 2018 884,316
0.4283 cash dividends to common
shares
October 2, 2018 October 31, 2018 171,309
0.04283 cash dividends to PPS
March 1, 2018 March 28, 2018 883,608
0.4302 cash dividends to common
shares
March 1, 2018 March 28, 2018 172,080
0.04302 cash dividends to PPS
November 23, 2017 December 20, 2017 40,000
10% cash dividends to PPS
October 3, 2017 November 2, 2017 871,695
0.4244 cash dividends to common
shares
October 3, 2017 November 2, 2017 169,760
0.04244 cash dividends to PPS
March 1, 2017 March 31, 2017 871,695
0.4244 cash dividends to common
shares
March 1, 2017 March 31, 2017 169,760
0.04244 cash dividends to PPS
* Gross amount of dividend

Integrated Micro-Electronics, Inc.

Dividends declared by IMI on its shares of stocks are payable in cash or in additional shares of stock.
The payment of dividends in the future will depend upon the earnings, cash flow and financial condition
of IMI and other factors. There are no other restrictions that limit the payment of dividends on common
shares.

Cash dividends are subject to approval by IMI’s Board of Directors but no stockholder approval is
required. Property dividends which may come in the form of additional shares of stock are subject to
approval by both the Board of Directors and the stockholders of IMI. In addition, the payment of stock
dividends is likewise subject to the approval of the SEC and PSE.

IMI’s subsidiaries have not adopted any formal dividend policies. Dividend policies for the IMI’s
subsidiaries shall be determined by their respective Boards of Directors.

Dividend Declarations

Stock Dividend-Common Shares

PAYMENT DATE PERCENT RECORD DATE

September 24, 2010 15% August 31, 2010

Cash Dividends-Common Shares

PAYMENT DATE RATE RECORD DATE

82 | P a g e
Dividend Policy

May 4, 2017 USD 0.004529/₱0.22739 April 20, 2017

March 21, 2018 USD 0.00458/₱0.235 March 7, 2018
April 8, 2019 USD 0.00201/₱0.10542 April 25, 2019

Cash Dividends-Preferred Shares (Redeemed in 2015)

PAYMENT DATE RATE RECORD DATE

February 21, 2014 2.90% p.a. February 7, 2014
May 21, 2014 2.90% p.a. May 7, 2014
August 22, 2014 2.90% p.a. August 7, 2014
November 21, 2014 2.90% p.a. November 7, 2014
February 20, 2015 2.90% p.a. February 6, 2015
May 22, 2015 2.90% p.a. May 8, 2015
August 24, 2015 2.90% p.a. August 7, 2015

83 | P a g e
 CAPITALIZATION
The following table sets out the unaudited consolidated short-term and long-term debt and capitalization
of the Company as of June 30, 2019 and as adjusted to give effect to the re-issuance of the Class “B”
Preferred Shares (assuming the Oversubscription Option is exercised). This table should be read in
conjunction with the Company’s unaudited interim condensed consolidated financial statements and the
related notes thereto as of and for the period ended June 30, 2019 attached to this Prospectus.

As of June 30, 2019

Actual As Adjusted* for
maximum Offer
size of ₱15
Billion
(In P thousands)
Debt
Short-term debt 34,609,691 34,609,691
Current portion of long-term debt 23,400,357 23,400,357
Long-term debt - net of current portion 384,157,399 384,157,399
Total Debt 442,167,447 442,167,447

Equity attributable to owners of the parent company

Paid-in capital:
Preferred Stock - A, ₱100 par value per share 1,200,000 1,200,000
Preferred Stock - B, ₱100 par value per share 5,800,000 5,800,000
Preferred Stock - Voting 200,000 200,000
Common Stock 31,340,717 31,340,717
Subscribed 216,452 216,452
Additional paid-in capital 46,641,660 47,729,741
Subscriptions receivable (1,785,859) (1,785,859)
83,612,970 84,701,051
Share-based payments 234,181 234,181
Remeasurement losses on defined benefit plans (1,262,920) (1,262,920)
Fair value reserve of financial assets at fair value
through other comprehensive income 417,096 417,096
Cumulative translation adjustments 498,230 498,230
Equity reserve 25,906,626 25,906,626
Retained earnings 234,892,239 234,892,239
Treasury stock (5,492,319) (5,192,319)
338,806,103 340,194,184
Non-controlling interests 195,215,775 195,215,775
Total equity 534,021,878 535,409,959

Total Capitalization 976,189,325 977,577,406

*net of transaction costs

84 | P a g e
 DILUTION
The Company is offering to the public by way of re-issuance 20,000,000 Class “B” Preferred Shares, with
an Oversubscription Option of up to an additional 10,000,000 Class “B” Preferred Shares with a par value
of ₱100.00 per share in a separate and distinct series to be issued from an existing class of Preferred “B”
shares held in treasury by Ayala. The shares comprise a second and separate series from Ayala’s
outstanding 5.25% Preferred Class “B” shares issued on November 15, 2013. The re-issuance of the
Preferred Shares will not have any effect on the amount and percentage of present holdings of common
holders, or any dilutive effect on the earnings per common share (“EPS”) of the Company, since the
Preferred Shares are not convertible to common shares and the Preferred Shares do not participate in
dividends of the common shares or vice versa. Therefore, the outstanding number of common shares that
will be used in computing the EPS will not change.

The Preferred Shares may be owned or purchased by any person, partnership, association or corporation
regardless of nationality, provided that at any time, at least 60% of the outstanding capital stock of Ayala
shall be owned by citizens of the Philippines or by partnerships, associations or corporations at least 60%
of whose outstanding capital stock and whose voting stock or voting power is owned and controlled by
citizens of the Philippines. Accordingly, Ayala may reject an Application for the Preferred Shares or reduce
the number of Preferred Shares applied for purchase by a foreign investor to maintain the 60% Philippine
ownership requirement.

The Board approved on September 13, 2019 the re-issuance of up to 30 million Class “B” Preferred Shares
with a par value of ₱100.00 per share.

85 | P a g e
 DETERMINATION OF OFFER PRICE
The Offer Price of ₱500.00 is at a premium to the Preferred Shares’ par value per share of ₱100.00. The
Offer Price was arrived at by dividing the desired gross proceeds of approximately ₱10.0 billion (or ₱15.0
billion in the event that the Oversubscription Option is exercised in full) by the target amount of Preferred
Shares allocated for the Offer.

86 | P a g e
 THE COMPANY
OVERVIEW

Ayala was incorporated in the Philippines on January 23, 1968 and is a corporation having a perpetual
corporate term pursuant to the Revised Corporation Code. The company is organized as a holding
company holding equity interests in the Group, one of the largest and most diversified groups in the
Philippines. Ayala's business activities are divided into: (a) real estate, (b) financial services, (c)
telecommunications, (d) water, (e) industrial technologies, (f) power, (g) infrastructure, (h) healthcare, (i)
education and (j) technology ventures.

Ayala’s operating companies are widely recognized as among the dominant companies in their respective
industry sectors. Ayala became a public corporation in 1976 and its common shares are currently listed at
the PSE. As at June 30, 2019, Ayala had a market capitalization of ₱560.8 billion.

Details about Ayala’s Subsidiaries and the related percentages of ownership are shown below:

% of Economic Ownership
Interest held by the Group
June 2019 December 2018
Subsidiaries Nature of Business (Unaudited) (Audited)
AC Energy, Inc. (AC Energy) Power Generation 100.0 % 100.0 %
AC Infrastructure Holdings Corporation (AC Infra) Infrastructure 100.0 100.0
AC International Finance Limited (ACIFL)* Investment Holding 100.0 100.0
AG Counselors Corporation (AGCC) Consulting Services 100.0 100.0
AC Industrial Technology Holdings Inc. (AC Industrial Technology and
Industrials) Automotive 100.0 100.0
Ayala Aviation Corporation (AAC) Air Charter 100.0 100.0
AC Education, Inc. (AC Education)**** Education - 100.0
Ayala Land, Inc. (ALI) Real Estate and Hotels 44.4 47.0
AYC Finance Limited (AYCFL)* Investment Holding 100.0 100.0
Azalea International Venture Partners Limited Business Process
(AIVPL)** Outsourcing (BPO) 100.0 100.0
Ayala Healthcare Holdings, Inc. (AC Health) Healthcare 100.0 100.0
Bestfull Holdings Limited (BHL)*** Investment Holding -
International 100.0 100.0
Darong Agricultural and Development Agriculture
Corporation (DADC) 100.0 100.0
HCX Technology Partners Inc. (HCX) HR Technology Services 100.0 100.0
Integrated Microelectronics, Inc. (IMI) Electronics 52.1 52.1
Manila Water Company, Inc. (MWC) Water Infrastructure 51.4 51.4
Michigan Holdings, Inc. (MHI) Investment Holding 100.0 100.0
Philwater Holdings Company, Inc. (Philwater) Investment Holding 100.0 100.0
Purefoods International Limited (PFIL)** Investment Holding 100.0 100.0
Technopark Land, Inc. (TLI) Real Estate 78.8 78.8
AC Ventures Holding Corp. (AC Ventures) Investment Holding 100.0 100.0
*Incorporated in Cayman Islands
**Incorporated in British Virgin Islands
***Incorporated in Hong Kong
****See related discussion b elow in AC Education Group.
The Company

Details of the Group’s investments in Associates and Joint Ventures and the related percentages of
ownership are shown below:

% of Economic Ownership Carrying Amounts

June 2019 December 2018 June 2019 December 2018
(Unaudited) (Audited) (Unaudited) (Audited)
Domestic: (In Millions)
Bank of the Philippine Islands (BPI) 32.9 32.9 ₱ 105,259 ₱ 101,691
Liontide Holdings Inc. (LHI)* 78.1 78.1 47,409 45,291
Globe Telecom, Inc. (Globe)* 30.9 30.9 25,004 23,215
OCLP Holdings, Inc. (OHI) 21.0 21.0 8,333 8,118
iPEOPLE, inc. (IPO)** 33.5 - 5,557 -
AA Thermal, Inc. (AATI)** 40.0 - 4,987 -
Light Rail Manila Holdings, Inc. (LRMHI) 50.0 50.0 4,484 3,417
Emerging City Holdings, Inc. (ECHI)* 50.0 50.0 3,909 3,911
ALI-ETON Property Development Corporation* 50.0 50.0 2,117 2,109
AKL Properties, Inc. (AKL)* 50.0 50.0 1,942 1,943
Berkshire Holdings, Inc. (BHI)* 50.0 50.0 1,932 1,933
Philippine Wind Holdings Corporation (PWHC)* 42.9 42.9 1,493 1,420
Cebu District Property Enterprise, Inc. (CDPEI)* 35.0 35.0 1,452 1,464
Bonifacio Land Corporation (BLC) 10.0 10.0 1,414 1,428
Asiacom Philippines, Inc. (Asiacom)* 60.0 60.0 1,307 1,308
BF Jade E-Services Philippines, Inc. (BF Jade/Zalora) 44.7 44.7 838 930
Alveo-Federal Land Communities, Inc.* 50.0 50.0 825 789
Rize-Ayalaland (Kingsway) GP Inc. (Rize-Ayalaland) 49.0 49.0 707 794
South Luzon Thermal Energy Corp. (SLTEC)** - 35.0 - 3,042
GNPower Mariveles Coal Plant Ltd. Co (GMCP)** - 20.4 - 2,781
GNPower Dinginin Ltd. Co. (GNP Dinginin)** - 50.0 - 2,023
Generika Group** - 50.0 - 474

Foreign:
Star Energy Salak-Darajat B.V. (Salak-Darajat)
(incorporated in Indonesia) 19.8 19.8 10,416 10,280
Eastern Water Resources Development and
Management Public Company Limited (East Water)
(incorporated in Thailand) 20.0 20.0 8,906 8,623
Thu Duc Water B.O.O. Corporation (TDW)
(incorporated in Vietnam) 49.0 49.0 3,115 3,074
Kenh Dong Water Supply Joint Stock Company
(KDW) (incorporated in Vietnam) 47.4 47.4 2,712 2,721
BIM Renewable / Energy Group 30.0 30.0 2,561 2,360
UPC Renewables Australia (incorporated in Australia)* 50.0 50.0 1,375 1,462
Saigon Water Infrastructure Joint Stock Company
(Saigon Water) (incorporated in Vietnam) 38.0 38.0 1,147 1,172
New Energy Investments Corporation
(incorporated in Vietnam)* 50.0 50.0 683 1,131
UPC Sidrap HK Ltd. (incorporated in Indonesia)* 11.0 11.0 314 334
UPC Renewables Asia III Ltd. (incorporated in Indonesia)* 51.0 51.0 94 103
Others Various Various 1,015 800
₱ 251,307 ₱ 240,141
* Joint ventures.
**
** Refer toNote
Refer to Note3.3 to the Company’s unaudited consolidated financial statements included in this Prospectus

88 | P a g e
The Company

Strategy

Amid the Philippines’ economic growth, Ayala’s unique portfolio of businesses provides various engines
for growth and diversification. The positive domestic environment has served as a catalyst for Ayala to
unlock opportunities, develop new ideas, incubate new businesses, and explore prospects for disruptive
innovation. Ayala took advantage of this encouraging environment to create a portfolio that creates certain
hedges against specific macroeconomic and socio-political trends and balances our two major pillars: its
publicly-listed industry leaders in real estate, banking, telecom, and water; and its wholly owned emerging
businesses in power, industrial technologies, infrastructure, healthcare, education and technology
ventures.

Ayala maintains a healthy balance sheet with access to various financing options to meet debt and dividend
obligations as well as fund new investments. A robust risk management system allows the company to
maximize opportunities for reinvention, and navigate the challenges faced by its business units.

Geographical Segments

Ayala generates foreign sales through its subsidiaries AC Industrials (including but not limited to IMI),
Bestfull Holdings Limited, AG Holdings, and Azalea International. The table below lists the contribution
of each geographical market to Ayala’s foreign sales:

Investment Properties and

Property, Plant and
Income Total Assets Equipment Additions
1H 2019 2018 2017 2016 1H 2019 2018 2017 1H 2019 2018 2017
Philippines P
=117,079 P
=228,952 P
=205,230 P
=194,219 P
=1,159,748 P
=1,136,933 P
=947,944 P
=43,053 P
=49,091 P
=47,982
Asia 14,264 23,395 21,292 16,982 108,860 25,681 52,914 2,103 81 1,011
USA 6,397 16,813 13,990 9,138 7,871 18,536 5,365 168 249 431
Europe 16,206 33,330 26,274 16,946 20,528 16,776 15,322 256 1,872 3,999
P
=153,946 P
=302,490 P
=266,786 P
=237,285 P
=1,297,006 P
=1,197,926 P
=1,021,545 P
=45,581 P
=51,293 P
=53,423

MARKET FOR ISSUER’S COMMON EQUITY

Dividend Policy

See “Dividend Policy” on page [•] of this Prospectus.

Stock Prices

Ayala’s common shares are listed at the PSE. The closing prices of Ayala’s common shares for the first
half of 2019, and the full year of 2018 and 2017 are as follows:

1H 2019 2018 2017

(in ₱) (in ₱) (in ₱)
High Low High Low High Low
st 1,000 900 1,095 916 834 727
1 Quarter
nd 931 838 990 876 894 840
2 Quarter
rd n/a n/a 1,020 885 980 850
3 Quarter
th n/a n/a 970.50 882 1,116 970
4 Quarter

89 | P a g e
The Company

The market capitalization of the Company’s common shares as of June 30, 2019, based on the closing
price of P
= 894.00 per share, was approximately P
= 560.8 billion.

The price of Ayala’s Preferred “B” shares ₱497.00, as of June 30, 2019.

Recent Sale of Unregistered Securities

The Company has stock option plans for key officers (Executive Stock Option Plan or the “ ESOP”)
and employees (Employee Stock Ownership Plan or the “ ESOWN”) covering 3.00% of the Company’s
authorized capital stock. The grantees are selected based on certain criteria like outstanding
performance over a defined period of time.

The ESOP grantees may exercise in whole or in part the vested allocation in accordance with the
vesting percentage and vesting schedule stated in the ESOP. Also, the grantee must be an employee of
the Company or any of its subsidiaries during the 10-year option period. In case the grantee retires, he is
given 3 years or at the expiration date of the option, whichever comes first, to exercise his vested and
unvested options. In case the grantee resigns, he is given 90 days or at the expiration date of the option,
whichever comes first, to exercise his vested options.

The Company also has ESOWN granted to qualified officers and employees wherein grantees may
subscribe in whole or in part to the shares awarded to them based on the average market price of the
common shares as approved by the Personnel and Compensation Committee of the Corporation. To
subscribe, the grantee must be an employee of the Group during the 10-year payment period. In case
the grantee resigns, unsubscribed shares are cancelled, while the subscription may be paid up to the
percent of holding period completed and payments may be converted into the equivalent number of
shares. In case the grantee is separated, not for cause, but through retrenchment and redundancy,
subscribed shares may be paid in full, unsubscribed shares may be subscribed, or payments may be
converted into the equivalent number of shares. In case the grantee retires, the grantee may subscribe
to the unsubscribed shares anytime within the 10-year period. The plan does not allow sale or
assignment of the shares. All shares acquired through the plan are subject to the Company’s right to
repurchase.

The following shares were issued to or/subscribed by the Company’s executives as a result of the exercise
of the ESOP and the subscription to the ESOWN plans:

No. of shares
Year ESOP ESOWN*
2017 169,035 957,850
2018 8,636 518,681
As of June 8,273 515,904
2019
*Net of cancelled subscriptions.

The above shares formed part of the 8,864,000 ESOP and ESOWN shares subject of SEC’s resolution
dated January 12, 2006 confirming the issuance of such shares as exempt transactions pursuant to
Section 10.2 of the Securities Regulation Code.

On July 23, 2012, the Company sold 15,000,000 common shares held in treasury at ₱430 per share, a
6% discount to the Company’s closing market price of ₱458 per common share. On May 30, 2013, the
Company sold its remaining 5,183,740 common shares held in treasury at ₱647 per shares, a 3%

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discount to the Company’s closing market price of ₱667 per common share. The Company filed Notices
of Exemption with the SEC on the re-issuance of the said treasury shares under SRC Sections 10.1 (h)
and (l) as follows:

• SRC Section 10.1 (h), “Broker’s transaction, executed upon customer’s orders, on
any registered Exchange or other trading market.”
• SRC Section 10.1 (l), “The sale of securities to a bank.”

Issuance and Exchange of Securities

There are no matters or actions to be taken up for the authorization or issuance of securities. In any
event, for the purpose of full disclosure, the SEC approved on July 23, 2013 the amendments to the
Article VII of the Corporation’s Articles of Incorporation exempting from pre-emptive rights the issuance
of up to 100 million common shares for the purpose of raising cash to acquire properties or assets
needed for the business or in payment of previously contracted debt.

MATERIAL CONTRACTS

Ayala has not entered into any material contract or agreement within the past two (2) years
immediately preceding this filing. In any event, the following are the contracts or agreements entered into
by Ayala, which may be of significance or outside the ordinary course of business to be performed in
whole or in part at or after the filing of the Prospectus:

(a) In May 2012, Ayala issued, through a public offering registered with the SEC, 6.875% fixed rate
callable bonds due 2027 with an aggregate size of ₱10.0 billion. The bonds are unsecured. Under
the terms of the bond, the issuer’s call option may be exercised at the issuer’s sole discretion at the
relevant time (and by such exercise effectively redeem and repay the principal and all amounts due
on outstanding bonds) on the 10th anniversary from the issue date of May 11, 2012 and every
year thereafter until the 14th anniversary or the immediately succeeding banking day if such date is
not a banking day.

(b) In November 2012, Ayala issued, through a public offering registered with the SEC, 5.450% fixed
rate callable bonds due 2019 with an aggregate size of ₱10.0 billion. The bonds are unsecured.
Under the terms of the bond, the issuer’s call option may be exercised at the issuer’s sole discretion
at the relevant time (and by such exercise effectively redeem and repay the principal and all
amounts due on outstanding bonds) on the 4th anniversary from the issue date of November 23, 2012
and every year thereafter until the 6th anniversary or the immediately succeeding banking day if
such date is not a banking day.

(c) In May 2014, Ayala guaranteed the issuance by AYC Finance Limited, a wholly-owned Cayman
Islands company, of US$300,000,000 0.50% bonds due 2019 exchangeable for common shares of
Ayala Land. The bonds are listed on the Singapore Exchange Securities Trading Limited.

(d) In October 2014, Ayala reissued, through a public offering registered with the SEC, 20,000,000
cumulative, non-voting, perpetual, Peso-denominated Preferred Class “B” Shares, with an
oversubscription of an additional 7,000,000 Preferred Class “B” Shares, each with a par value of
₱100.00, and with a dividend at a fixed rate of 5.5750% per annum, subject to adjustment, at an issue
price of ₱500 per share.

(e) In May 2016, Ayala filed a Registration Statement with the SEC in connection with the offer and sale
to the public of Fixed Rate Bonds up to an aggregate principal amount of ₱20.0 billion, to be issued
in one or more tranches (the “Bond Program”). The first tranche of the Bond Program, with an

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aggregate principal amount of ₱10.0 billion, was issued last July 7, 2016 with a fixed interest rate of
3.9200% per annum due on 2023. The second tranche of the Bond Program, with an aggregate
principal amount of ₱10.0 billion, was issued last February 10, 2017 with a fixed interest rate of
4.8200% per annum due on 2025.

(f) In September 2017, Ayala unconditionally and irrevocably guaranteed the issuance by AYC Finance
Limited of a US dollar-denominated fixed-for-life (non-deferrable) senior perpetual issuance at an
aggregate principal amount of US$400 million with an annual coupon of 5.125% for life with no step-
up.

(g) In July 2018, Ayala completed a private placement of its 8,810,000 common shares at a stock price of
₱916.00 per common share. The sale was executed through a subscription agreement by and between
Ayala and a single long-term institutional investor who had made a reverse inquiry. The placement
raised ₱8.07 billion in proceeds for Ayala and increased Ayala’s public float from 51.6% to 52.3%.

(h) In May 2019, the merger of AC Education and iPeople took effect in accordance with the terms of the
Plan of Merger, as approved by the SEC on April 24, 2019. iPeople, being the surviving corporation,
is deemed to have acquired all the assets and to have assumed all the liabilities of AC Education.
Combining the iPeople shares issued to Ayala as a result of the merger and the additional iPeople
shares it purchased, Ayala now owns a 33.5% stake in iPeople.

MATERIAL PATENTS, TRADEMARKS, AND INTELLECTUAL PROPERTIES

Other than the trade name and mark “Ayala” and the brands used by its operating companies, Ayala has
no other patent, trademark or intellectual property right to products registered under its name. Certain
operating companies of Ayala have pending applications and/or registered patents, industrial designs,
utility models and/or such other forms of intellectual property rights, which are material to the respective
operations of these companies.

CHANGES IN CONTROL

Ayala is not aware of the existence of any agreement that may result in a change in control of Ayala.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In the ordinary course of business, the Company transacts with its related parties, such as its Subsidiaries
and certain of its Associates and Joint Ventures, and members of the Group enter into transactions with
each other. These transactions have principally consisted of advances, loans, bank deposits,
reimbursement of expenses, purchase and sale of real estate and other properties, guarantees,
construction contracts and various services such as consultancy, project development, management,
marketing and administrative support. Certain members of the Group maintain current and savings
accounts, money market placements and other short-term investments with BPI, and have short-term and
long-term debt payable to BPI, which are governed by BSP regulations on loans to directors, officers,
stockholders and other related interests. In addition, members of the Group have receivables from officers
and employees relating to housing, car, salary and other loans, which are collectible through salary
deductions.

Although the Company has instituted internal policies with respect to related party transactions, including
establishing a board committee to oversee such matters, and believes that all past related party
transactions have been conducted at arm’s length on commercially reasonable terms, these transactions
may involve conflicts of interest, which, although not contrary to law, may negatively impact the Group.

For further information on the Group’s related party transactions, see Note [22] to the Company’s unaudited
consolidated financial statements included in this Prospectus. Except for those discussed in the said
unaudited consolidated financial statements, no other transaction, other than as appropriately disclosed by

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the Company, was undertaken by the Group involving any director or executive officer, any nominee for
election as director, any beneficial owner of more than 5% of the Company’s outstanding shares (direct or
indirect) or any member of his immediate family was involved or had a direct or indirect material interest.
The Company’s employees are required to promptly disclose any business and family-related transactions
with the Company to ensure that potential conflicts of interest are reviewed and disclosed as appropriate.

COSTS OF ENVIRONMENTAL COMPLIANCE

As Ayala is a holding company, costs related to environmental compliance have been minimal and have
not been material.

GENERAL CORPORATE INFORMATION

Corporate Governance

Ayala has always been committed to best practices of corporate governance. It has endured for 185 years
due in large part to the integrity it has earned, the performance it has achieved and the governance
standards it has upheld for many years. The Company’s corporate governance principles were formalized
in its Manual on Corporate Governance, as revised and filed with the SEC on May 31, 2017 (the “Revised
Manual”), in compliance with SEC Memorandum Circular No. 19, Series of 2016. The Revised Manual
establishes corporate governance practices that are founded on internationally recognized rigorous
standards, systems and processes designed to ensure the Company’s progress and stability, that an
effective system of check and balance is in place and that a high standard of accountability and
transparency to all stakeholders is enforced.

The Revised Manual conforms to the SEC’s requirements for manuals on corporate governance. It defines
primarily the roles and responsibilities of the Board and Management. More importantly, it includes a
statement of their respective liabilities in the event of non-compliance or violations of any of the provisions
of the Revised Manual. It also establishes, among others, policies on (a) independent directors, (b) Board
committees, (c) conflicts of interest, (d) internal and external audit procedures and practices, including risk
management, (e) whistleblowing, (f) stockholders’ rights and interests and (g) management’s responsibility
to communicate and inform stakeholders matters related to the Company’s affairs. The principles
embodied in the Revised Manual lay the foundation for the appropriate supervision and proper
management of the Company to safeguard shareholders and other stakeholders’ interests and to ensure
the Company’s long-term growth and sustainability. In line with this, Ayala ensures its compliance with the
Revised Manual through among others, the following:

(a) The Board conducts and accomplishes an annual Board Performance Self-Assessment indicating the
compliance ratings. The evaluation system was established to measure or determine the level of
compliance of the Board of Directors and top level management with the Revised Manual and ratings
are submitted to the Compliance Officer who prepares the required Integrated Annual Corporate
Governance Report submitted to the SEC.

(b) To ensure good governance, the Board establishes the vision, strategic objectives, key policies, and
procedures for the management of the Company, as well as the mechanism for monitoring and
evaluating Management’s performance.

(c) The Company ensures full compliance with the leading practices and principles of good corporate
governance contained in the Revised Manual since its adoption.

(d) The Company is taking further steps to enhance adherence to principles and practices of good
corporate governance. In line with this, the Board is updating the Charter of the Board of Directors
adopted on June 26, 2014.

(e) The Board actively performs its fiduciary duty to the company, including regularly meeting at least six
times every calendar year.

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(f) The Board ensures the presence and adequacy of internal control mechanisms for good governance
in accordance with the Revised Manual. The minimum internal control mechanisms for the Board’s
oversight responsibility include, but are not limited to:

1. Ensuring the presence of organizational and procedural controls, supported by an effective

management information system and risk management reporting system;

2. Reviewing conflict-of-interest situations and providing appropriate remedial measures for the
same;

3. Appointing a Chief Executive Officer (“CEO”) with the appropriate ability, integrity and experience
to fill the role, as well as defining the CEO’s duties and responsibilities;

4. Reviewing proposed senior management appointments;

5. Ensuring the selection, appointment and retention of qualified and competent management;
reviewing the Company’s personnel and human resources policies, compensation plan and the
management succession plan;

6. Institutionalizing the internal audit function; and

7. Ensuring the presence of, and regularly reviewing, the performance and quality of external audit.

Shareholder and Investor Relations

It is the policy of the company to encourage active participation and regular dialogues with institutional and
retail investors. Through Investor Relations, information requirements of the investing public and minority
shareholders are fully disclosed to securities’ regulators on time.

Ayala continues to strengthen its investor relations framework. In 2018, the Investor Relations Unit
organized the fourth Ayala Group Investor Relations Summit to keep management abreast of the best
practices, global trends, and external perspectives on the evolving role of investor relations. In addition, it
organized the third Ayala Group Investor Days in Singapore, a two-day event where senior management
and investor relations teams of Ayala group companies met with various institutional investors through
group and one-on-one meetings.

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REAL ESTATE

Ayala Land, Inc. was formerly the real estate division of Ayala Corporation and was incorporated on June
30, 1988 to focus on the development of its existing real estate assets. In July 1991, Ayala Land became
publicly-listed through an initial public offering of its primary and secondary shares on the Makati and
Manila Stock Exchanges (predecessors of the PSE). Ayala’s effective ownership in Ayala Land amounted
to 88% as a result of the initial public offering.

Over the years, several developments further reduced Ayala’s effective interest in Ayala Land; the exercise
of stock options by respective employees of Ayala and Ayala Land, the disposal of Ayala Land shares by
Ayala and Ayala Land’s issuance of new shares in relation to its acquisition of interest in companies owning
properties in Canlubang, Laguna in 1993. Furthermore, the conversion of a ₱3.0 billion, convertible, long-
term commercial paper to Ayala Land Common B Shares publicly issued in December 1994, exchanges
under bonds due in 2001, and equity top-up placements conducted through an overnight book-built offering
in July 2012, March 2013 and January 2015.

As of June 30, 2019, Ayala’s effective ownership in Ayala Land is 44.22% with the remainder owned by
the public. Ayala Land is listed with a total of 14,734,962,101 outstanding common shares and
13,066,494,759 voting preferred shares. Foreign ownership is 23.54% composed of 5,937,473,049
outstanding common shares and 607,204,775 voting preferred shares. Equity attributable to equity holders
of Ayala Land amounted to ₱198.47 billion. Ayala Land has a total market capitalization of ₱748.5 billion
based on the closing price of ₱50.80 per common share as of June 30, 2019.

Ayala Land is the largest and most diversified real estate conglomerate in the Philippines. It is engaged in
land acquisition, planning, and development of large scale, integrated, mixed-use, and sustainable
estates, industrial estates, development and sale of residential and office condominiums, house and lots,
and commercial and industrial lots, development and lease of shopping centers and offices, co-working
spaces, and standard factory buildings and warehouses, and the development, management, and
operation of hotels and resorts and co-living spaces. Ayala Land is also engaged in construction, property
management, retail electricity supply and airline services. It also has investments in CHI, OCLP Holdings,
Inc., ALLHC, MCT, Qualimed and Merkado Supermarket. Ayala Land has 26 estates, is present in in 57
growth centers nationwide and has a total land bank of 11,624 hectares at the end of 2018.

Products / Business Lines

Property Development

Property Development is composed of the Strategic Land Bank Management Group, Visayas-
Mindanao Group, Residential Business Group and MCT Bhd, Ayala Land’s listed subsidiary in
Malaysia.

The Strategic Land Bank Management Group handles the acquisition, planning and development of
large scale, mixed-use, and sustainable estates, and the development and sale, or lease of its
commercial lots in its estates in Metro Manila and the Luzon region.

The Visayas-Mindanao Group handles the acquisition, planning and development of large scale, mixed-
use, and sustainable estates, and the development and sale, or lease of its commercial lots in its
estates in key cities in the Visayas and Mindanao regions.

The Residential Business Group handles the development and sale of residential and office
condominiums and house and lots for the luxury, upscale, middle-income, affordable, and socialized
housing segments, and the development and sale of commercial lots under the following brands:
AyalaLand Premier (“ALP”) for luxury lots, residential and office condominiums, Alveo Land Corp.
Business

(“Alveo”) for upscale lots, residential and office condominiums, Avida Land Corp. (“Avida”) for middle-
income lots, house and lot packages, and residential and office condominiums, Amaia Land Corp.
(“Amaia”) for affordable house and lot packages and residential condominiums, and BellaVita Land
Corp. (“BellaVita”) for socialized house and lot packages.

MCT is a publicly-listed property developer in Malaysia engaged in land acquisition, planning, and
development of residential condominiums for sale for middle income segment. MCT has a land bank
of 332 acres located in Subang Jaya, Cyberjaya and Petaling Jaya. Ayala Land owns 66.3% in MCT.

Commercial Leasing

Commercial Leasing involves the development and lease of shopping centers through Ayala Malls, and
offices, through Ayala Land Offices, co-working spaces through the “Clock In” brand, and standard
factory buildings and warehouses under ALLHC, and the development, management, and operation of
hotels and resorts through AyalaLand Hotels and Resorts, Inc. and co-living spaces through “The Flats”
brand.

Services

Services include construction, property management, retail electricity supply and airline services.

Construction of Ayala Land and third-party projects and land development is done through Makati
Development Corporation (“MDC”). Property Management is done through Ayala Property
Management Corporation (“APMC”). Retail electricity supply is done through Direct Power Services,
Inc. (“DPSI”), Ecozone Power Management, Inc. (“EPMI”), and Philippine Integrated Energy Solutions,
Inc. (“PhilEnergy”). Airline service is done through AirSWIFT for Ayala Land’s tourism estates in Lio,
Palawan and Sicogon Island resort through its fleet of four modern turbo-prop aircrafts.

Strategic Investments

Ayala Land’s strategic investments include CHI (70.43%), OCLP Holdings, Inc. (21.01%), ALLHC
(70.4%), MCT (66.3%), Qualimed (40.0%) and Merkado Supermarket (50.0%).

Products/Business Lines (contribution to 1H 2019 consolidated revenues after intercompany

adjustments) are as follows:

Property Development 71%

Commercial Leasing 22%
Services 5%

Distribution Methods of Products

Ayala Land’s residential products are distributed to a wide range of property buyers through various
sales groups.

Ayala Land has its own in-house sales team for ALP projects. In addition, it has a wholly-owned
subsidiary, Ayala Land Sales, Inc. (“ALSI”), which employs commission-based sales people. Ayala
Land uses a sales force of about 15,000 brokers and sales agents guided by a strict Code of Ethics.
Separate sales groups have also been formed for Alveo, Avida, Amaia and BellaVita. Ayala Land and
its subsidiaries also tap external brokers to complement these sales groups.

Marketing to the Overseas Filipino (“OF”) market is handled by Ayala Land International Sales, Inc.
(“ALISI”). Created in March 2005, ALISI leads the marketing, sales and channel development activities
and marketing initiatives of the brands abroad through project websites, permanent sales offices or
broker networks, and regular roadshows with strong follow-through marketing support in key cities
abroad. ALISI has marketing offices in North America (Milpitas and San Francisco), Hong Kong,

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Singapore, Dubai, Rome, and London. ALISI likewise assumed operations of AyalaLand Int’l. Marketing
in Italy and London, in 2014.

In addition, the Ayala Group also developed “One Ayala,” a program which bundles the products and
services of Ayala Land, BPI, and Globe Telecom, Inc. and gives access to potential Ayala Land clients
overseas through BPI’s 17 overseas offices and 81 tie-ups. An Ayala Land-BPI Dream Deals program
was also created to generate additional sales from the local market.

Since 2008, all residential sales support transactions are undertaken by the shared services company
Amicassa Process Solutions, Inc. (“APSI”) while all transactional accounting processes across the
Ayala Land Group are handled by Aprisa Business Solutions, Inc. (“APRISA”) since 2010.

Development of the business of the registrant and its key operating subsidiaries/associates and joint
ventures during the past three years

1H 2019

Ayala Land recorded a 12% increase in net income to ₱15.2 billion in the first six months of 2019 while
total revenues increased by 4% to ₱83.2 billion during the period. This was driven by the sustained
growth of ALI’s property development business led by office sales, complemented by the strong topline
growth of its commercial leasing businesses. Its leasing business continued to grow with shopping
centers gross leasable area (“GLA”) of 1.91 million sq, meters, office GLA of 1.13 million sq. meters
and hotels and resorts rooms of 3,490. Total capital expenditure as of June 30, 2019 reached ₱49.5
billion.

2018

Ayala Land registered a solid topline and bottomline growth of 17% and 16% respectively, with
revenues of ₱166.2 billion and net income of ₱29.2 billion. Property sales grew 16% to ₱141.9 billion
driven by strong local and overseas Filipino demand. Its leasing business expanded with shopping
centers GLA of 1.90 million sq, meters, office GLA of 1.11 million sq. meters and hotels and resorts
rooms of 2,973. The total capital expenditure reached ₱110.1 billion. It launched two estates: Parklinks
in the Quezon City – Pasig City corridor, and Habini Bay in Laguindingan, Misamis Oriental.

On December 17, 2018, Asiatown Hotel Ventures, Inc., a wholly owned subsidiary of AyalaLand Hotels
and Resorts Corp. (“AHRC”) was incorporated for the development of Seda Cebu IT Park.

On November 15, 2018, AMC Japan Concepts, Inc. was incorporated primarily to manage the Glorietta
Roofdeck – Japan Town. It is 75% owned by ALI Commercial Center, Inc. and 25% owned by MC
Commercial Property Holdings, Inc.

On September 12, 2018, One Makati Residential Ventures, Inc., a wholly owned subsidiary of AHRC
was incorporated for the development of One Ayala Residences.

2017

Ayala Land posted a healthy topline growth of 14% to ₱142.3 billion and solid net income growth of
21% to ₱25.3 billion. Property sales grew 13% to ₱122.0 billion. It broadened its leasing base ending
2017 with shopping centers GLA of 1.80 million sq. meters, office leasing GLA of 1.02 million sq. meters
and 2,583 hotel and resort rooms. The total capital expenditure reached ₱91.4 billion. It launched three
estates: Evo City in Cavite, Azuela Cove in Davao and Seagrove in Cebu.

On December 4, 2017, Capitol Central Commercial Ventures Corp. is a wholly owned subsidiary of
Ayala Land and was incorporated for the development of Ayala Malls Capitol Central.

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On November 16, 2017, Arca South Commercial Ventures Corp., a wholly-owned subsidiary of Ayala
Land, was incorporated for the development of Ayala Malls Arca South.

On November 3, 2017, Bay City Commercial Ventures Corp. (“BCCVC”), a wholly owned subsidiary of
Ayala Land, was incorporated for the development of Ayala Malls Manila Bay.

On October 10, 2017, Makati North Hotel Ventures, a wholly owned subsidiary of AHRC was
incorporated for the development of Seda Ayala North Exchange.

On September 28, 2017, One Makati Hotel Ventures, Inc., a wholly owned subsidiary of AHRC and
was incorporated for the development of Seda One Ayala.

On September 6, 2017, Bay Area Hotel Ventures, a wholly owned subsidiary of AHRC was incorporated
for the development of Seda Bay Area.

On July 7, 2017, AyalaLand Premier, Inc., a wholly owned subsidiary of Ayala Land was registered to
engage primarily in general contracting services.

On June 5, 2017, Makati Cornerstone Leasing Corp., a wholly owned subsidiary of Ayala Land was
incorporated to develop Circuit BPO Towers 1 and 2.

On March 1, 2017, MDBI Construction Corp. (“MDBI”), formerly MDC Triangle, Inc., was incorporated.
The company is 67% owned by MDC and 33% owned by Bouyges Batiment International, a Europe-
based company which is also a subsidiary of Bouyges Construction. MDBI was organized to engage in
general contracting services.

2016

Ayala Land grew its revenues by 16% to ₱124.6 billion and its net income by 19% to ₱20.9 billion.
Property sales grew 3% to ₱108.0 billion. Its leasing business expanded, closing 2016 with shopping
centers GLA of 1.62 million sq. meters, office leasing GLA of 836 thousand sq. meters and total hotels
and resorts rooms of 2,027. Ayala Land spent ₱85.4 billion in capital expenditures.

On October 10, 2016, Lio Tourism Estate Management Corp. is a wholly owned subsidiary of Ten Knots
Phils., Inc. (“TKPI”) and was incorporated.

On March 9, 2016, Altaraza Prime Realty Corporation, a wholly owned subsidiary of the Company, was
incorporated on to develop Altaraza IT Park, Bulacan

Bankruptcy, Receivership or Similar Proceedings

None for any of the subsidiaries and affiliates above.

Material Reclassification, Merger, Consolidation or Purchase or Sale of a Significant Amount of Assets

(not ordinary) over the past three years

1H 2019

On September 13, 2019, the SEC issued a permit to sell covering ALI’s 4.7580% ₱3 billion 5-Year
Fixed-rate Bonds, the second tranche under its ₱50 billion securities program of debt and other
securities as provided by applicable SEC rules and regulations effective at the time of issuance. Subject
to the satisfaction of certain conditions, the Fixed-rate Bonds are expected to be issued and listed on
PDEx on September 30, 2019. The Fixed-rate Bonds have been rated PRS Aaa, the highest rating
assigned by PhilRatings. Obligations rated PRS Aaa are of the highest quality with minimal credit risk.

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On May 24, 2019, the Board of Directors of Ayala Land, at its regular meeting, approved the acquisition
of Avida Land, Corp., a wholly-owned subsidiary of Ayala Land, of 264,534,247 shares of ALLHC from
Orion Land Inc., in exchange for a parcel of land in South Park District, Muntinlupa City. Subsequently,
Avida will sell the 264,534,247 shares to Ayala Land, increasing its effective ownership in ALLHC to
72.25%.

On May 6, 2019, ALI, listed the initial tranche of its new ₱50 billion SEC-registered shelf program, the
₱8 billion 7-Year Fixed Rate Bonds on the PDEx platform. The Bonds has a coupon of 6.3690% per
annum and have been rated PRS Aaa, the highest rating assigned by PhilRatings. Obligations rated
PRS Aaa are of the highest quality with minimal credit risk

On April 24, 2019, ALI subsidiary, AREIT, intends to publicly list as a REIT under the current
Implementing Rules and Regulations of the Securities and Exchange Commission on REITs and
following the minimum public ownership requirement of 67%.

On February 27, 2019, the Board of Directors at its regular meeting approved the filing with the SEC of
a 3-year shelf registration of up to P 50 billion of debt securities (the “Shelf Registration”) and the raising
of up to ₱45 billion through: (a) retail bonds of up to ₱16 billion under the Shelf Registration and listed
on the PDEx, (b) SEC-exempt Qualified Buyer Notes of up to ₱4 billion for enrollment on the PDEx,
and (c) bilateral term loans of up to ₱25 billion

On February 4, 2019, the Executive Committee of ALI approved the purchase of a 20% equity interest
owned by Mitsubishi in LTI, equivalent to 8,051 common shares, with a total value of ₱800 million. On
June 10, 2019, the transaction was completed followed by ALI’s exchange of this interest in LTI for
additional shares of stock in AyalaLand Logistics Holdings Corp. (ALLHC) (formerly Prime Orion
Philippines, Inc. (POPI), equivalent to 323,886,640 common shares, subject to conditions to be fulfilled
by POPI.
2018

In December 2018, ALI acquired 8,051 common shares of LTI for ₱800.0 million increasing its
ownership to 95%.

On November 7, 2018, Ayala Land in partnership with Ayala, launched its 26th estate, Habini Bay in
Misamis Oriental. The 526-hectare estate is positioned as a new center of trade and commerce in
Northern Mindanao.

On November 6, 2018, SEC approved the merger between CHI and CPVDC with CHI as the surviving
entity. ALI acquired additional 59,631,200 common shares of CHI totaling to ₱352.8 million. Further,
an additional 77,742,516 shares were acquired as a result of swap of CPVDC shares for a total
consideration of ₱229.3 million which brings Ayala’s ownership to 70.4%.

On May 11, 2018, Ayala Land entered into a Memorandum of Understanding with GSPC and GCPRI
for the formation of a joint venture company that will own and develop 27,852 hectares of land,
specifically located in Dingalan Aurora and General Nakar, Province of Quezon. ALI will own 51%, and
GSPC and GCPRI will jointly own 49% of the joint venture company.

On April 30, 2018, ALI and POPI (currently known as ALLHC) executed a Deed of Exchange where
ALI will subscribe to 1,225,370,620 common shares of POPI for an aggregate subscription price of ₱3.0
billion in exchange for 30,186 common shares of LTI. The subscription and exchange shall be subject
to and deemed effective only upon the issuance by the SEC of the confirmation of valuation of the
shares.

On April 27, 2018 Ayala Land issued and listed on the PDEx a ₱10 billion bond due April 2028 with a
coupon rate of 5.9203% p.a. for the initial five-year period of the ten-year term of the bond. The coupon
rate will reprice on April 27, 2023, the 5th anniversary of the Issue Date, at the higher of (a) 5.9203% or
(b) the prevailing 5-year benchmark plus 75 bps which shall apply to all interest payments thereafter.

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The bond was assigned an issue credit rating of PRS AAA, with a Stable Outlook, by Philratings, the
highest investment grade indicating minimal credit risk. The issuance is the 5th tranche of the Fixed
Rate Bond series of the ALI’s ₱50 billion Debt Securities Program as approved by the SEC in March
2016.

On April 4, 2018, ALI signed a Deed of Absolute Sale with Central Azucarera de Tarlac, Inc. for the
acquisition of several parcels of land with an aggregate area of approximately 290 hectares located in
Barangay Central, City of Tarlac, Province of Tarlac.

On March 23, 2018, the Executive Committee of Ayala Land approved the exchange of its 75% equity
interest in LTI into additional shares of stock in POPI (currently known as ALLHC). The value of the
transaction is ₱3.0 billion where POPI will issue 1,225,370,620 common shares to ALI in exchange
for 30,186 LTI common shares and bring ALI’s direct ownership in POPI to 63.90% from 54.91%.

On February 26, 2018, the board of directors of CHI during its meeting, approved the merger of CPVDC
with CHI as the surviving entity. The merger will consolidate CHI’s portfolio under one listed entity,
creating a unified portfolio for its investments and is expected to result in operational synergies, efficient
funds management and simplified reporting to government agencies, as a result of the merger. The
plan of merger shall be submitted for approval of the stockholders of the two companies during their
respective annual stockholders’ meeting to be held on April 10, 2018.

On February 20, 2018, the PCC approved the setting up of a joint venture between ALI and Royal Asia
Land, Inc. to acquire, own, and develop a 936-hectare commercial and residential project in Silang and
Carmona, Cavite. Both firms will own 50% equity in the joint venture vehicle while Royal Asia Land will
receive a consultation fee of 2% of the joint venture firm's gross revenue for its participation in the
planning and development of the property. ALI, meanwhile, will develop and market the project and
receive a management fee of 12% and sales and marketing fee of 5% of the gross revenue. The PCC
has deemed that the transaction does not result in a substantial lessening of competition because it
will not have a structural effect on the market.

On January 11, 2018, SIAL CVS Retailers, Inc., FamilyMart Co., Ltd., and ITOCHU Corporation have
concluded the transaction to sell 100% of the outstanding shares of Philippine FamilyMart CVS, Inc. to
Phoenix Petroleum Philippines, Inc., further to a Memorandum of Agreement entered into by the parties
last October 30, 2017.

On January 2, 2018, ALI through its wholly-owned subsidiary, RWIL, signed a share purchase
agreement to acquire an additional 17.24% share in MCT , subject to completion of certain conditions.
This will bring ALI’s shareholding in MCT to 50.19% from 32.95%. Subsequently, on January 5, 2018,
RWIL, issued a notice of an unconditional mandatory take-over offer to the board of directors of MCT,
to acquire all remaining shares of the company that are not already held by RWIL, following the
completion of certain conditions to the share purchase agreement. The take-over offer is made in
connection to the acquisition of additional shares in MCT, which increased ALI’s shareholding in MCT
to 50.19%. On March 23, 2018, Ayala Land completed the acquisition process, increasing its ownership
stake in MCT to 66.25%.

Various diversification/ new product lines introduced by the company during the last three years

The Flats

Ayala Land opened its first co-living product, branded as “The Flats” on September 2018. It now has
two sites located in Amorsolo, Makati and 5th Avenue, BGC with a total of 2,198 beds across 571
multiple occupancy rooms and communal spaces.

Clock In

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In 2017, Ayala Land launched a co-working space product branded as “Clock In” with five operating
branches in Makati, BGC, Vertis North, Quezon City and The 30th, Pasig City with a total of 956 seats.
It is scheduled to open in three more sites in 2019 namely, Lio in Palawan, Ayala North Exchange in
Makati, and Alabang Town Center in Muntinlupa City.

Standard Factory Buildings and Warehouses

In 2018, Ayala Land started to offer standard factory buildings (“SFB”) and warehouses for lease inside
industrial parks to capture the growing opportunities in manufacturing and logistics. Ayala Land has a
total of 174,853 sq. meters of SFB and warehouse GLA across various locations such as Laguna
Technopark, Cavite Technopark, the Tutuban complex in Manila, Lepanto Ceramics facility in Laguna
and Alviera Industrial Park in Pampanga.

Hospitals/Clinics

Ayala Land entered into a strategic partnership with the Mercado Group in July 2013 to establish
hospitals and clinics located in the Company’s integrated mixed-use developments branded as
QualiMed. In 2014, QualiMed opened three (3) clinics in Trinoma, Fairview Terraces, McKinley
Exchange Corporate Center, and Qualimed General Hospital in Atria Park, Iloilo while UP Town Center
Clinic in Quezon City was opened in the end of 2015. In the 2 nd Quarter of 2016, Qualimed opened a
hospital in Altaraza San Jose Del Monte Bulacan. In the 3rd Quarter of 2017, Qualimed opened its 102-
bed hospital in Nuvali, Sta. Rosa, Laguna.

Supermarkets

ALI Capital Corporation (formerly Varejo Corporation), a subsidiary of Ayala Land, entered into a joint
venture agreement with Entenso Equities Incorporated, a wholly-owned entity of Puregold Price Club,
Inc., to develop and operate mid-market supermarkets for some of Ayala Land’s mixed-use projects
branded as Merkado Supermarket. The first supermarket was opened in the 3rd quarter of 2015 at UP
Town Center while its second store was opened in December 2017 at Ayala Malls Vertis North.

Competition

Ayala Land is the only full-line real estate developer in the Philippines with a major presence in almost
all sectors of the industry. Ayala Land believes that, at present, there is no other single property
company that has a significant presence in all sectors of the property market. Ayala Land has different
competitors in each of its principal business lines.

With respect to its shopping center business, Ayala Land’s main competitor is SM which owns
numerous shopping centers around the country. Ayala Land is able to effectively compete for tenants
given that most of its shopping centers are located inside its mixed-used estates, populated by residents
and office workers. The design of Ayala Land’s shopping centers also features green open spaces and
parks.

For office rental properties, Ayala Land sees competition in smaller developers such as Kuok Properties
(developer of Enterprise Building), Robinsons Land (developer of Robinsons Summit Center) and non-
traditional developers such as the AIG Group (developer of Philam Towers) and RCBC (developer of
RCBC towers). For Business Process Outsourcing (“BPO”) office buildings, Ayala Land competes with
the likes of Megaworld, SM and Robinsons Land. Ayala Land is able to effectively compete for tenants
primarily based upon the quality and location of its buildings, reputation as a building owner and the
quality of support services provided by its property manager, rental and other charges.

With respect to residential lots and condominium products, Ayala Land competes with developers such
as Megaworld, DMCI Homes, Robinsons Land, and SM Development Corporation. Ayala Land is able
to effectively compete for purchasers primarily on the basis of reputation, price, reliability, and the
quality and location of the community in which the relevant site is located.

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For the middle-income business, Ayala Land sees the likes of SM Development Corp, Megaworld,
Filinvest Land and DMCI Homes as key competitors. Alveo and Avida are able to effectively compete
for buyers based on quality and location of the project and availability of attractive in-house financing
terms.

For the affordable housing segment, Amaia competes with Camella Homes, DMCI Homes, Filinvest,
Robinsons Land and SM Development Corporation.

BellaVita, a relatively new player in the socialized housing market, will continue to aggressively expand
its geographical footprint with product launches primarily located in provincial areas.

Suppliers

Ayala Land has a broad base of suppliers, both local and foreign. Ayala Land is not dependent on one
or a limited number of suppliers.

Customers

Ayala Land has a broad market base including local and foreign individual and institutional clients. The
Company does not have a customer that will account for twenty percent (20%) or more of its revenues.

Transactions with related parties

Please refer to Page [12] of this report (“Certain Relationships and Related Transactions”).

Government approvals/regulations

Ayala Land secures various government approvals such as the environmental compliance certificate,
development permits, license to sell, etc. as part of the normal course of its business.

Employees

Ayala Land has a total workforce of 345 regular employees as of June 30, 2019. The breakdown as
follows:

Senior Management 23
Middle Management 225
Staff 97
Total 345

Employees take pride in being an ALI employee because of the company’s long history of bringing high
quality developments to the Philippines. With the growth of the business, career advancement
opportunities are created for employees. These attributes positively affect employee engagement and
retention.

Ayala Land aims that its leadership development program and other learning interventions reinforce
ALI’s operating principles and provide participants with a set of tools and frameworks to help them
develop skills and desired qualities of an effective leader. The programs are also venues to build
positive relations and manage networks within ALI and its subsidiaries (collectively, the “ALI Group”).

ALI has a healthy relation with its employees’ union. Both parties openly discuss employee concerns
without necessity of activating the formal grievance procedure.

Further, employees are able to report fraud, violations of laws, rules and regulations, or misconduct in
the organization thru reporting channels under the ALI Business Integrity Program.

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Ayala Land is subject to significant competition in each of its principal businesses of property
development, commercial leasing and services. In property development, Ayala Land competes with
other developers to attract condominium and house and lot buyers. In commercial leasing, it competes
for shopping center and office space tenants, as well as customers of the retail outlets, restaurants,
and hotels and resorts across the country.

However, Ayala Land believes that, at present, there is no single property company that has a
significant presence in all sectors of the property market.

Risks

Ayala Land faces a highly competitive business environment

Ayala Land is subject to significant competition in each of its principal businesses. Competitive pressure is
expected to remain as large property developers focus on the value-conscious middle market. Sustained
demand growth is not likely to occur without real improvement in employment and real incomes. However,
Ayala Land believes that, at present, there is no single property company that has a significant presence in
all sectors of the property market.

Ayala Land competes with other developers and developments to attract purchasers of land and residential
units, office and retail tenants as well as other construction and property management firms, and hotel
operators.

To manage this risk, Ayala Land continues its active land acquisition and development activities in key
growth centers and its aggressive build-up of recurring income within tried and tested estates through its
integrated mixed-use model versus pocket developments. Particular to the leasing business, one of the
major drivers of competition is Ayala Land’s ability to attract and retain merchants and tenants – which is
generally dependent on the location of the leasing properties, price offerings to the tenants and merchants,
as well as the quality of service provided by Ayala Land’s property management team. And for this, Ayala
Land continues to do the following: (1) active land acquisition in key geographies and partnering with other
developers; (2) continue current mixed-use model versus pocket developments; (3) gathering market
intelligence and translating information into competitive proposals; and (4) hard push for timely opening of
new properties / developments, among other control activities and procedures.

Land, Residential

With respect to land, condominium and office sales, Ayala Land competes for purchasers primarily on the
basis of reputation, reliability, price and the quality and location of the community in which the relevant site
is located. With respect to its horizontal residential housing developments, Ayala Land competes for buyers
based on quality of projects and reasonable pricing of units.

(a) High-end residential

Ayala Land continues to be the leader in the high-end residential market. It competes with a price
premium over other high-end developers but justifies it with superior locations, workmanship
quality, and overall reputation in the real estate industry. Through these, it has been able to keep
well ahead of other high-end players.

Real estate has always been a major investment vehicle for the affluent. However, in a volatile
environment, such as the recent financial crisis and the subsequent global economic downturn, the
high-end market tends to “wait and see,” or they simply choose to place their money in other
investment instruments. In the first half of 2019, ALP’s revenues decreased by 25% to ₱11.5 billion
from ₱15.4 billion in the same period in 2018 due to the full sell out of The Courtyards Phase 3 at
Vermosa, Cavite, The Suites at BGC, Taguig, and Arbor Lanes Tower 2 at Arca South, Taguig.
ALP’s revenues rose by 6% to ₱28.00 billion in 2018 from ₱26.50 billion the previous year, due to

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bookings for The Courtyards in Vermosa, Cavite and The Alcoves in Cebu Business Park and
higher completion of The Suites at the Bonifacio Global City, Taguig, Metro Manila.

Ayala Land has mitigated the market risks it faces through carefully planned project launches, clear
product differentiation, product innovation, and increased market expansion through overseas
sales and new segments.

(b) Upscale, residential

In the upscale market segment, Alveo registered revenues of ₱9.7 billion during the first six months
of 2019, a decline of 29% from ₱13.7 billion the year prior, attributed to the full sell out of Ardia at
Vermosa, Cavite, Montala at Alviera, Pampanga, and Veranda Phase 1 and 2 at Arca South,
Taguig. In 2018, Alveo posted slightly higher revenues at ₱26.29 billion from the previous year’s
₱26.17 billion. The increase is attributed to bookings for Orean Place Tower 1 at Vertis North,
Quezon City, Metro Manila and Travertine Tower at Portico, Pasig City, Metro Manila, and higher
completion at The Residences at Evo City in Kawit, Cavite.

(c) Middle-income residential

Avida generated ₱13.4 billion in revenues during the first half of 2019, 27% higher than ₱10.6 billion
last year due to new bookings from Avida Towers Intima in Manila and higher bookings and project
completion of Avida Northdale Settings at Alviera, Pampanga. In 2018, District, Muntinlupa City,
Metro Manila, Asten Tower 3 at Makati City, and higher completion of Sola Tower 1 at Vertis North
fueled Avida’s 16% revenue growth to ₱24.22 billion from 2017’s ₱20.84 billion.

(d) Socialized and Economic Housing

Ayala Land entered the socialized housing segment in 2012 with the launch of Amaia Scapes in
Laguna under ALI’s subsidiary, Amaia Land Corp., carrying the brand Amaia. This segment is
expected to provide a steady end-user demand in the long-term as one-third of the estimated
twenty (20) million Filipino households and majority of the almost four (4) million national housing
backlog belong to this segment. During the first six months of 2019, Amaia posted revenues of
₱3.7 billion, a 19% increase from ₱3.10 billion during the same period in 2018, as a result of higher
bookings and project completion of Steps Nuvali Parkway and Steps Capitol Central in Bacolod.
Amaia posted a 20% improvement in revenues in 2018, to ₱7.36 billion from ₱5.74 billion, as a
result of bookings and higher completion for Amaia Skies Shaw Tower 1 in Mandaluyong City,
Metro Manila; Amaia Skies Cubao Tower 2 in Quezon City; Amaia Scapes General Trias in Cavite;
and Amaia Steps Nuvali, Laguna.

In terms of economic housing, Ayala Land formally launched its first socialized housing project in
2012 under the BellaVita brand in Cavite from subsidiary, BellaVita Land Corp. BellaVita garnered
revenues of ₱511 million during the first six months of 2019, a 1% decrease from ₱516 million last
year owing to the lower revenue contribution from the Avesta project and lower bookings from its
project in Cagayan de Oro. Bookings for BellaVita’s projects in Pililia, Rizal; Cabanatuan East,
Nueva Ecija; and Iloilo almost doubled its revenues to ₱1.15 billion in 2018 from ₱652 million
previous year.

Overall, during the first six months of 2019, the average gross profit margin of horizontal residential
projects registered at 43%, lower than 46% during the previous period, due to the sell out of high-
margin projects by ALP and Alveo. Meanwhile, vertical projects improved to 38% from 36% due to
higher margins from ALVEO’s Orean Place Tower 1 at Vertis North, Travertine at Portico in Ortigas,
Avida’s The Montane in BGC, Sola Towers 1 and 2 in Vertis North, and Amaia Skies Cubao Tower
2.

MCT recognized revenues of ₱2.6 billion during the first six months of 2019, 37% lower than the
first half of 2018 due to the full sell out of its projects in CyberSouth in Klang Valley, Malaysia. In

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2018, MCT recognized revenues of ₱7.60 billion from sales and completion progress of its projects
in Cybersouth, an integrated development in Southern Klang Valley, and Lakefront, a residential
project in Cyberjaya.

Positive factors spurring interest because of their long-term effects in the real estate industry are
the:

• Infrastructure, highway and railway projects within Metro Manila and nearby provinces;
• Increasing purchases by the overseas-based Filipino market due to marketing and
promotions by various developers;
• Availability of financing from the Home Development Mutual Fund (“Pag-IBIG”); and
• Relatively low mortgage rates and longer maturities.

Office for Sale

With respect to its office rental properties, Ayala Land competes for tenants primarily based upon the quality
and location of the relevant building, the reputation of the building owner and operator, the quality of support
services provided by the property manager, and rental and other charges. Under the current environment,
lease rates and occupancy levels are under pressure in the Makati CBD where Ayala Land office buildings
are located.

Revenues from the sale of office spaces supported residential revenues as it grew more than two-fold,
amounting to ₱9.8 billion during the first half of 2019 from the completion progress and new bookings from
Alveo Financial Tower, High Street South, and Park Triangle Corporate Plazas. The average gross profit
margin of offices for sale improved to 44% from 35% due to higher selling prices of ALVEO Financial Tower
in Makati CBD and Highstreet South and Park Triangle Corporate Plazas in BGC.

Commercial and Industrial Lots

Revenues from the sale of commercial and industrial lots grew 11%, contributing ₱4.3 billion during the first
half of 2019 from lots sales in Vermosa, Evo City and Alviera. Gross profit margins from Commercial and
Industrial lots also increased significantly to 52% from 42% due to higher margins of commercial lots sold
in in the said estates during the period.

Sales reservations remained steady at ₱72.3 billion mainly driven by local and overseas Filipino demand.

In 2018, Ayala Land launched ₱39.4-billion worth of residential and office-for-sale projects.

Commercial Leasing

This segment covers the operation of shopping centers, office buildings, and hotels and resorts. Total
revenues from commercial leasing jumped 16% to ₱18.6 billion in the first half of 2019.

With respect to its retail properties for lease, Ayala Land competes for tenants primarily based upon the
ability of the relevant retail center to attract customers, which generally depends on the quality and location
of, and mix of tenants in, the relevant retail center and the reputation of the owner and/or operator of the
retail center, as well as rental and other charges. The market for shopping centers has become especially
competitive and the number of competing properties is expected to grow. Some competing shopping
centers are located within relatively close proximity of each of Ayala Land’s commercial centers.

Shopping centers

Revenues grew 12% to ₱10.3 billion in the first half of 2019, supported by same mall revenue growth of
11% given the increased contribution of Ayala Malls Feliz, Circuit Makati and Capitol Central,
supplementing the strong operations of Glorietta and Greenbelt in Makati, and Ayala Center Cebu. The
Earnings Before Interests, Taxes, Depreciation and Amortization (“EBITDA”) margin of shopping centers

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registered at 66%, 2 basis points higher than the previous period as a result of higher rent and occupancy
of Ayala Center Cebu, Glorietta and Trinoma.

The average monthly mall lease rate registered at ₱1,063 per square meter while same mall rental growth
is at 11%. The average occupancy rate for all malls is 88% while the occupancy rate for stable malls is
94%. Total Shopping Centers GLA stands at 1.91 million square meters as of the 1st half of 2019. This
includes 8,000 sqm from the Ayala North Exchange retail area that was opened last March.

Offices

Revenues surged 25%, reaching ₱4.6 billion in the first half of 2019 as newly-opened offices in Ayala North
Exchange, Vertis North and Circuit Makati gained further traction. EBITDA margin of 91% was sustained
from the previous period.

The average monthly office lease rate registered at ₱763 per square meter. The average occupancy rate
of all offices is 93% while the average occupancy rate of stable offices is 96%. Total office leasing GLA is
at 1.13 million square meters as of June 2019, adding 18 thousand square meters from Ayala North
Exchange BPO which opened last April 2019.

Hotels and Resorts

Although the hotel industry has seen increasing visitor arrivals in the past several years, it is generally
subject to the slowdown in business activity due to global financial and local political turmoil and security
concerns. Nonetheless, according to the Department of Tourism, 6.60 million foreign tourists visited the
Philippines in 2017.

Revenues from hotels and resorts moved up 17% to ₱3.7 billion during the first half of 2019 on strong
patronage of Seda Ayala Center Cebu, and Lio. Average revenue-per-available-room (“REVPAR”) of all
hotels was lower by 2% to ₱3,511 per night and decreased by 3% to ₱9,018 for all resorts. Meanwhile
REVPAR of stable hotels improved slightly to ₱4,198 per night but was lower by 3% to ₱11,672 for stable
resorts. Overall EBITDA margin increased to 33% from 31% due to the higher margins of Seda Ayala
Center Cebu and Lio.

The average room rate of all hotels is ₱4,917 per night and ₱13,326 for all resorts. Meanwhile the average
room rate of stable hotels is ₱5,372 per night and ₱17,789 for stable resorts. The average occupancy rate
of all hotels registered at 71% and 68% for all resorts, 78% for stable hotels and 66% for stable resorts.
The portfolio has a total of 3,264 rooms as of end June 2019 with the addition of 71 rooms at Seda BGC
and 175 rooms at Circuit Makati Residences. Ayala Land also opened 105 rooms at Seda Residences
Ayala North Exchange, 71 additional rooms at Seda BGC, and 50 rooms at Huni Lio in Palawan last July
2019.

The hotels and resorts business operates 660 hotel rooms under its international brand segment—312 for
Fairmont Hotel and Raffles Residences, and 348 for Holiday Inn & Suites, both locked in Ayala Center,
Makati CBD. Our homegrown Seda Hotels operates 1,934 rooms—Atria, Iloilo, 152; BGC, Taguig, 250;
Centrio, Cagayan de Oro, 150; Abreeza, Davao, 186; Nuvali, Santa Rosa, Laguna, 150; Vertis North,
Quezon City, 438; Capitol Central, Bacolod, 154; Lio, Palawan, 153; and Ayala Center Cebu, 301. El Nido
Resorts operates 193 rooms in its four island resorts (Pangulasian, Lagen, Miniloc and Apulit), and Lio
Tourism Estate currently has 144 rooms under its Bed and Breakfast (B&B) category and Dormitel offerings.
Lastly, the Sicogon Tourism Estate in Iloilo currently operates 78 B&B rooms.

Services

This is composed mainly of the construction business represented by MDC, property management,
represented by APMC, and other companies engaged in power services such as DPSI, EPMI, and
PhilEnergy. Total revenues from the services business amounted to ₱4.4 billion in the first half of 2019, 7%
higher than the same period last year.

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The overall EBITDA margin of the service businesses advanced to 9% in the first half of 2019 from 8% in
the previous period.

Construction

Ayala Land’s construction business is exposed to any potential sector-wide slowdown in construction
activities.

Notwithstanding stiff competition in the industry, Ayala Land intends to maintain and enhance its position
as the leading property developer in the Philippines by continuing its over-all business strategy of
developing large-scale, mixed-use integrated communities within growth centers that perpetuate its strong
market presence while ensuring a steady revenue growth for Ayala Land. Ayala Land further intends to
diversify its revenue base by expanding its real estate business into different markets, specifically the
economic and socialized housing segments where bulk of consumer “end-user” demand lies, and
geographic areas and growth centers across the country where there are significant growth opportunities
or where its proposed developments complement its existing businesses.

As Ayala Land continues to expand its footprint all over the country, continuing pressures are felt on the
following areas, among others: maintaining developmental costs within competitive levels, getting qualified
and reliable contractors and suppliers in the market, ensuring that quality standards are consistently being
enforced across all projects in different geographies.

Standardization and streamlining of processes to achieve increased operating efficiencies, complete

partnering agreements on critical materials with suppliers, aggregation, advance buying for critical
commodities to avoid delays, continuous external sourcing are among the major mitigation activities being
done by Ayala Land to meet project execution and delivery targets.

On top of these, Ayala Land is continuously improving its self-perform and self-manufacture capability for
better quality control in its developments.

MDC registered a total of ₱1.5 billion in revenues for the first half of 2019, an increase of 28%, reflecting
higher revenues from its external contracts.

Property Management and Others

APMC and power services companies registered revenues of ₱2.8 billion during the first half of 2019, a
slightly lower figure as some retail electricity supply contracts expired during the period.

Industrial Property Business

The industrial property business is affected by oversupply as well as limited industrial expansion and
declining foreign investments. Overall, the industrial property segment is not likely to show significant
demand improvement in the medium term.

Ayala Land is exploring potential areas in Central Luzon to develop into an industrial park for light
manufacturing activities, a portion of which will be offered to Chinese companies.

Laguna Technopark, a development of the Ayala Land’s subsidiary, LTI, remains the preferred location for
locators and has been successfully expanding its offerings at a time when industrial parks in the Calabarzon
area have been experiencing the effects of an oversupply of manufacturing and processing facilities.

Cavite Technopark is the newest industrial park development located in Naic, Cavite, with an initial area of
118 hectares. Similar to Laguna Technopark, Cavite Technopark will cater to manufacturing investors that
specialize in electronics, automotive, consumer products, food processing and pharmaceuticals. At full

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development, the locator companies of Cavite Technopark are expected to generate employment for over
20,000 employees.

Ayala Land’s business may be affected by the risk posed by an asset price bubble

Inherent to any property market is the risk posed by an asset price bubble. This situation arises when a
gross imbalance between demand and supply causes an unusual increase in asset prices and as supply
begins to outstrip demand, a drastic drop in prices ensues causing the proverbial bubble to burst.

In the domestic market, the current property boom has been fuelled by both business and public confidence
which in turn is driven by a number of factors including the robust domestic economy, low interest rates that
support both business expansion and domestic consumption underpinned by a young demographic profile,
moderate but consistently growing remittances from Overseas Filipino Workers (“OFW”), and the
Philippines’ success as a choice BPO destination.

These factors alongside the prudential measures put in place by the BSP to safeguard the health of the
local financial system point to the Philippine property market being adequately protected against a domestic
asset price bubble. For its part, Ayala Land has embarked on a plan to achieve by 2020 a balanced portfolio
of (a) residential businesses, which thrive on robust economic periods, and (b) leasing businesses, which
have proven to be more resilient across economic cycles thus providing some cushion between periods of
economic trough. Ayala Land’s expansion of its residential businesses has likewise allowed it to cater to
both the economic and socialized housing segments where the country’s housing backlog primarily occurs
thus tapping into another source of demand for its residential products.

Ayala Land is subject to certain debt covenants

Ayala Land’s existing bond agreements and agreements for certain debts contain covenants that limit its
ability to, among other things:

• incur additional long-term debt to the extent that such additional indebtedness results in a breach
of a required debt-to-equity ratio;
• materially change its nature of business;
• merge, consolidate, or dispose of substantially all its assets; and
• encumber mortgage or pledge some of its assets.

Complying with these covenants may cause Ayala Land to take actions that it otherwise would not take or
not take actions that it otherwise would take. Ayala Land’s failure to comply with these covenants would
cause a default, which, if not waived, could result in the debt becoming immediately due and payable. In
this event, Ayala Land may not be able to repay or refinance such debt on terms that are acceptable to
Ayala Land or at all.

Ayala Land has historically taken a prudent stance in managing its debt obligations by ensuring that any
corporate act, whether or not performed in the ordinary course of business, does not violate any existing
debt covenants. In the event that any significant corporate act or business transaction is seen to potentially
affect its debt covenants that would lead to accelerating the payment of existing debt, Ayala Land shall
endeavor to obtain the necessary waivers in accordance with relevant debt agreements.

Ayala Land from time to time considers business combination alternatives

Although Ayala Land’s loan covenants contain certain restrictions on business combinations, Ayala Land
will be able to engage in certain types of combinations. Business combinations involve financial and
operational risks and could result in significant changes to Ayala Land’s operations, management and
financial condition. These changes could adversely affect Ayala Land’s ability to fulfill its obligations under
its existing debt agreements.

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Ayala Land takes into consideration its existing debt obligations and concomitant debt covenants in making
any major business investments or acquisitions. Any financial commitments under such business
combinations are evaluated in terms of the inflow of revenues of such projects and their ability to service
their own financial requirements once fully operational.

Under Republic Act No. 10667, the PCA authorizes the PCC to review mergers and acquisitions to ensure
compliance with the PCA. The PCA, its Implementing Rules and Regulations, as amended, and the Rules
on Merger Procedure (collectively “Merger Rules”) provides for mandatory notification to the PCC of any
merger or acquisition within thirty (30) days of signing any definitive agreement relating to the transaction,
where the value of such transaction exceeds ₱2.2 billion, and where the size of the ultimate parent entity
of either party ₱5.6 billion. The parties may not consummate the transaction prior to receiving PCC approval
or the lapse of the period stated in the Merger Rules. A merger or acquisition that meets the thresholds
under the Merger Rules but was not notified to the PCC, or notified but consummated, in whole or in part,
prior to the expiration of the waiting period, is considered void and will subject the parties, and will subject
the parties to a fine between one percent (1.00%) to five percent (5.00%) of the value of the transaction.
Criminal penalties for entities that enter into anti-competitive agreements, as defined, include: (a) a fine of
not less than ₱50 million but not more than ₱250 million; and (b) imprisonment for two to seven years for
directors and management personnel who knowingly and willfully participate in such criminal offenses.
Administrative fines of ₱100 million to ₱250 million may be imposed on entities found violating prohibitions
against anti-competitive agreements and abuse of dominant position. Treble damages may be imposed by
the PCC or the courts, as the case may be, where the violation involves the trade or movement of basic
necessities and prime commodities.

Given the usual volume of Ayala Land’s transactions, mergers or acquisitions undertaken by Ayala Land
would likely meet the notification threshold under the PCA and its Implementing Rules and Regulations
(“IRR”). The Issuer will comply with the requirements of the PCA and its IRR.

Successful development of Ayala Land’s projects is dependent on various factors

There is no certainty that Ayala Land’s current and future projects will be implemented as planned and
within the projected timetable. Real estate developments are subject to risks such as delays in obtaining
financing and/or finalizing project plans and/or obtaining approvals, increases in construction costs, natural
calamities and/or market downturns hereinafter described. Ayala Land’s future financial performance may
be significantly affected by factors that limit its ability to finance and complete its current and future projects
in a timely and cost-effective manner and to market them successfully.

Ayala Land continually looks for growth opportunities in different market segments and geographic areas
in order that any negative impact on a particular market segment or geographic area by reason of political,
economic or other factors will allow it to pursue its projects or other developments not affected thereby,
thus, providing it with a steady revenue base.

Ayala Land’s business is affected by regulation in the Philippines

Ayala Land operates a material part of its businesses in a regulated environment. Ayala Land is subject to
numerous environmental laws and regulations relating to the protection of the environment and human
health and safety. These include laws and regulations governing air emissions, water and wastewater
discharges, odor emissions and the management and disposal of, and exposure to, hazardous materials.

Ayala Land cannot predict what environmental or health and safety legislation or regulations will be
amended or enacted in the future; how existing or future laws or regulations will be enforced, administered
or interpreted; or the amount of future expenditures that may be required to comply with these
environmental or health and safety laws or regulations or to respond to environmental claims.

The Housing and Land Use Regulatory Board (“HLURB”) Resolution No. 926, or the “Revised Implementing
Rules and Regulations to Govern the Time of Completion of Subdivision and Condominium Projects under

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P.D. No. 957”, was recently promulgated to narrow the grounds to grant additional time to complete a given
project. Ayala Land endeavors to complete its projects within the time granted by HLURB in the Licenses
to Sell of the projects.

Ayala Land, through its construction and property management arms, keeps itself abreast of the latest
technologies that enable it to implement existing sanitation, environment and safety laws and regulations
at cost-efficient means, a strategy which has earned Ayala Land awards from several local and international
organizations.

Moreover, through its wholly-owned MDC, Ayala Land is able to rely upon forty-one (41) years of experience
in engineering, and an array of construction-related services including construction management,
procurement and construction equipment management for the timely delivery of its various projects in
accordance with safety and quality specifications.

Operational and Physical Risk Factors in Ayala Land’s Business

Just like any other business, Ayala Land is not exempt from the various risks associated with property
development and operational management. It is however cognizant of the fact that a thorough
understanding of risks, its complexities and continuous improvement in design and business operations is
key to better abatement of risks and ensuring leadership in the industry.

Since the inception of ALI’s risk management program, its Management has consistently emphasized the
need for a higher level of safety and security awareness and diligence to ensure customers have pleasant
experiences in our shopping centers and other managed properties and estates.

The importance of adequate and effective maintenance practices and procedures is always advocated to
prevent serious and unscheduled operational losses such as equipment breakdown and to maintain quality
standards in our owned and managed properties. In 2016, the year-end equipment uptime for all managed
properties is at 99.41% versus an internal target of 99%. Vendor performance evaluation of contracted
services and customer feedback ratings of 93%, was also well within the 80% thresholds.

Product and service quality and safety risks are also relatively high in ongoing construction projects from
safety-related incidents up to quality or workmanship issues. In 2017, ALI achieved a 0.1 Total Disabling
Injury Rate (TDIR) on 193 million total man-hours worked, a significant improvement from previous years
and better than comparable international construction companies. Likewise, it has attained a 92% Safety
Maturity & Engagement, a rating that is higher than global norms, based on Employee Health and Safety
survey conducted by Towers Watson. This is made possible through the strengthened controls and
mitigation activities being employed by the Company.

Among such controls are (1) adequate supervision and safety inspections for all critical and hazardous
activities (2) ensuring that workers are provided with pre-activity trainings on safety before any construction
work can commence (3) empowering the Safety Officers to declare work stoppage and to override project
managers if they see that things are not being done in accordance with ALI’s safety standards and practices
(4) stricter monitoring of all EHS permits and licenses for all projects and (5) engagement of MDC for project
supervision even for projects that are sub-contracted to third parties.

On May 31, 2013 an explosion occurred inside a residential unit in Section B, Two Serendra. Two Serendra
is a district of Serendra, a condominium development of Serendra, Inc., a subsidiary of Ayala Land. It is
located at the Bonifacio Global City in Taguig City. The incident claimed the lives of four persons, including
the occupant of the unit in Section B. Initial reports indicate that the explosion may have resulted from an
improper accumulation of gas inside the unit. A government inter agency task force investigated the incident
and its findings, that the explosion was caused by an accumulation of gas inside the unit due to the lack of
care by the unit renovation contractor, and the parties possibly responsible, is pending review by the DOJ.

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Ayala Land’s subsidiary, Ayala Property Management Corporation, as the property manager of Serendra,
provided support and assistance to the Serendra Condominium Corporation, the affected parties and the
investigating units of government.

Natural catastrophes may affect Ayala Land’s businesses adversely

The Philippines has experienced a number of major natural catastrophes in recent years, including
typhoons, volcanic eruptions, earthquakes, mudslides, and droughts. Natural catastrophes may disrupt the
Company’s ability to deliver its services and impair the economic conditions in the affected areas, as well
as the overall Philippine economy. Furthermore, there is growing political and scientific consensus that
emissions of greenhouse gases continue to alter the global atmosphere in ways that are affecting the global
climate. These effects may include changes in temperature levels which may in turn bring about changes
in weather patterns (including storm frequency and intensities, drought and rainfall levels), and ultimately,
changes that may negatively affect global water and food security. The occurrence of such natural
catastrophes exacerbated by climate change, and the annual variation in weather conditions may materially
disrupt and adversely affect, in varying degrees geographically, the business operations, financial condition
and results of operations of Ayala Land.

To mitigate the risk of changing environmental and site conditions, and as part of a more thorough due
diligence process, all land acquisitions and project launches undergo a thorough technical due diligence
process and environmental scanning to identify all other potential risks that the Company may be exposed
to. These technical due diligence reports include, but are not limited to, environmental studies not just for
the specific land parcels but for adjacent areas, as well. ALI has established 24/7 Operation Centers all
throughout the country that continuously monitor and track weather situations to facilitate early mitigation
and quick response during typhoons, flood incidents, earthquakes and other natural or manmade disasters.

To protect the company assets and to ensure cost recovery for property damages other losses during these
disasters, ALI maintains comprehensive insurance against catastrophic perils including but not limited to
earthquake, typhoon and flood to cover its various developments against physical damage and business
interruption based on declared values in each location and on probable maximum loss scenarios. Despite
the series of natural disasters that befell the country in 2014 and 2013, including super typhoon Yolanda
which caused massive destruction in the Visayan provinces as well as the Bohol earthquake in 2013, there
have been no significant impact to ALI’s business as proper mitigating measures have been put in place,
such as but not limited to, engineering interventions and insurance.

In 2016, a major review of ALI’s major business lines was conducted to identify the most critical business
activities and the potential business impact on the business unit should these activities be interrupted over
varying timeframes. This information is critical in helping ALI determine the timeframes within which critical
business activities must be resumed following a disruption, as well as the resources required for business
continuity.

The prospects of Ayala Land may be influenced by political and economic factors in the Philippines

The growth and profitability of Ayala Land will be influenced by the general political situation in, and the
state of the economy of, the Philippines. Any political or economic instability in the future may have a
negative effect on the financial results of Ayala Land and the level of dividends paid and distributions made
by Ayala Land’s subsidiaries.

Currently, ALI continues to enjoy healthy national and local government relationships in both Metro Manila
and provincial growth centers. Maintaining positive and supportive relations with government entities and
regulators as well as sound corporate governance practices and strict compliance to internal policies and
procedures, enabled the company to manage this risk at acceptable levels.

As we expand to new growth areas, there is an increased need to cultivate relationships with local
government entities within these areas and one way to gauge positive relationship with local government
is the processing of critical permits. At present, we are well within our acceptable thresholds and timelines

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however, ALI is still taking further steps in making permit-related improvements such as (a) more rigorous
monitoring of permit renewals and deadlines to avoid payment delays and penalties and (b) the continuous
review of permit processes to ensure permits are processed and released within acceptable time frame
thereby helping in preventing serious project delays.

Working Capital

Ayala Land finances its working capital requirements through a combination of internally-generated
cash, pre-selling, joint ventures agreements, borrowings and issuance of bond proceeds from the sale
of non- core asset.

Regulatory

Real Estate Laws

Regulation of Real Estate Development in the Philippines

Presidential Decree No. 957, as amended, Republic Act No. 4726, as amended, Batas Pambansa Bilang
220, Republic Act No. 4726 and Republic Act No. 7279, as amended, are the principal statutes which
regulate the development and sale of real property as part of a condominium project or subdivision.
Presidential Decree No. 957 covers subdivision projects and all areas included therein for residential,
commercial, industrial and recreational purposes, and condominium projects for residential or commercial
purposes. The HLURB is the administrative agency of the Government which enforces this decree and has
jurisdiction to regulate the real estate trade and business.
In this regard, all subdivision plans and condominium project plans of ALI are required to be filed with and
approved by the HLURB and the relevant Local Government Units (“LGU”) of the area where the project is
situated. Approval of such plans is conditional on, among other things, ALI’s financial, technical and
administrative capabilities. Alterations of approved plans which affect significant areas of the project, such
as infrastructure and public facilities, also require the prior approval of the relevant local government unit.
ALI, as owner of and dealer in real estate projects, is required to obtain licenses to sell (“LTS”) before
making sales or other dispositions of lots or real estate projects.

Subdivision or condominium units may be sold or offered for sale only after an LTS has been issued by the
HLURB. As a requisite for the issuance of an LTS by the HLURB, developers are required to file with the
HLURB security (in the form of a surety bond, mortgage, or any other form of security) to guarantee the
completion of the development and compliance with the applicable laws, rules and regulations:
Dealers, brokers and salesmen of real estate projects of ALI are also required to register with the Philippine
Regulatory Commission. Project permits and licenses to sell may be suspended, cancelled or revoked by
the HLURB by itself or upon complaint from an interested party. A license or permit to sell may only be
suspended, cancelled or revoked after a notice to the developer has been served and all parties have been
given an opportunity to be heard in compliance with the HLURB’s rules of procedure and other applicable
laws. ALI has been able to maintain these permits and licenses.
Under current regulations, ALI as developer of subdivision projects having an area of one hectare or more
is required to reserve at least 30% of the gross land area of such subdivision for open space for common
uses, which include roads and recreational facilities. ALI, as a developer of subdivision projects with 20
lots and below per hectare, is required to reserve at least 3.5% of the gross project area for parks or
playgrounds. ALI has been compliant with these requirements.
Under the agrarian reform law and the regulations issued thereunder by the Department of Agrarian Reform
(“DAR”), land classified for agricultural purposes as of or after June 15, 1988, cannot be converted to non-
agricultural use without the prior approval of DAR. Republic Act No. 9700, the law extending the term of the
comprehensive agrarian reform program for another five (5) years, was signed by President Arroyo on
August 7, 2009, and expired on June 30, 2014. Prior to undertaking any development of agricultural lands,
ALI obtains the necessary permits from the relevant government agencies.

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While the 1987 Philippine Constitution prohibits foreigners from owning land, there is generally no
prohibition against foreigners owning buildings and other permanent structures. However, with respect to
condominium developments, the foreign ownership of units in such developments is limited to 40%. To the
extent of the foregoing, ALI’s foreign market for real estate projects is limited.

Republic Act No. 7279 requires developers of proposed subdivision projects to develop an area for
socialized housing equivalent to at least 20% of the total subdivision area or total subdivision project cost,
at the option of the developer, within the same city or municipality, whenever feasible, and in accordance
with the standards set by the HLURB. ALI has been compliant with this requirement in accordance with the
rules and regulations implementing Republic Act No. 7279.

Construction

The construction industry in the Philippines is subject to regulation by the Government as described below.

Licenses. A regular contractor's license is required to be obtained from the Philippine Contractors
Accreditation Board (“PCAB”). In granting such license, the PCAB takes into consideration the applicant-
contractor's qualifications and compliance with certain minimum requirements in the following criteria: (a)
financial capacity, (b) equipment capacity, (c) experience of firm, and (d) experience of technical personnel.
Philippine laws also require a contractor to secure construction permits and environmental clearances from
appropriate Government agencies prior to actually undertaking each project. MDC is duly accredited by the
PCAB as a licensed contractor and maintains all required qualifications in compliance with the PCAB’s
requirements.

Minimum Philippine Ownership Requirement. Under Philippine law, in order to bid on publicly funded
Government contracts, a contractor must be at least 75%-owned by Philippine nationals. In this connection,
Ayala Land has maintained at least 60% ownership by Philippine nationals. As of June 30, 2019, Ayala
Land’s foreign ownership is at 23.54%.

Property Laws

Land Registration

The Philippines has adopted a system of land registration which conclusively confirms land ownership
which is binding on all persons, including the Government. Once registered, title to registered land can no
longer be challenged except with respect to claims annotated on the certificate of title. Title to registered
lands cannot be lost through adverse possession or prescription.

Unregistered land may be brought under the system if, after proper surveying, application, publication,
service of notice and hearing, the Regional Trial Court (“RTC”) within whose jurisdiction the land is situated
confirms title to the land. Persons opposing the registration may appeal the judgment within 15 days to the
Court of Appeals (“CA”). After the lapse of the period of appeal, the Registry of Deeds may issue an Original
Certificate of Title. The decree of registration may be annulled on the ground of actual fraud within one year
from the date of entry of the decree of registration.

Any subsequent transfer or encumbrance of the land must be registered in the system in order to bind third
persons. Subsequent registration and issuance of a new title in the name of the transferee will be granted
upon presentation of certain documents and payment of fees and taxes.

In accordance with the said system of land registration, ALI ensures that all properties held or developed
are properly covered by valid and subsisting certificates of title.

Zoning

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Land use may be limited by zoning ordinances enacted by provinces, cities or municipalities. Once enacted,
land use may be restricted in accordance with a comprehensive land use plan approved by the relevant
local government unit. Lands may be classified under zoning ordinances as commercial, industrial,
residential or agricultural. All developments of ALI comply with the applicable zoning classification.

Subdivisions and Condominiums

All subdivision lots and condominium plans for residential, commercial, industrial and other development
projects are subject to approval by the local government unit in which the project is situated. The
development of subdivision lots and condominium projects can commence only after the local government
unit has issued the development permit.

Subdivision lots or condominium units may be sold or offered for sale only after a license to sell has been
issued by the HLURB. The license to sell may be issued only against a performance bond posted to
guarantee the completion of the construction of the subdivision lot or condominium project and compliance
with applicable laws and regulations. All documents evidencing conveyances of subdivision and
condominium units should be registered with the relevant Registry of Deeds.

Title to the subdivision lot or condominium unit must be delivered to the purchaser upon full payment of the
purchase price.

The foregoing permits, licenses and approvals are secured by ALI for its subdivision and condominium
developments.

Special Economic Zone

The Philippine Economic Zone Authority (“PEZA”) is a government corporation that operates, administers
and manages Ecozones around the country. Ecozones, which are generally created by proclamation of the
President of the Philippines, are areas earmarked by the Government for development into balanced
agricultural, industrial, commercial, and tourist/recreational regions.

An Ecozone may contain any or all of the following: industrial estates, export processing zones, free trade
zones, and tourist/recreational centers. PEZA-registered enterprises located in an Ecozone are entitled to
fiscal and non-fiscal incentives such as income tax holidays and duty-free importation of equipment,
machinery and raw materials.

Enterprises offering IT services (such as call centers and other BPO firms using electronic commerce) are
entitled to fiscal and non-fiscal incentives if they are PEZA-registered locators in a PEZA-registered IT Park,
IT Building, or Ecozone. An IT Park is an area which has been developed into a complex capable of
providing infrastructures and other support facilities required by IT enterprises, as well as amenities
required by professionals and workers involved in IT enterprises, or easy access to such amenities. An IT
Building is an edifice, a portion or the whole of which provides such infrastructure, facilities and amenities.

PEZA requirements for the registration of an IT Park or IT Building differ depending on whether it is located
in or outside Metro Manila. These PEZA requirements include clearances or certifications issued by the
city or municipal legislative council, the DAR, the National Water Resources Board, and the Department of
Environment and Natural Resources (“DENR”).
Certain of ALI’s properties are registered with PEZA, and this provides significant benefits to ALI’s tenants.
PEZA registration provides significant tax incentives to those of ALI’s customers that are PEZA-registered
(they can, for example, avail themselves of income tax incentives such as income tax holidays or a 5.0%
gross income taxation), thereby making tenancy in ALI’s PEZA-registered buildings potentially more
attractive to them.

Property Taxation

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Real property taxes are payable annually based on the property's assessed value. Assessed values are
determined by applying the assessment levels (set by ordinances of the concerned Sanggunian) against
the fair market values of real property. The assessed value of property and improvements vary depending
on the location, use and the nature of the property. Land is ordinarily assessed at 20% to 50% of its fair
market value; buildings may be assessed at up to 80% of their fair market value; and machinery may be
assessed at 40% to 80% of its fair market value. Real property taxes may not exceed 2% of the assessed
value in municipalities and cities within Metro Manila or in other chartered cities and 1% in all other areas.

A province or city, or a municipality within Metro Manila may also levy and collect an annual tax of one
percent (1%) on the assessed value of real property which shall be in addition to the basic real property tax
to accrue exclusively to the Special Education Fund of the local government unit where the property is
located. ALI promptly pays the real estate taxes and assessments on the properties it owns.

Real Estate Sales on Installments

The provisions of Republic Act No. 6552, or the Maceda Law apply to all transactions or contracts involving
the sale or financing of real estate on instalment payments (including residential condominium units but
excluding industrial lots and commercial buildings and sales to tenants under Republic Act 3844). Under
the provisions of the Maceda Law, where a buyer of real estate has paid at least two years of instalments,
the buyer is entitled to the following rights in case of a default in the payment of succeeding instalments:

• To pay, without additional interest, the unpaid instalments due within the total grace period
earned by him, which is fixed at the rate of one month for every one year of instalment payments
made. However, this right may be exercised by the buyer only once every five years during the
term of the contract and its extensions, if any.

• If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to 50% of the total payments made, and in cases where
five years of instalments have been paid, an additional 5% every year (but with a total not to
exceed 90% of the total payments). However, the actual cancellation of the contract shall take
place after thirty days from receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon full payment of the cash surrender value to
the buyer.

In the event that the buyer has paid less than two years of installments, the seller shall give the buyer a
grace period of not less than 60 days from the date the installment became due. If the buyer fails to pay the
installments due at the expiration of the grace period, the seller may cancel the contract after 30 days from
receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial
act.
Shopping Malls

Shopping mall centers are regulated by the LGU of the city or municipality where the establishment is
located. In line with this, mall operators must secure the required mayor’s permit or municipal license before
operating. In addition, no mall shall be made operational without complying first with the provisions of
Republic Act No. 9514, otherwise known as the “Fire Code” and other applicable local ordinances.
Furthermore, shopping malls with food establishments must obtain a sanitary permit from the Department
of Health (“DOH”). It is also compulsory for shopping malls discharging commercial wastewater to apply for
a wastewater discharge permit from the DENR and to pay the fee incidental to the permit.

Nationality Restrictions

Please refer to “Regulatory Framework – Nationality Restrictions” on page [•] of this Prospectus.
Environmental Laws

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Please refer to “Regulatory Framework – Environmental Laws” on page [•] of this Prospectus.

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FINANCIAL SERVICES

BPI’s highlights of balance sheets and income statements are shown below:

Balance Sheets
(In Million Pesos)

June 2019 December 2018

Total Resources 2,134,745 2,085,228

Total Liabilities 1,871,603 1,833,690

Capital Funds Attributable to Equity Holders of BPI 259,877 248,521
Capital Funds Attributable to the Noncontrolling Interest 3,265 3,017

Total Liabilities and Capital Funds 2,134,745 2,085,228

Statements of Income
(In Million Pesos, except Per Share figures)

June 30, 2019 June 30, 2018

Interest Income 50,503 36,948

Other Income 13,540 11,147
Total Revenues 64,043 48,095

Operating Expenses 24,277 21,220

Interest Expense 18,141 10,875
Impairment Losses 3,482 1,913
Provision for Income Tax 4,280 2,967
Total Expenses 50,180 36,975

Net Income for the Period 13,863 11,120

Attributable to:
Equity Holders of BPI 13,737 11,026
Noncontrolling Interest 126 94
13,863 11,120

EPS 3.05 2.45

Business Development

BPI is the Philippines’ third largest banking institution in terms of total assets and equity capital, and is
among the highest in the industry in terms of market capitalization. The bank is licensed by the BSP to
provide universal banking services and has a significant share of total banking system deposits, loans,
and investment assets under management. It is recognized as one of the country’s top providers of cross-
border remittances, life and non-life bancassurance services, as well as asset finance and leasing. BPI
also has a significant capital markets presence, particularly in fixed income and equities underwriting,
distribution and brokerage. It is a significant provider of foreign exchange to both retail and corporate

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clients. BPIalso has the country’s second largest branch network. It is a leader and innovator in the use of
automated branch processes as well as in the use of electronic channels. The bank operates the country’s
second largest ATM network and is also a major provider of financial services through internet banking,
mobile banking, and phone banking.

Historical Background

Founded in 1851, BPI was the first bank formed in the Philippines and was the issuer of the country’s
first currency notes in 1855. It opened its first branch in Iloilo in 1897 and pioneered in sugar crop
loans. It also financed the first tram service, telephone system, and electric power utility in Manila and
the first steamship in the country. As such, BPI and its “escudo” ranks as one of the largest home-
grown Philippine brands and carries an extensive legacy.

Recent History

For many years after its founding, BPI was the only domestic commercial bank in the Philippines. BPI’s
business was largely focused on deposit taking and extending credit to exporters and local traders of
raw materials and commodities, such as sugar, tobacco, coffee, and indigo, as well as funding public
infrastructure. In keeping with the regulatory model set by the Glass Steagall Act of 1932, BPI operated
for many years as a private commercial bank. In the early 1980s, the Monetary Board of the Central
Bank of the Philippines (now the BSP) allowed BPI to evolve into a fully diversified universal bank, with
activities encompassing traditional commercial banking as well as investment and consumer banking.
This transformation into a universal bank was accomplished through both organic growth and mergers
and acquisitions, with BPI absorbing an investment house, a stock brokerage, a leasing company, a
savings bank, a retail finance company, and bancassurance platforms.

BPI consummated three bank mergers since the late 1990s. In 1996, it merged with City Trust Banking
Corp., the retail banking arm of Citibank in the Philippines, which enhanced its franchise in consumer
banking. In 2000, BPI acquired Far East Bank & Trust Company, then the largest banking merger in
the Philippines. This merger established BPI’s dominance in asset management & trust services and
branch banking; furthermore, it enhanced BPI’s penetration of middle market clients. In 2000, BPI also
formalized its acquisition of three major insurance companies in the life, non-life and reinsurance fields.
In 2005, BPI acquired and merged with Prudential Bank, a medium sized bank with a clientele of middle
market entrepreneurs.

In March 2011, BPI became the first bank in the Philippines to acquire the trust business of a foreign
bank when it purchased the trust and investment management business of ING Bank N.V. Manila.

In December 2014, BPI completed a strategic partnership with Century Tokyo Leasing Corp., one of
the largest leasing companies in Japan, to form BPI Century Tokyo Lease & Finance Corp., with BPI
retaining 51% of ownership. This strategic partnership is expected to help BPI innovate in asset
financing products and enhance the service experience of an expanding base of Philippine consumers
and corporations seeking asset leasing and rental solutions.

On August 2015, BPI completed another strategic partnership with Global Payments Inc. (“GPN”), an
Atlanta-based, NYSE-listed provider of international payment services. By combining its merchant
acquiring network with that of GPN, BPI stands to provide enhanced services to its card customers, as
well as to its merchant clients. The partnership with GPN remained 49% owned by BPI.

BPI evolved to its present position as a leader in Philippine banking through a continuous process of
improving its array of products and services, while maintaining a balanced and diversified risk profile
that helped reinforce the stability of its earnings.

Business Milestones (2014-2018)

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On August 2016, BPI acquired a 10% minority stake in Rizal Bank Inc., a member institution of Center
for Agriculture and Rural Development Mutually Reinforcing Institutions (CARD MRI), a group of social
development organizations that specialize in microfinance.

Effective September 20, 2016, BPI has taken full control over BPI Globe BanKO, Inc. after acquiring
the 20% and 40% stake of Ayala and Globe, respectively. On December 29, 2016, the SEC approved
change of the corporate name to BPI Direct BanKo, Inc., A Savings Bank (“BanKo”), after BPI Direct
absorbed the entire assets and liabilities of BanKO.

Also, on December 29, 2016, BPI successfully spun off its BPI Asset Management and Trust Group
(BPI AMTG) to a Stand-Alone Trust Corporation named BPI Asset Management and Trust Corp. (“BPI
AMTC”). BPI AMTC officially commenced its operations on February 1, 2017.

Principal Subsidiaries.

The Bank’s principal subsidiaries are:

(1) BPI Family Savings Bank, Inc. (“BFSB”) is BPI’s flagship platform for retail lending, in
particular, housing, auto, and small business loans. It is also one of BPI’s primary
vehicles for retail deposits. BFSB was acquired by BPI in 1984;

(2) BPI Capital is an investment house focused on corporate finance and the underwriting,
distribution, and trading of debt and equity securities. It began operations in December
1994. BPI Cap wholly owns BPI Securities Corp., a stock brokerage;

(3) BPI Direct BanKo, Inc., A Savings Bank, serves microfinance customers through
branch, electronic, and partnership channels. Founded in February 2000 as BPI Globe
BanKO, it is now wholly-owned, following a September 2016 purchase of stakes owned
by Ayala (20%) and Globe Telecom, Inc. (40%) and a December 2016 merger with
BPI Direct Savings Bank, Inc.;

(4) BPI International Finance Limited (“BPI IFL”) is a deposit taking company in Hong
Kong. Originally established in August 1974, it provides deposit services as well as
client-directed sourcing services for international investments. On November 21, 2018
BPI IFL distributed its shares in BPI Remittance Centre Hong Kong Ltd. (“BERC HK”)
as a property dividend to the Parent Bank. BERC HK became an immediate subsidiary
of the Parent Bank following this. BERC HK is a Licensed Money Service Operator in
Hong Kong servicing the remittance services to beneficiaries residing throughout the
Philippines;

(5) BPI Europe Plc. (“BPI Europe”) commenced operations in the United Kingdom in May
2007 as a bank registered in England and Wales. It is a UK-licensed bank authorized
by the Prudential Regulation Authority, and regulated by the Prudential Regulation
Authority and the Financial Conduct Authority. It started its operations offering retail
deposit products and money services, servicing retail customers, primarily targeting
the Filipino community;

(6) BPI Century Tokyo Lease & Finance Corp. (“BPI CTL”) is a non-bank financial
institution (“NBFI”) that provides financing services pursuant to the Financing Company
Act. BPI CTL is a joint venture with Century Tokyo Leasing Corp., who purchased a
49% stake in 2014. BPI CTL wholly owns BPI Century Tokyo Rental Corp., which offers
operating leases;

(7) BPI/MS Insurance Corp. (“BPI MS”) is a non-life insurance company. It is a joint
venture with Mitsui Sumitomo Insurance Co. (who owns a 49% stake), and is the result

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of a merger of FGU Insurance Co. and FEB Mitsui Marine Insurance Co., which was
acquired as a subsidiary of Far East Bank in 2000;

(8) BPI AMTC is a Stand Alone Trust Corporation serving both individual and institutional
investors with a full suite of local and global investment solutions. BPI AMTC was
established after a Certificate of Authority to Operate was issued by the BSP on
December 29, 2016 and it started operations on February 1, 2017;

(9) BPI Investment Management Inc. (“BIMI”) is a wholly owned subsidiary of BPI and
serves as BPI’s manager and investment advisor to the ALFM mutual funds (which
comprise a number of open-end investment companies registered with, and regulated
by, the SEC). BIMI is also responsible for formulating and executing the funds’
investment strategies.

Principal Products & Services

BPI offers a wide range of corporate and retail banking products. BPI has two major categories for
products and services. The first category covers its core financial intermediation business, which
includes, deposit taking, lending, and securities investments. Revenue from this category is collectively
termed as net interest income and accounts for about 71% of net revenues. The second category
covers services ancillary to BPI’s financial intermediation business, and from which it derives
transaction-based commissions, service charges and other fees. These include investment banking
and corporate finance fees, asset management and trust fees, stock brokerage fees, credit card
membership fees, rental of bank assets, income from insurance subsidiaries and service charges or
commissions earned on international trade transactions, drafts, fund transfers, and various deposit-
related services. Commissions, service charges, and other fees, when combined with trading gains
and losses arising from BPI’s fixed income and foreign exchange operations, constitute non-interest
income, which accounts for the remaining 29% of net revenues.

Distribution Network

BPI had 861 branches across the country, including 10 kiosk branches, as of end June 2019. Kiosks
are branches much smaller than traditional full-service branches, but are fully equipped with terminals
allowing direct electronic access to product information and customers’ accounts, as well as processing
of self-service transactions. Kiosks serve as sales outlets in high foot traffic areas such as
supermarkets, shopping malls, transit stations, and large commercial establishments. Additionally,
there are 230 BanKo branches and Branch-Lite Units set up in strategic locations in the country.
Overseas, BPI has one (1) Hong Kong office (i.e., BPI IFL) and two (2) BPI Europe offices in London.

BPI maintains a specialized network of overseas offices to service Filipinos working abroad. To date,
BPI has three (3) Remittance Centers located in Hong Kong and two (2) representative offices located
in United Arab Emirates (“UAE”) and Japan. BPI also maintains remittance tie-up arrangements with
various foreign entities in several countries to widen its network in serving the needs of Filipinos
overseas.

On the lending side, there are 26 business centers, servicing both corporate and retail clients, across
the country to process loan applications, loan releases, and international trade transactions. These
centers also provide after-sales servicing of loan accounts.

BPI’s network has grown to a total of 3,015 terminals as of June 2019 of which 2,463 are ATMs and
552 are Cash Accept Machines (“CAMs”). This complements the branch network by providing cash
related banking services to customers at any place and time of the day. In addition, the interconnection
with Bancnet gives BPI cardholders access to over 21,000 ATMs across the country. BPI’s ATM
network is likewise interconnected with Mastercard, China Union Pay, Discover/Diners, JCB, and Visa.
Through the Bank’s extensive physical and digital networks, the Bank provides a broad range of value-

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added services to its clients, enhancing convenience and self-service capabilities, as well as greater
accessibility.

BPI’s retail digital platforms (BPI Online and BPI Mobile) provide clients a reliable, safe and intuitive
digital banking experience. This translates to an ultimate convenience through quick and paperless
transactions anytime, anywhere. Aside from the standard banking features (i.e., account inquiry, funds
transfer, bills payment), the digital platforms have introduced a new set of innovative features and
service. These include:

• Transfer via QR Code – making transferring money to unenrolled accounts as easy as

taking or uploading a photo;
• Expanded Reloading merchants – reloading to all telco networks is now available, as well
as other prepaid merchants like Meralco Kuryente Load and Cignal;
• Debit Card control - clients can now manage their purchase limits for POS transactions,
withdrawal limits, and temporarily or permanently block their debit cards on their own;
• Biometric login makes a safer and quicker way to login on the app;
• OTP as a primary security feature adds an extra layer of security to validate that
transactions are really done by the client; plus
• Transfer to other BPI accounts is now available on both the BPI web and app platforms.

BPI Phone Banking provides clients with 24/7 self-service banking facilities and a gateway to get live
support through BPI's Contact Center. Using any phone, customers can call 89-100 to inquire about
their account balances and latest transactions, transfer funds to other BPI accounts in real time and
pay for their various bills. Concerns and queries on any of BPI's products and services are addressed
by the highly-trained Phone Banking Specialists any time, any day.

Competition

Mergers, acquisitions and closures continued to reduce the number of players in the industry from a
high of 50 upon the liberalization of rules on the entry of foreign banks, down to 46 universal and
commercial banks in June 2019.

Lending by universal and commercial banks, excluding thrift banks, grew by 10.5% in June 2019 or 7.0
percentage points lower versus registered growth in June 2018. The top five industry performers were
construction, water supply, sewerage, waste management and remediation activities, financial and
insurance activities, arts, entertainment and recreation, and agriculture, forestry and fishing which grew
by 42.5%, 22.8%, 22.0%, 18.0% and 16.4%, respectively. Decent credit demands were also seen from
electricity, gas, steam and air-conditioning supply, real estate activities, education, human health and
social work activities, administrative and support service activities. Latest available data show
Consumer loans grew by 15.4% in March 2019 versus the prior year.

While the Philippine Economy slightly slowed down from the 6.7% growth recorded in 2017, it is
expected to beat its 2018 growth of 6.2% to at least 6.5% in 2019 on sustained investment inflows,
easing inflation and election driven spending. The Government’s big ticket infrastructure projects were
able to take off backed by the Comprehensive Tax Reform Program which also yielded to increased
purchasing power of the income earning populations. As of June 2019, 2Q GDP growth registered was
5.5%. The delayed passage of this year’s national budget constrained government spending which
lowered growth. On the other hand, the outlook on consumption continues to be robust.

As major banks raised capital in 2018, this enabled the financial sector to actively participate in private
and government activities and likewise earned enough capital buffer in the short- to medium-term. In
2018, the 2% reduction in reserve requirement also helped boost the sector’s lending capacity and
supported the capital market development. In 2019, there was a further reduction in the reserve
requirement by another 2%, as well as a 50-bp policy rate reduction, which will help ease system
liquidity tightness and allow for more growth.

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BPI on its part will continue to grow its corporate and consumer clients while giving focus on small and
medium size lending. The prioritization of small-and-medium-sized enterprises (“SMEs”) was
concretized by launching Business Bank in 2017. On microfinance, the Bank opened additional 100
BanKo branches and ended 2018 at 200. As of June 2019, BanKo branches reached 230.

Based on required published statements by the BSP as of June 2019, BPI is the third largest bank
operating in the country in terms of assets, customer loans, deposits and capital. BPI ranks second in
terms of asset management and trust business. Total assets of BPI, based on PAS compliant audited
financial statements, are higher than the published statements prepared along BSP standards.

Patents, Trademarks, Licenses, Franchises, etc.

BPI sells its products and services through the BPI trademark and/or trade name. All its major financial
subsidiaries carry the BPI name prefix (e.g., BFSB, BPI Capital, BPI Securities, BPI Leasing, and
BanKo), and so do its major product and service lines.

Following are some of BPI’s trademarks for its products and services:

1. BPI Express Assist (BEA), for its branch queuing facility

2. BPI ATM, for its automated teller machine
3. BPI CAM, for its cash accept machine
4. BPI Debit and BPI Debit Cards, for its debit cards
5. Express Credit, BPI Credit and BPI Credit Cards, for its credit cards
6. Express Cash, My ePrepaid and BPI ePay, for its prepaid cards
7. BPI Express Phone, for its contact center facility
8. BPI Express Online, for its internet-based transaction platform for retail customers
9. BPI Mobile Banking, for its mobile banking facility
10. BPI ExpressLink/BizLink, for its internet-based transaction platform for corporate
customers
11. ExpressLink Mobile, for its mobile banking for corporate customers
12. Express Collect, for its corporate deposit-related services

At BFSB, the product trademarks include the BPI Family Housing Loan with Pay-break and Pay-hinga
variants, the BPI Family Auto Loan, and BPI Family Ka-Negosyo Business Loans (BPI Family Ka
Negosyo Credit Line, BPI Family Ka-Negosyo Franchising Loan and BPI Family Ka-Negosyo Term
Loan). Other product brands of BPI, BFSB and BanKo are Kaya Savings, Jumpstart, PondoKo Savings,
Maxi-One, Save-up, Advance Savings, Maxi-Saver, Pamana Savings Account, Pamana Padala,
Padala Moneyger, Ka-Negosyo Checking Account, Plan Ahead, the BPI Personal Loan and a loan
product specifically offered by BanKo, BanKo NegosyoKo.

All BPI’s trademark registrations are valid for 10 years with years of expiration varying from year 2018
to 2028. Trademarks intended to be used or maintained by BPI are so maintained and renewed in
accordance with applicable Intellectual Property laws and regulations. BPI closely monitors the expiry
and renewal dates of its trademarks to protect BPI’s brand equity.

In terms of business licenses, BPI has an expanded commercial banking license while BFSB and
BanKo have savings bank licenses. BPI Capital has an investment house license and is a registered
Government Securities Eligible Dealer with Broker Dealer of Securities and Mutual Fund Distributor.
BPI CTL has a finance company license. BPI AMTC has a trust license, securities custodian license
and is a PERA-accredited administrator while BIMI has an investment company adviser license, mutual
fund distributor license, and is a registered transfer agent. BPI MS was granted by the Insurance
Commission a Certificate of Authority to transact and sell non-life insurance products.

For foreign business licenses, BPI Europe has a UK banking license authorized by the Prudential
Regulation Authority. Meanwhile, BPI IFL is licensed by the Hong Kong Monetary Authority as a

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deposit-taking company. It was further granted by the Hong Kong Securities and Futures Commission
with licenses to engage in securities dealing and advising, and asset management.

Related Parties

In the ordinary course of business, BPI has entered into various transactions with its Directors, Officers,
Stockholders and their Related Interest (“DOSRI”), including loan transactions. BPI and all its
subsidiaries have always been in compliance with the General Banking Act, BSP Circulars and
regulations on DOSRI loans and transactions. As of June 30, 2019, DOSRI loans amounted to 0.75%
of loans and advances as per Note 13 of the June 2019 Unaudited Condensed Consolidated Interim
Financial Statements.

Regulatory

Republic Act No. 8791 (the “General Banking Law”) provides that the operations and activities of banks
are subject to the supervision of the BSP. Likewise, Republic Act No. 7653 (the “New Central Bank Act”),
which created the BSP, provides that the BSP shall have supervision over the operations of banks and
shall exercise such regulatory powers over the operations of finance companies and non-bank financial
institutions performing quasi-banking functions. The BSP exercises its powers through the Monetary
Board.

The supervisory power of the BSP under the New Central Bank Act extends to the subsidiaries and
affiliates of banks and quasi-banking institutions engaged in allied activities. A subsidiary is defined as
a corporation with more than 50% of its voting stock owned by a bank or quasi-bank. The New Central
Bank Act generally defines an affiliate as a corporation whose voting stock, to the extent of 50% or less,
is owned by a bank or quasi-bank or which is related or linked to such institution or intermediary through
common stockholders or such other factors as may be determined by the Monetary Board. In this regard,
the BSP Manual defines an affiliate as an entity linked directly or indirectly to a bank by means of: (a)
ownership, control (as defined under the relevant portion of the BSP Manual), or power to vote, of at
least twenty percent (20%) of the outstanding voting stock of the entity, or vice-versa; (b) interlocking
directorship or officership, where the concerned director or officer owns, controls (as defined under the
relevant portion of the BSP Manual), or has the power to vote of at least twenty percent (20%) of the
outstanding voting stock of the entity; (c) common stockholders owning at least ten percent (10%) of the
outstanding voting stock of the bank and at least twenty percent (20%) of the outstanding voting stock
of the entity; (d) management contract or any arrangement granting power to the bank to direct or cause
the direction of management and policies of the entity; and (e) permanent proxy or voting trusts in favour
of the bank constituting at least twenty percent (20%) of the outstanding voting stock of the entity, or
vice-versa.

Under the General Banking Law, the BSP, in the exercise of its supervisory powers, may: (a) issue
rules of conduct or standards of operation for uniform application; (b) conduct examination to determine
compliance with laws and regulations; (c) oversee compliance with such rules and regulations; and (d)
inquire into the solvency and liquidity of the covered entities. Furthermore, Section 7 of the General
Banking Law provides that the BSP, in examining a bank, shall have the authority to examine an
enterprise which is owned or majority-owned or controlled by a bank.

As a general rule, no restraining order or injunction may be issued by a court to enjoin the BSP from
exercising its powers to examine any institution subject to its supervision. The refusal of any officer,
owner, agent, manager, director or officer-in-charge of an institution subject to the supervision or
examination of the BSP to make a report or permit an examination is criminally punishable under Section
34 of the New Central Bank Act.

Furthermore, Republic Act No. 9160 or the Anti-Money Laundering Act of 2001, as amended (“AMLA”),
provides, among others, that banks must, in addition to the general laws such as the General Banking
Law and the AMLA, likewise comply with letters, circulars and memoranda issued by the BSP, some of
which are contained in the BSP Manual.

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The BSP Manual is the principal source of rules and regulations to be complied with and observed by
banks in the Philippines. The BSP Manual contains regulations that include those relating to the
organisation, management and administration, deposit and borrowing operat ions, loans, investments
and special financing program, and trust and other fiduciary functions of the relevant bank.
Supplementing the BSP Manual are rules and regulations promulgated in various circulars,
memoranda, letters and other directives issued by the Monetary Board.

All regulations pertaining to banks are then implemented by the Supervision and Examination Sector
(“SES”) of the BSP. The SES is responsible for ensuring the observance of applicable laws, rules and
regulations by banking institutions operating in the Philippines (including Government credit
institutions, their subsidiaries and affiliates, non-bank financial intermediaries, and subsidiaries and
affiliates of non-bank financial intermediaries performing quasi-banking functions, non-bank financial
intermediaries performing trust and other fiduciary activities under the General Banking Law, non -
stock and savings loans associations under Republic Act No. 3779 or the Savings and Loan
Association Act, and pawnshops under Presidential Decree No. 114 or the Pawnshop Regulation Act.

Regulation Relating to Capital Structure

Pursuant to the General Banking Law, no entity may operate as a bank without the permit of the BSP
through the Monetary Board. The SEC will not register the incorporation documents of any bank or any
amendments thereto without a certificate of authority issued by the Monetary Board.

A bank can only issue par value stocks and it must comply with the minimum capital requirements
prescribed by the Monetary Board. A bank cannot purchase or acquire its own capital stock or accept
the same as security for a loan, except when authorised by the Monetary Board. All treasury shares of
a bank must be sold within six months from the time of purchase or acquisition thereof.

Under the BSP Manual, universal banks are required to have capital accounts of at least ₱3 billion for a
bank with only a head office, ₱6 billion for a universal bank with up to 10 branches (inclusive of head
office), ₱15 billion for a universal bank with 11 to 100 branches (inclusive of head office), and ₱20 billion
for a universal bank with more than 100 branches (inclusive of head office). Banks that existed prior to
19 November 2014, which will not immediately meet the new minimum capital requirement, may avail
themselves of a five-year transition period in order to fully comply with the minimum capitalisation
requirements. The same period, reckoned from the same date, is also given to banks granted with
special banking authorities/licenses which require compliance with minimum capital requirements.
These minimum levels of capitalisation may be changed by the Monetary Board from time to time.

For purposes of these requirements, the BSP Manual states that the term “capital” shall be synonymous
to unimpaired capital and surplus, combined capital accounts and net worth and shall refer to the total
of the unimpaired paid-in capital, surplus and undivided profits, less:

(a) Treasury stock;

(b) unbooked allowance for probable losses (including allowance for credit losses and impairment
losses) and other capital adjustments as may be required by the BSP;

(c) total outstanding unsecured credit accommodations, both direct and indirect, to DOSRI granted
by the bank;

(d) total outstanding unsecured loans, other credit accommodations and guarantees granted to
subsidiaries;

(e) total outstanding unsecured loans, other credit accommodations and guarantees granted to
related parties that are not at an arm's length terms;

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(f) deferred tax assets that rely on future profitability of the bank to be realized net of any (a)
allowance for impairment and (b) associated deferred tax liability if the conditions cited in PAS
12 on income taxes are met; and

(g) reciprocal investment in equity in another bank or enterprises, whether foreign or domestic, if
the other bank or enterprise has a reciprocal equity investment in the investing bank, the
deduction shall be investment of the bank or the reciprocal investment of the other bank or
enterprises, whichever is lower.

According to BSP Circular No. 1027 dated December 28, 2018, deposits for stock subscription
recognized as equity pursuant to Section X128 of the Manual shall be added to capital.

Under Republic Act No. 10641 or “An Act Allowing the Full Entry of Foreign Banks in the Philippines,
Amending for the Purpose Republic Act No. 7721” (“RA 10641”), established, reputable and financially
sound foreign banks may be authorised by the Monetary Board to operate in the Philippine banking
system though any one of the following modes of entry: (a) by acquiring, purchasing or owning up to
one hundred percent (100%) of the voting stock of an existing bank; (b) by investing in up to one hundred
percent (100%) of the voting stock of a new banking subsidiary incorporated under the laws of the
Philippines; or (c) by establishing branches with full banking authority. The foreign bank applicant must
be established, reputable and financially sound. Additionally, such foreign bank must be widely-owned
and publicly-listed in its country of origin, unless the foreign bank applicant is owned and controlled by
the government of its country of origin. A foreign bank branch authorised to do banking business in the
Philippines under RA 10641 may open up to five sub-branches as may be approved by the Monetary
Board. On the other hand, locally incorporated subsidiaries of foreign banks authorised to do banking
business in the Philippines under RA 10641 shall have the same branching privileges as domestic banks
of the same category.

Stockholdings of family groups or related interests in banks are also regulated. Under the General
Banking Law, the stockholders of individuals related to each other within the fourth degree of
consanguinity or affinity, whether legitimate, illegitimate or common-law, shall be considered family
groups or related interests and must be fully disclosed in all transactions by such an individual with the
bank. Moreover, two or more corporations owned or controlled by the same family group or same group
of persons shall be considered related interests, which must be fully disclosed in all transactions with
the bank.

A bank cannot declare dividends greater than its accumulated net profits on hand deducting therefrom
its losses and bad debts. A bank cannot also declare dividends if at the time of declaration:

(a) its clearing account with the BSP is overdrawn;

(b) it is deficient in the required liquidity floor requirement for government funds;

(c) it is not compliant with the minimum capitalisation requirement and risk-based capital ratios as
provided under applicable and existing capital adequacy framework;

(d) it is not compliant with the combined requirement for capital conservation buffer requirement
and Countercyclical Capital Buffer (“CCyB”) as defined in Appendix 63b, Part III of the BSP
Manual;

(e) it is not compliant with the higher loss absorbency (“HLA”) requirement, phased-in starting 1
January 2017 with full implementation by 1 January 2019, in accordance with the Domestic
Systemically Important Bank (“DSIB”) framework as provided under Subsec.X115.5 of the BSP
Manual; or

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(f) it has committed any unsafe or unsound banking practice as defined under existing regulations
and/or major acts or omissions as determined by the BSP to be grounds for suspension of
dividend distribution, unless this has been addressed by the bank as confirmed by the Monetary
Board or the Deputy Governor of the SES.

Banks are required to ensure compliance with the minimum capital requirements and risk-based capital
ratios even after the dividend distribution.

Regulations with Respect to Management of Banks

The board of directors of a bank must have at least five and a maximum of 15 members. According to
the Revised Corporation Code, the board of banks and quasi-banks must have independent directors
comprising at least 20% of such board. In case of merged or consolidated banks, the number of directors
shall not exceed 21. An independent director is a person who is not an officer or employee of a bank, its
subsidiaries or affiliate or related interests. Foreigners are allowed to have board seats to the extent of
the foreign equity in the bank.

The Monetary Board shall issue regulations that provide for the qualifications and disqualifications to
become a director or officer of a bank. After due notice to the board of directors of a bank, the Monetary
Board may disqualify, suspend or remove any bank director or officer who commits or omits to perform
an act which renders him unfit for the position.

The Monetary Board may regulate the payment by the bank of compensation, allowances, bonus, fees,
stock options and fringe benefits to the bank officers and directors only in exceptional cases such as
when a bank is under conservatorship, or is found by the Monetary Board to be conducting business in
an unsafe or unsound manner or when the Monetary Board deems it to be in unsatisfactory condition.

Regulations with Respect to Bank Operations

A universal bank, such as BPI, may open branches or offices within or outside the Philippine subject to
the prior approval by the BSP. A bank and its branches and offices shall be treated as one unit. A bank,
with prior approval of the BSP, may likewise use any of its branches as outlets for the presentation
and/or sale of financial products of its allied undertakings or investment house units.

The Monetary Board shall prescribe the minimum ratio which the net worth of a bank must bear to its
total risk assets which may include contingent accounts. In connection thereto, the Monetary Board may
require that the ratio be determined on the basis of the net worth and risk assets of a bank, its
subsidiaries, financial or otherwise, and prescribe the composition and the manner of determining the
net worth and total risk assets of such bank and its subsidiaries. To ensure compliance with the set
minimum ratio, the Monetary Board may limit or prohibit the distribution of net profits by such bank and
require that such net profit be used to increase the capital accounts of the bank until the minimum
requirement has been met. It may also restrict or prohibit acquisition of major assets and the making of
new investments by the bank.

A universal bank has the authority to exercise and perform: (a) activities allowed for commercial banks;
(b) powers of an investment house; and (c) investment in non-allied enterprises.

Capital Adequacy Requirements and Reserve Requirements

In July 2001, the Philippines adopted capital requirements based on the Basel Capital Accord. BSP
Circular No. 538, which took effect on July 1, 2007, serves as the implementing guideline of the revised
International Convergence of Capital Measurement and Capital Standards known as Basel II.

In December 2010, a new update to the Basel Accords, known as Basel III, was issued by the Basel
Committee on Banking Supervision (the “Basel Committee”) containing new standards that modify the
structure of regulatory capital. The Basel III regulations include tighter definitions of Tier 1 capital and

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Tier 2 capital, the introduction of a leverage ratio, changes in the risk weighting of counterparty credit
risk, a framework for counter-cyclical capital buffers and short and medium-term quantitative liquidity
ratios. To align with international standards, the BSP issued BSP Circular No. 709 effective January 1,
2011, which adopted part of the Basel Committee’s eligibility criteria to determine eligibility of capital
instruments to be issued by Philippine banks and quasi-banks as Hybrid Tier 1 capital and Tier 2 capital.

In January 2012, the BSP announced that the Philippine’s universal and commercial banks, including
their subsidiary banks and quasi-banks, were required to adopt in full the capital adequacy standards
under Basel III which took effect from January 1, 2014. It aims to replace Basel II, further strengthen the
local bank’s loss absorption capacity and encourage banks to rely more on core capital instruments like
Common Equity Tier 1 and Tier 1 issues.

BSP Memorandum No. M2012-002 outlines BSP’s proposed new minimum ratios and conservation
buffers. The revised risk-based capital adequacy framework (which will also cover risk measurement
enhancement and provisions concerning the use of third-party credit assessment agencies) took effect
on January 1, 2014. In March 2012, the BSP also circulated a discussion paper providing draft guidelines
for Basel III implementation in the Philippines starting January 1, 2014. Philippine banks were invited to
comment on the discussion paper until June 2012, after which the BSP finalised the guidelines for Basel
III in the Philippines. Notable provisions include: (a) new categorisation of the capital base with Tier 1
being composed of Common Equity Tier 1 (“CET1”) capital and Additional Tier 1 (AT1) capital and
elimination of the subcategories of Tier 2 capital; (b) revised eligibility criteria for the different categories
of regulatory capital; (c) regulatory adjustments to be deducted from CET1 in a full deduction approach;
(d) higher minimum capital requirements; (e) loss absorbency of regulatory capital at the point of non-
viability; (f) introduction of a framework to promote the conservation of capital and the build-up of
adequate buffers above the minimum that can be drawn down in times of periods of stress; and (g)
additional disclosure requirements.

On September 21, 2012, BSP Circular No. 768 was issued, which provides, among others, that Hybrid
Tier 1 and Lower Tier 2 capital must have loss absorption features providing that the instrument would
be written off or converted into common equity upon the occurrence of a trigger event determined by the
BSP.

Local banks were allowed one full year of transitioning to the new guidelines prior to the effective date
of the new standards in 2014, marking an accelerated implementation compared to the Basel
Committee’s staggered timeline that stretches from January 2013 to January 2017. On January 15,
2013, the BSP issued the implementing guidelines for the adoption on 1 January 2014 of the revised
capital standards under Basel III for universal and commercial banks.

The guidelines set new regulatory ratios for banks to meet specific minimum thresholds for CET1 capital
and Tier 1 capital in addition to the Capital Adequacy Ratio (“CAR”). The BSP maintained the minimum
CAR at 10% and set a minimum CET1 ratio of 6% and a minimum Tier 1 capital ratio of 7.5%. The new
guidelines also introduced a capital conservation buffer of 2.5% which shall be made up of CET1 capital.
Under BSP Circular No. 1027 dated December 28, 2018, net due from head office, branches and
subsidiaries outside the Philippines, excluding accumulated net earnings shall be deducted from CET1
capital.

In addition, banks which issued capital instruments from 2011 were allowed to count these instruments
as Basel III-eligible until end of 2015. However, capital instruments that are not eligible in any of the
three components of capital were derecognised from the determination of the regulatory capital on
January 1, 2014.

Under the New Central Bank Act, the BSP requires banks to maintain cash reserves and liquid assets
in proportion to deposits in prescribed ratios. If a bank fails to meet this reserve during a particular week
on an average basis, it must pay a penalty to the BSP on the amount of any deficiency.

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Under BSP Circular 732 issued on August 3, 2011, as further amended by BSP Circular 753 issued on
March 29, 2012, BSP Circular 830 issued on April 3, 2014, BSP Circular 832 issued on May 27, 2014,
BSP Circular 997 issued on February 15, 2018, and BSP Circular 1004 issued on May 24, 2018,
universal and commercial banks are required to maintain regular reserves of: (a) 18% against demand
deposits, savings deposit, time deposit and deposit substitutes, Peso deposits lodged under due to
foreign banks, Peso deposits lodged under due to head office/branches/agencies abroad (Philippine
branch of a foreign bank); (b) 18% against negotiable order of withdrawal accounts; (c) 0% against
deposit substitutes evidenced by repossession agreements; (d) 4% against long-term negotiable
certificates of time deposits (“LTNCDs”) under Circular No. 304 issued on October 25, 2001, deposit
substitutes evidenced by repossession agreement; (e) 6% against bonds; and (f) 7% against LTNCDs
under Circular No. 842 issued on January 30, 2014. Pursuant to BSP Circular No. 1041 (Series of 2019),
the BSP reduced the rates of required reserves against deposit and deposit substitute liabilities for
universal and commercial banks commencing on reserve week May 31, 2019, as follows: (a) 17%
against demand deposits, savings deposits (excluding basic deposit accounts), time deposits and
deposit substitutes, negotiable certificates of time deposits (“CTDs”), long-term non-negotiable tax-
exempt CTDs, Peso deposits lodged under due to foreign banks, Peso deposits lodged under due to
head office/branches/agencies abroad (Philippine branch of a foreign bank); (b) 17% against negotiable
order of withdrawal (“NOW”) accounts; (c) 0% against deposit substitutes evidenced by repurchase
agreements; (d) 4% against LTNCDs; (e) 6% against bonds; and (f) 0% against basic deposit accounts
as defined under Section X222 of the Manuel of Regulations for Banks and for interbank call loan
transactions (“IBCL”) (Sec. 315). Beginning June 28, 2019, the 17% reserve rates will be reduced to
16.5% across the board, and further reduced to 16% beginning July 26, 2019.

On October 29, 2014, the Monetary Board approved the guidelines for the implementation of higher
capital requirements on DSIBs by the BSP under Basel III. Banks deemed DSIBs by the BSP are
required to maintain capital surcharges to enhance their loss absorbency and thus mitigate any adverse
side effects both to the banking system and to the economy should any of the DSIBs fail. The
assessment started in 2014 with the BSP informing banks confidentially of their DSIB statuses in 2015.
To determine the banks’ systemic importance, the BSP will assess and assign weights using the
indicator-based measurement approach based on the following: size, interconnectedness,
substitutability, and complexity. Depending on how they score against these indicators and the buckets
to which the scores correspond, the DSIBs will have varying levels of additional loss absorbency
requirements ranging from 1% to 2.5%. Aside from the added capital pressure, DSIBs may be put at an
undue disadvantage compared to Global Systemically Important Banks (GSIBs) given that this
framework was patterned for regional/global banks and thus may not be appropriate for local banks. The
phased-in compliance started on January 1, 2017 before becoming fully effective on January 1, 2019.
On February 12, 2016, the Monetary Board approved the guidelines on the submission of a recovery
plan by DSIBs which shall form part of the DSIBs’ Internal Capital Adequacy Assessment Process
(“ICAAP”) submitted to the BSP every 31st of March of each year. The recovery plan identifies the course
of action that a DSIB should undertake to restore its viability in cases of significant deterioration of its
financial condition in different scenarios. At the latest, the recovery plan shall be activated when the
DSIB breaches the total required CET1 capital, the HLA capital requirement and/or the minimum liquidity
ratios as may be prescribed by the BSP. As a pre-emptive measure, the recovery plan should use early
warning indicators with specific levels (i.e., quantitative indicators supplemented by qualitative
indicators) that will activate the recovery plan even before the above-said breaches happen. This
preparatory mechanism, including the operational procedures, monitoring, escalation and approval
process should be clearly defined in the recovery plan. The ICAAP document, which includes the first
recovery plan, was submitted on June 30, 2016 and will be re-submitted on the 31st of March of each
year.

In May 2015, the BSP approved the guidelines for the implementation of Basel III leverage ratios
(calculated by dividing banks’ Tier 1 capital over its total on-book and off-book exposure). On June 9,
2015, the BSP issued Circular No. 881 amending the relevant provisions of the previously issued
guidelines. Under the BSP Circular No. 881, universal and commercial banks are required to maintain
a minimum leverage ratio of 5%, which is more stringent than the 3% minimum leverage ratio under
Basel III by January 1, 2017 (which compliance period was extended to January 1, 2018 based on BSP

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Circular No. 943 issued in 2017). The guidelines also provided for a monitoring period up to end of 2016
during which banks were required to submit periodic reports. However, sanctions were not imposed on
banks whose leverage ratios fell below the required 5% minimum during the period. The leverage ratio
serves as a backstop measure to the risk-based capital requirements. While this has no material impact
given that Philippine banks’ ratios are above the required minimum, the leverage ratio along with other
pending components of Basel III point to an increasing regulatory burden on banks. Further, local banks
face new liquidity requirements under Basel III, namely, the Liquidity Coverage Ratio (“LCR”) and the
Net Stable Funding Ratio (“NSFR”). The LCR requires banks to hold a sufficient level of High-Quality
Liquid Assets (“HQLAs”) to enable them to withstand a 30 day-liquidity stress scenario. Meanwhile, the
NSFR requires that banks’ assets and activities are structurally funded with long-term and more stable
funding sources. While both ratios are intended to strengthen banks’ ability to absorb shocks and
minimize negative spill-overs to the real economy, compliance with these ratios may further increase
competition among banks for deposits as well as HQLAs.

In March 2016, the Monetary Board approved the LCR framework with an observation period from July
1, 2016 until the end of 2017, during which banks were required to commence reporting their LCR to the
BSP. On January 1, 2018, the LCR threshold that banks are required to meet is 90%, and increased to
100% commencing on January 1, 2019. The Monetary Board has yet to release an exposure draft of
NSFR requirements. The internationally agreed start date for the phase-in of liquidity requirements was
as of January 1, 2015.

In addition, Basel III capital rules for banks include setting up a CCyB wherein banks build up the required
level of capital during boom times and draw down on the buffer in the event of an adverse turn in the
cycle or during periods of stress, thus helping to absorb losses. On December 6, 2018, the BSP issued
guidelines on CCyB. BSP Circular No. 1024 imposes a Capital Conservative Buffer (“CCB”) of 2.5% and
a CCyB of 0% subject to upwards adjustment to a rate determined by the Monetary Board when systemic
conditions warrant but not to exceed (2.5%. Any increase in the CCyB rate shall be effective 12 months
after its announcement, while decreases shall be effective immediately. The circular further provides
that the HLA requirement shall be on top of the combined requirement for CCB and CCyB. Under the
Bank for International Settlements, the CCB became fully effective on January 1, 2019.

In October 2014, the BSP issued BSP Circular No. 855 which provides for new guidelines on sound
credit risk management practices. The circular mandates banks to establish appropriate credit risk
strategies and policies, processes and procedures including cash flow-based credit evaluation
processes. The circular also mandates tighter provisioning guidelines. These are seen to increase costs
as banks may have to upgrade their risk management systems and provisioning requirements.

Additionally, BSP Circular No. 855 sets the collateral value (“CV”) for a loan backed up by real estate to
only 60% of its appraised value. Banks will still be allowed to lend more than 60% of the CV; however,
the portion above 60% will be considered unsecured, thus requiring banks to set up loan loss provisions
accordingly. The CV ruling should not be mistaken for the loanable value (“LV”), which is the loan amount
extended by banks to its borrowers. The current industry practice is a loan-to-value (“LTV”) ratio of 70%-
80%, which some banks may continue to grant provided that they have strict and consistent lending
standards, adequate capital buffer and provisions. This new ruling, along with other BSP regulations
intended to avert a property bubble, could result in an overall slowdown in lending to the real estate
sector as banks adjust to these rulings.

To better monitor the banking industry’s exposure to the property sector, the BSP in September 2012
approved guidelines that effectively widened the scope of banks’ real estate exposures (“REEs”) to
include mortgages and loans extended to individuals to finance the acquisition and construction of
residential real estate for own occupancy as well as land developers and construction companies for the
development of socialised and low-cost housing. Securities investments issued for purposes of financing
real estate activities are also included under the new guidelines. Banks were required to submit the
expanded report starting December 2012.

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Further, on June 27, 2014, the BSP issued Circular No. 839 requiring banks to undergo real estate stress
test (“REST”) while setting prudential limits for banks’ REEs to ensure that they have adequate capital
to absorb potential losses to the property sector. Universal and commercial banks as well as thrift banks
must meet a CAR of 10% of qualifying capital after adjusting for the stress test results. Further, universal
and commercial banks and their thrift bank subsidiaries are required to maintain a level of CET 1 capital
that is at least 6% of qualifying capital after factoring in the stress scenario. In addition, banks are
mandated to submit quarterly report of their real estate exposures, in line with the new REST capital
requirements.

Local banks also face new liquidity requirements, namely, the LCR and NFSR, under Basel III. The
LCR requires banks to hold sufficient level of HQLAs to enable them to withstand a 30 day-liquidity
stress scenario. Meanwhile, the NSFR requires that banks’ assets and activities are structurally funded
with long-term and more stable funding sources. While both ratios are intended to strengthen banks’
ability to absorb shocks and minimize negative spillovers to the real economy, compliance with these
ratios may also further increase competition among banks for deposits as well as HQLAs. In March
2016, the Monetary Board approved the LCR framework with an observation period from July 1, 2016
until the end of 2017, during which banks are required to commence reporting their LCR to the BSP.
Starting 2018, banks were required to meet a 90% LCR threshold that banks will be required to meet
was 90%, which was increased to 100% commencing on January 1, 2019 for universal and commercial
banks. On June 6, 2018, the BSP issued BSP Circular No. 1007 which sets out the guidelines on the
adoption of the Basel III Framework on Liquidity Standards - NSFR. The internationally agreed start date
for the phase-in of liquidity requirements was January 1, 2015. On March 15, 2019, the Monetary Board
approved the extension of the observation period for the LCR and NSFR for subsidiary banks and quasi
banks of universal and commercial banks until December 31, 2019, moving the effectivity dates of said
ratios to January 1, 2020. During the extended observation period, subsidiary banks and quasi-banks of
universal and commercial banks are required to comply with a 70% LCR and NSFR, which shall increase
to 100% on January 1, 2020. On March 15, 2019, The Monetary Board also approved enhancements to
the LCR and minimum liquidity ratio guidelines, including netting of cash inflows and outflows for the
LCR framework, and counting interbank placements as eligible liquid assets and adjusting qualifying
liabilities through conversion factors to retail current and regular savings deposits worth ₱500,000.00
and below and certain liability accounts.

On May 29, 2019, the BSP reduced the reserve requirement by 200 basis points of all banks and non-
bank financial institutions with quasi-banking functions through Circular No. 1041, effective July 26,
2019.

• For universal and commercial banks, with reserve requirement currently at 16 percent;
and

• For thrift banks, with reserve requirement currently at 6 percent.

In 2019, the BSP made two monetary policy decisions which mandated the 25-basis-point reduction in
the interest rate of BSP’s overnight reverse repurchase facility effective on:

• May 10, 2019, from 4.75 percent to 4.5 percent; and

• August 8, 2019, from 4.5 percent to 4.25 percent.

This move was based on the Monetary Board’s assessment that price pressures have continued to
ease.

The mandatory effective date of PFRS 16, Leases, is for annual periods beginning January 1, 2019.
The Bank is still in the process of completing its inventory and assessment to facilitate the calculation
and eventual booking of PFRS 16 transition adjustment. However, based on the Bank's initial
assessment, the financial impact of PFRS 16 is deemed to be insignificant. Our independent validation

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team is simultaneously conducting their review, assessment and validation of the Bank's inventory and
assessment.

The Single Borrower’s Limit

Consistent with the national interest, the total amount of loans, credit accommodations and guarantees
that may be extended by a bank to any person, partnership, association, corporation or other entity shall
at no time exceed twenty-five percent (25%) of the net worth of such bank. The basis for determining
compliance with the single borrower’s limit (“SBL”) is the total credit commitment of the bank to or on
behalf of the borrower. The total amount of loans, credit accommodations and guarantees above may
be increased for specific circumstances as laid out in the relevant provision of the BSP Manual.

BSP Circular 779 issued on January 9, 2013, amended the BSP Manual provisions on Regulations on
Single Borrower’s Limit. The amendments allowed for increases (on top of the 25% as already mentioned)
on the amount of loans, credit accommodations and guarantees that a bank may issue to a borrower.
The following are the increases that are conditional: (a) an additional 10% of the net worth of the bank as
long as the additional liabilities are secured by shipping documents, trust or warehouse receipts or other
similar documents which cover marketable, non-perishable goods which must be fully covered by
insurance, (b) an additional 25% of the net worth of the bank provided that: (i) the additional loans, credit
accommodations and guarantees are used to finance the infrastructure and/or development projects
under PDP/PIP; (ii) these additional liabilities should not exceed 25% of the net worth of the bank; and
(iii) the additional 25% shall only be allowed for a period of six years from December 6, 2010; and (c) an
additional 15% of the net worth of the bank provided that the additional loans, credit accommodations
and guarantees are used to finance oil importation of oil companies which are not subsidiaries or affiliates
of the lending bank which is also engaged in energy and power generation.

The SBL limitations shall not apply to (a) loans and other credit accommodations secured by obligations
of the BSP or of the Government; (b) loans and other credit accommodations fully guaranteed by the
Government as to the payment of principal and interest; (c) loans and other credit accommodations
secured by U.S. Treasury Notes and other securities issued by central governments and central banks
of foreign countries with the highest credit quality given by any two internationally accepted rating
agencies; (d) loans and other credit accommodations to the extent covered by the hold-out on or
assignment of, deposits maintained in the lending bank and held in the Philippines; (e) loans, credit
accommodations and acceptances under letters of credit to the extent covered by margin deposits; and
(f) other loans or credit accommodations which the Monetary Board may from time to time specify as
non-risk items.

Limitation on DOSRI Transactions

A director or officer of any bank may not directly or indirectly, for himself or as the representative or
agent of others, borrow from such bank nor may become a guarantor, endorser or surety for loans from
such bank to others, or in the manner be an obligor or incur any contractual liability to the bank except
with the written approval of the majority of all the directors of the bank, excluding the director concerned.

After due notice to the board of directors of the bank, the office of any officer or director who violates the
DOSRI limitation may be declared vacant and such erring officer or director shall be subject to the penal
provisions of the New Central Bank Act.

On June 2, 2016, the Monetary Board approved the revisions to prudential policies on loans, other credit
accommodations and guarantees granted to DOSRIs. The Monetary Board allowed the exclusion of
loans granted by a bank to its DOSRI for the purpose of project finance from the 30% unsecured
individual ceiling during the project gestation phase, provided that the lending bank shall ensure that
standard prudential controls in project finance loans designed to safeguard creditors’ interests are in
place, which may include a pledge of the borrower’s shares, assignment of the borrower’s assets,
assignment of all revenues and cash waterfall accounts and assignment of project documents.

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On June 23, 2016, the BSP issued Circular No. 914, Series of 2016, amending the prudential policy on
loans, other credit accommodations, and guarantees granted to DOSRI, subsidiaries and affiliates.
Circular No. 914 has raised the ceilings on the exposure of subsidiaries and affiliates of banks to priority
programs, particularly infrastructure projects under the Philippine Development Plan / Public Investment
Program (“PDP/PIP”) needed to support economic growth. The exposures to subsidiaries and affiliates
in PDP/PIP projects will now be subject to higher individual and unsecured limits of 25% instead of 10%
and 12.5% instead of 5% of the net worth of the lending bank, respectively, subject to certain conditions.
Further, the circular also provides for a refined definition of “related interest” and “affiliates” to maintain
the prudential requirements and pre-empt potential abuse in a borrowing transaction between the related
entities. The circular also amends the capital treatment of exposures to affiliates by weighing the risk of
both the secured and unsecured loans granted to the latter.

Limitations on Loans and Credit Accommodations

As a general rule, loan and other credit accommodation against real estate by a bank shall not exceed
70% of the appraised value of the real estate security plus 70% of the appraised value of the insured
improvements and such loans shall not be made unless title to the real estate rests with the mortgagor.
In the case of universal and commercial banks, the loan values of real estate given as security for any
loan granted shall be reduced from 70% to not more than 60% of the appraised value of the real estate
security and the insured improvements, except the following which shall be allowed a maximum value of
70% of the appraised value (a) residential loans not exceeding ₱3.5 million to finance the acquisition or
improvement of residential units; and (b) housing loans extended by or guaranteed under the
Government’s “National Shelter Program”, such as the expanded housing loans program of the home
development mutual fund and the mortgage and guaranty and credit insurance program of the Home
Insurance and Guaranty Corporation. Prior to lending on an unsecured basis, a bank must investigate
the borrower’s financial position and ability to service the debt and must obtain certain documentation
from the borrower, such as financial statements and tax returns. Any unsecured lending should be only
for a time period essential for completion of the operations to be financed. Likewise, loans against chattels
and intangible properties shall not exceed 75% of the appraised value of the security and such loans may
be made to the title-holder of the unencumbered chattels and intangible properties or his assignee.

On February 4, 2008, the BSP issued Circular No. 600 removing interbank loans from the total loan base
to be used in computing the aggregate limit on real estate loans and amending the inclusions and
exclusions to be observed in the computation.

On October 10, 2017, the BSP issued Circular No. 976 which approved amendments to the expanded
report on the real estate exposure of banks and required the submission of a report on project finance
exposures to enable the BSP to gather more granular information regarding these exposures. It also
clarified the definition of loans to finance infrastructure projects for public use that are currently exempt
from the 20% limit on real estate loans.

On October 27, 2017, the BSP issued BSP Circular No. 978 which provided for exclusion of the portion
of loans and other credit accommodation covered by guarantees of international/regional
institutions/multilateral financial institutions where the Philippine Government is a member/shareholder,
from the ceilings on total outstanding loans, other credit accommodations and guarantees granted to
banks’ subsidiaries and affiliates. BSP Circular No. 978 excluded the following in determining compliance
with the ceilings provided under BSP Circular No. 914: (a) Loans, other credit accommodations and
guarantees secured by assets considered as non-risk under existing BSP regulations; (b) Interbank call
loans; and (c) The portion of loans and other credit accommodations covered by guarantees of
international/regional institutions/multilateral financial institutions where the Philippine Government is a
member/shareholder, such as the International Finance Corporation and the Asian Development Bank.

Limitation on Investments

The total investment of a universal bank in equities of allied and non-allied enterprises shall not exceed
50% of the net worth of the said universal bank. Moreover, the equity investment in any one enterprise

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whether allied or non-allied, shall not exceed 25% of the net worth of the universal bank. Net worth for
this purpose is defined as the total unimpaired paid-in capital including paid-in surplus, retained earnings
and undivided profit, net of valuation reserves and other adjustments as may be required by the BSP.
The Monetary Board must approve such acquisition of equities. Further, the BSP may impose conditions
on the any approval of a major investment and has the authority to seek corrective action.

A universal bank can own up to 100% of the equity in a thrift bank, a rural bank or a financial or non-
financial allied enterprise. A publicly listed universal bank, such as the Bank, may own up to 100% of the
voting stock of only one other universal or commercial bank. However, with respect to non-allied
enterprise, the equity investment in such enterprise by a universal bank shall not exceed 35% of the total
equity in the enterprise nor shall it exceed 35% of the voting stock in that enterprise.

A bank’s total investment in real estate and improvements including bank equipment shall not exceed
50% of the combined capital accounts. Further, the bank’s investment in another corporation engaged
primarily in real estate shall be considered as part of the bank’s total investment in real estate, unless
otherwise provided by the Monetary Board.

The limitation stated above shall not apply with respect to real estate acquired by way of satisfaction of
claims. However, all these properties must be disposed by the bank within a period of five years or as
may be prescribed by the Monetary Board.

Anti-Money Laundering Act 2001

The AMLA requires covered institutions such as banks including its subsidiaries and affiliates, to provide
for customer identification, keep records and report covered and suspicious transactions.

While the Philippines enacted the AMLA to introduce more stringent anti-money laundering regulations,
these regulations did not initially comply with the standards set by the Financial Action Task Force
(“FATF”). However, following pressure from the FATF, an amendment to AMLA became effective on
March 23, 2003. In January 2005, the Philippines was removed from the list of Non-Cooperative Countries
and Territories (“NCCTs”) and the anti-money laundering systems (including strict customer identification,
suspicious transaction reporting, bank examinations, and legal capacities to investigate and prosecute
money laundering) were all identified to be of a satisfactory nature. Currently, the Philippines is on the
“grey list,” as the FATF, in news reports, noted a “high level political commitment” from local authorities
to address noted deficiencies in its anti-money laundering regime. Republic Act No. 10168 enacted on
June 18, 2012 expanded the AMLA to include the crime of financing terrorism.

A more recent amendment to the anti-money laundering regime, Republic Act No. 10365, was approved
on February 15, 2013. This amendment expanded the coverage of the AMLA, which now talks about
“covered persons, natural or juridical.” Additions to the enumeration of covered persons include jewellery
dealers for transactions in excess of ₱1 million; company service providers, or those who form
companies for third parties, hold positions as directors or corporate secretaries for third parties, provide
business addresses or engage in correspondence or act as nominee shareholder for others. Likewise,
the following persons were added to the list: persons (a) who manage their client’s money, security or
other assets, or (b) who manage bank or securities accounts, or (c) who organize funds for the creation,
operation or management of companies, or (d) who create, operate or manage entities or relationships,
or (e) buy and sell business entities.

In July 2017, Republic Act No. 10927 was signed into law, and it further expanded the coverage of AMLA
to include casinos for a single casino cash transaction involving an amount in excess of ₱5.0 million or
its equivalent in any other currency. Furthermore, the law provides that: (a) a freeze order issued by the
CA pursuant to an ex parte petition by the AMLC shall be effective immediately and such effective period
shall not exceed six months and if no case is filed against a person whose account has been frozen
within the period determined by the CA (but not exceeding six months), the freeze order shall be deemed
automatically lifted, provided, that a freeze order is without prejudice to an asset preservation order
which the relevant trial court may issue upon the same assets; and (b) a freeze order or asset

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preservation order shall be limited only to the amount of cash or monetary instrument or value of property
which the court finds probable cause to consider such property as proceeds of the predicate crime.

Covered transactions are single transactions in cash or other equivalent monetary instrument involving
a total amount in excess of ₱500,000.00 within one Banking Day.

Suspicious transactions are transactions with covered institutions such as a bank, regardless of the
amount involved, where any of the following circumstances exists:

(a) there is no underlying legal or trade obligation, purpose or economic justification;

(b) the customer or client is not properly identified;

(c) the amount involved is not commensurate with the business or financial capacity of the client;

(d) the transaction is structured to avoid being the subject of reporting requirements under the
AMLA;

(e) there is a deviation from the client’s profile or past transaction;

(f) the transaction is related to an unlawful activity or offence under AMLA; or

(g) similar or analogous transactions to the above.

Failure by any responsible official or employee of a bank to maintain and safely store all records of all
transactions of the bank, including closed accounts, for five years from date of transaction/closure of
account shall be subject to a penalty of six months to one year imprisonment and/or fine of ₱500,000.00.

Related Party Transactions

On December 14, 2015, the BSP announced that it approved guidelines strengthening oversight and
control standards for managing related party transactions. The guidelines highlight that while
transactions between and among the entities within the same group create financial, commercial, and
economic benefits, higher standards should be applied to protect the interests of all stakeholders. It is
emphasised that related party transactions are generally allowed for as long as these are done on an
arm’s length basis referring to the process involved in handling the transaction as well as the economic
terms of the transaction.

Under the guidelines, the board, as an oversight body, shall have overall responsibility in ensuring that
transactions with related parties are handled in a sound and prudent manner, with integrity and in
compliance with applicable laws and regulations. The board is expected to approve an overarching
policy on the handling of related party transactions that should cover the scope of its related party
transactions policy, guidelines in ensuring arm’s length terms, management of conflicts of interest,
materiality thresholds and limits, whistle blowing mechanisms, and restitution of losses and other
remedies for irregular related party transactions. Further, banks that are part of conglomerates are
required to create a related party transactions committee responsible for the continuing identification
and review of existing relations between and among businesses and counterparties, and for ensuring
that related party transactions are processed in the regular course of business, and are priced fairly. The
guidelines now explicitly require that the annual reports adequately disclose relevant information on the
governance of related party transactions and specific details of exposures to related parties.

On April 25, 2019, the SEC issued Memorandum Circular No. 10-2019 regarding the Rules on Material
Related Party Transactions for Publicly-Listed Companies (SEC MC 10-2019). Under SEC MC 10-2019,
when the related party transactions amount to 10% or higher of a company’s total assets, it is considered
a material related party transaction and is disclosable and reportable to the SEC.

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Electronic Banking Operations

The BSP has prescribed prudential guidelines in the conduct of electronic banking, which refers to
systems that enable bank customers to avail themselves of a bank’s products and services through a
personal computer (using direct modem dial-in, internet access, or both) or a telephone. Applicant banks
must prove that they have in place a risk management process that is adequate to assess, control, and
monitor any risks arising from the proposed electronic banking activities.

On September 1, 2006, the BSP released new guidelines on the protection of electronic banking
customers. These guidelines set specific requirements in the following areas: (a) oversight by a bank’s
board of directors, and other concerned officers over its electronic banking activities; (b) the development
of a risk management policy and internal controls over its electronic banking activities; (c) the
implementation of a consumer awareness program for the customers of banks; (d) development of policy
on disclosures and transparencies, and the availability of electronic banking service; and (e) the
development of complaint resolution procedure for unauthorised transactions in electronic banking.

Private domestic banks with a BSP-approved electronic banking facility may accept payment of fees
and other charges of a similar nature for the account of the departments, bureaus, offices and agencies
of the government as well as all government-owned and controlled corporations. The funds accepted
shall be treated as deposit liabilities subject to existing regulations on government deposits and shall not
exceed the minimum working balance of such government entities.

BSP Circular No. 808, dated August 22, 2013, required BSP-supervised institutions to migrate their
entire payment network to the more secure Europay, MasterCard and Visa (“EMV”) chip-enabled cards.
In 2014, BSP Circular No. 859 set out the EMV Implementation Guidelines which shall govern the
implementation for debit cards in any card-accepting devices/terminals. The deadline set for compliance
with the migration to the EMV was initially set for January 1, 2017. However, pursuant to BSP
Memorandum No. M-2017-019 issued on June 9, 2017, BSP-supervised financial institutions are
required to fully comply with the EMV requirement by June 30, 2018. Failure to do so is considered a
serious offence and will subject these institutions to monetary sanctions provided under relevant
provision of the BSP Manual.

On February 22, 2019, the BSP issued Circular No. 1033, which amended the BSP Manual by adding
regulations on Electronic Payment and Financial Services. This allows BSP-supervised institution to
offer products or services that would enable its customers to receive payments or initiate financial
transactions online. Transactions can include online loan applications, electronic investment of funds,
and the like. To be able to offer this kind of service, the bank must obtain a license from BSP and
comply with its corresponding reportorial requirements.

Employees

Below is a breakdown of the manpower complement of BPI in 2018 as well as the approved headcount
for 2019.

December 31, 2018 June 30, 2019 December 31, 2019

Actual Actual Plan
Officers Staff Total Officers Staff Total Officers Staff Total
Unibank 6,541 11,749 18,290 6,820 12,005 18,825 7,096 12,599 19,695
Consumer 4,176 10,228 14,404 4,413 10,505 14,918 4,592 11,077 15,669
Corporate 840 792 1,632 922 816 1,738 930 792 1,722
Investment 418 248 666 432 229 661 418 248 666
Support 1,107 481 1,588 1,053 445 1,508 1,156 482 1,638
Insurance
120 501 621 115 488 603 120 501 621
Companies
TOTAL 6,661 12,250 18,911 6,935 12,493 19,428 7,216 13,100 20,316

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Majority or 72% of the staff are members of various unions and are subject to Collective Bargaining
Agreements (“CBAs”). The current CBAs cover the period of November 1, 2018 to October 31, 2020
for BFB, and April 1, 2019 to March 31, 2021 for BPI. The next CBAs are scheduled to be negotiated
in November 2020 and April 2021 for BFB and BPI respectively.

Risk Factors

The banking industry in the Philippines is composed of universal banks, commercial banks, savings
banks, savings and mortgage banks, private development banks, stock savings and loan associations,
rural banks, cooperative banks and Islamic banks.

According to statistics published on the official website of the BSP, as of June 30, 2019 the commercial
sector consisted of 46 universal and commercial banks, of which 21 were universal banks and 25 were
commercial banks. Of the 21 universal banks, 12 were private domestic banks, three were Government
banks, and six were branches of foreign banks. Of the 25 commercial banks, five were private domestic
banks, two were subsidiaries of foreign banks, and 18 were branches of foreign banks. As of July 31,
2019, the 46 universal and commercial banks had a total of 6,685 branches, including head offices.

The Bank faces competition from both domestic and foreign banks, in part, as a result of the liberalisation
of the banking industry by the Government. Since 2014, a number of foreign banks, which may have
greater financial resources than the Bank, have been granted licenses to operate in the Philippines. Such
foreign banks have generally focused their operations on the larger corporations and selected consumer
lending products such as credit cards. The foreign banks have not only increased competition in the
corporate market, but have, as a result, caused more domestic banks to focus on the commercial mid-
market, placing pressure on margins in both markets.

BPI has some concentration of loans to certain customers and to certain sectors and if a
substantial portion of these loans were to become non-performing, the quality of its loan
portfolio could be adversely affected.

As of June 30, 2019, the Bank’s total exposure to borrowers was ₱1.4 trillion. The ten largest individual
borrowers in aggregate accounted for approximately 11.3% of the Bank’s total exposure, and its ten
largest borrower groups in aggregate accounted for approximately 21.4% of the Bank’s total exposure.
The BSP generally prohibits any bank from maintaining a financial exposure to any single person or group
of connected persons in excess of 25% of its net worth. BPI is committed to ensure strict compliance with
laws, regulations and reporting requirements relating to single borrower limits. The largest borrower group
as of June 30, 2019 accounted for approximately 3.4% of BPI’s total exposure and for 18.0% of BPI’s net
worth. Credit losses on these large single borrower and group exposures could adversely affect the
business, financial condition and results of operations of BPI.

BPIextends loans to several sectors in the Philippines. As of June 30, 2019, BPI’s top five industries loan
exposure account for 72.2% of BPI’s total loan portfolio, namely real estate, manufacturing, wholesale
and retail trade, electricity, gas and water, and financial institutions. BPI’s aggregate exposure to these
industries amounted to ₱989 billion. BPI’s largest loan exposure is to the real estate industry, which
accounted for 23.7% of the Bank’s loan portfolio as of 30 June 2019. Although BPIcontinues to adopt risk
controls and diversification strategies to minimise risk concentrations, financial difficulties in these
industries could increase the level of non-performing assets and restructured assets, and adversely affect
BPI’s business, its financial condition and results of operations.

BPI’s failure to manage risks associated with its information and technology systems could
adversely affect its business.

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BPIis subject to risks relating to its information and technology systems and processes. The hardware
and software used by the Bank in its information technology is vulnerable to damage or interruption by
human error, misconduct, malfunction, natural disasters, power loss, sabotage, computer viruses or the
interruption or loss of support services from third parties such as internet service providers and telephone
companies. For example, in June 2017, an error by one of BPI’s system programmers resulted in double-
posting of transactions, which affected some 1.5 million Bank customers. Although the incident was
resolved within 36 hours and did not result in material loss or expense to BPI, there can be no assurance
that future similar incidents will not result in material adverse losses or expenses to BPI. Any disruption,
outage, delay or other difficulties experienced by any of these information and technology systems could
result in delays, disruptions, losses or errors that may result in customer suits, loss of income, regulatory
investigations, penalties and fines and decreased consumer confidence in BPI. These may, in turn,
adversely affect the Bank’s business, financial condition and results of operations.

BPIalso seeks to protect its computer systems and network infrastructure from physical break-ins as well
as security breaches and other disruptive problems caused by the Bank’s increased use of the internet.
Computer break-ins and security breaches could affect the security of information stored in and
transmitted through these computer systems and network infrastructure. BPIemploys security systems,
including firewalls and password encryption, designed to minimise the risk of security breaches and
maintains operational procedures to prevent break-ins, damage and failures. The potential for fraud and
security problems is likely to persist and there can be no assurance that these security measures will be
adequate or successful. The costs of maintaining such security measures may also increase substantially.
Failure in security measures could have a material adverse effect on BPI’s business, reputation, financial
condition and results of operations.

BPI may face increasing levels of non-performing loans (“NPLs”), provisions for impairment
losses and delinquencies in its credit card portfolio, which may adversely affect BPI’s business,
financial condition, results of operations, and capital adequacy.

BPI’s results of operations have been, and continue to be, affected by the level of its NPLs. BPI’s total
gross NPLs were equal to ₱15,368 million, ₱15,713 million and ₱25,391 million as of 31 December 2016,
2017 and 2018, respectively, and ₱25,459 million as of 30 June 2019. For the years ended 31 December
2016, 2017 and 2018 and the six months ended 30 June 2018 and 2019, BPI’s provisions for credit losses
on receivables from customers were ₱4,955 million, ₱4,317 million, ₱4,828 million, ₱1,748 million and
₱3,369 million respectively, representing approximately 11.7%, 9.0%, 8.6%, 6.7% and 10.4% of the
Bank’s net interest income for these periods, respectively. BPI’splans to continue to expand its
microfinance, SME and consumer loan operations, including credit card services. Such expansion plans
will increase BPI’s exposure to microfinance, SME and consumer debt and volatile economic conditions
in the Philippines may adversely affect the future ability of BPI’s borrowers, including microfinance and
SME borrowers and credit card holders, to meet their obligations under their indebtedness and, as a
result, BPImay continue to experience increasing levels of non-performing loans and provisions for
impairment losses in the future.

Volatile economic conditions in the Philippines and overseas, including volatile exchange and interest
rates, may adversely affect many of BPI’s customers, causing uncertainty regarding their ability to fulfil
obligations under BPI’s loans and significantly increasing BPI’s exposure to credit risk. These and other
factors could result in an increased number of NPLs and delinquencies in BPI’s credit card portfolio in the
future. Any significant increase in BPI’s NPLs or delinquencies in BPI’s credit card portfolio would have a
material adverse effect on its business, financial condition, results of operations and capital adequacy.

BPI may be unable to recover the assessed value of its collateral when its borrowers default on
their obligations, which may expose BPI to significant losses.

As of 30 June 2019, BPI’s secured loans represented 32.6% of BPI’s total loans, and 54.1% of the
collateral on these secured loans consisted of real property. There can be no assurance that the collateral
securing any particular loan will protect BPI from suffering a partial or complete loss if the loan becomes

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non-performing. The recorded values of BPI’s collateral may not accurately reflect its liquidation value,
which is the maximum amount BPI is likely to recover from a sale of collateral, less expenses of such
sale. There can be no assurance that the realised value of the collateral would be adequate to cover BPI’s
loans. In addition, some of the valuations in respect of BPI’s collateral may also be out of date or may not
accurately reflect the value of the collateral. In certain instances, where there are no purchasers for a
particular type of collateral, there may be significant difficulties in disposing of such collateral at a
reasonable price. Any decline in the value of the collateral securing BPI’s loans, including with respect to
any future collateral taken by BPI, would mean that its provisions for credit losses may be inadequate and
BPImay need to increase such provisions. Any increase in BPI’s provisions for credit losses could
adversely affect its business, its financial condition, results of operations and CAR.

In addition, BPI may not be able to recover in full the value of any collateral or enforce any guarantee due,
in part, to difficulties and delays involved in enforcing such obligations through the Philippine legal system.
To foreclose on collateral or enforce a guarantee, banks in the Philippines are required to follow certain
procedures specified by Philippine law. These procedures are subject to administrative and bankruptcy
law requirements which may be more burdensome than in certain other jurisdictions. The resulting delays
can last several years and lead to the deterioration in the physical condition and market value of the
collateral, particularly where the collateral is in the form of inventory or receivables. In addition, such
collateral may not be insured. These factors have exposed, and may continue to expose, BPI to legal
liability while in possession of the collateral. These difficulties may significantly reduce BPI’s ability to
realise the value of its collateral and therefore the effectiveness of taking security for the loans it makes.
BPI initially carries the value of the foreclosed properties at the lower of loan exposure or fair value of the
properties at the time of foreclosure. Subsequently, the foreclosed properties are carried at the lower of
amount initially recognised or fair value less cost to sell. While BPI, at each balance sheet date, provides
for impairment losses on its foreclosed properties in accordance with PFRS, it may incur further expenses
to maintain such properties and to prevent their deterioration. In realising cash value for such properties,
BPI may incur further expenses such as legal fees and taxes associated with such realisation. There can
be no assurance that the Bank will be able to realise the full value, or any value, of any collateral on its
loans.

BPI’s provision policies with respect to NPLs require significant subjective determinations which
may increase the variation of application of such policies.

BSP regulations require that Philippine banks classify NPLs based on four different categories
corresponding to levels of risk: Loans Especially Mentioned, Substandard, Doubtful and Loss. Generally,
classification depends on a combination of a number of qualitative as well as quantitative factors such as
the number of months payment is in arrears, the type of loan, the terms of the loan and the level of
collateral coverage. These requirements have in the past, and may in the future, be subject to change by
the BSP. Periodic examination by the BSP of these classifications may also result in changes being made
by the Bank to such classifications and to the factors relevant thereto.

For financial reporting purposes, BPI assesses at each reporting date whether there is a significant
increase in credit risk on the loan or group of loans. The level of provisions currently recognised by BPI
in respect of its secured loan portfolio depends largely on the estimated value of the collateral coverage
of the portfolio, as well as BPI’s evaluation of the creditworthiness of the borrower and the risk
classification of a loan. If BPI’s evaluations or determinations are inaccurate, the level of BPI’s provisions
may not be adequate to cover actual losses resulting from its NPL portfolio. BPI may also have to increase
its level of provisions if there is any deterioration in the overall credit quality of BPI’s existing loan portfolio,
including the value of the underlying collateral.

In addition, the level of loan loss provisions which BPI recognises may increase significantly in the future
due to the introduction of new accounting standards or a turn in the credit cycle.

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Increased enforcement by the BSP related to priority lending for the agrarian reform and
agricultural sectors, as well as lending to micro-, small-and-medium-sized enterprises (“MSME”),
could adversely affect the Bank’s business, financial condition and results of operations.

In support of certain Government policies, BSP has imposed an agrarian reform and agriculture lending
policy requiring Philippine banks to extend certain loan amounts, equivalent to a certain percentage of its
total loan portfolio to agrarian beneficiaries and the agricultural sectors (Agri-Agra) of the Philippines. In
addition, for a period of ten years until 16 June 2018, BSP requires banks to allocate a certain percentage
of its total loan portfolio for loans to MSMEs. Failure to meet the specified level of loans may result in fines
being assessed against a non-compliant bank. These fines are calculated based on the relevant rate
multiplied by the prescribed Agri-Agra or MSME loan amount shortfall. As of 30 June 2019, the amount
of loans that should have been extended to Agri-Agra and MSMEs was ₱214.6 billion and ₱112.2 billion,
respectively. For the years ended 31 December 2016, 2017, and 2018 and six months ended 30 June
2019, BPI was fined ₱387.4 million, ₱424.4 million, ₱491.7 million and ₱281.0 million, respectively, for its
failure to fully comply with Agri-Agra mandated lending. With respect to MSME loans, for the years ended
31 December 2016, 2017 and 2018 and the six months ended 30 June 2019, the Bank was fined ₱0.78
million, ₱1.02 million, ₱0.25 million and ₱0.26 million, respectively, for failure to comply with mandated
lending to MSMEs. Because BPI is unable to generate sufficient exposure to the Agri-Agra and MSMEs
sectors that meet its credit and risk management standards, BPI has paid fines in the past and may
continue to do so in the future. There can be no assurance that the Government will not increase its
penalties for non-compliance or force banks to lend in accordance with the policy in the future. If the
Government substantially increases the penalty for non-compliance or BPI is forced to extend loans to
the Agri-Agra or MSMEs sectors that are inconsistent with BPI’s credit and risk management policies, its
business, financial condition and results of operations could be adversely affected.

BPI is subject to credit, market and liquidity risk which may have an adverse effect on its credit
ratings and its cost of funds.

To the extent any of the instruments and strategies the Bank uses to manage its exposure to market or
credit risk is not effective, BPI may not be able to mitigate effectively its risk exposures, in particular to
market environments or against particular types of risk. BPI’s balance sheet growth will be dependent
upon economic conditions, as well as upon its determination to securitise, sell, purchase or syndicate
particular loans or loan portfolios. BPI’s trading revenues and interest rate risk exposure are dependent
upon its ability to properly identify and mark to market the changes in the value of financial instruments
caused by changes in market prices or rates. BPI’s earnings are dependent upon the effectiveness of its
management of migrations in credit quality and risk concentrations, the accuracy of its valuation models
and its critical accounting estimates and the adequacy of its allowances for credit losses. To the extent
its assessments, assumptions or estimates prove inaccurate or not predictive of actual results, BPI could
suffer higher than anticipated losses. The successful management of credit, market and operational risk
is an important consideration in managing its liquidity risk because it affects the evaluation of its credit
ratings by rating agencies. A failure by BPI to effectively manage its credit, market and liquidity risk could
have a negative effect on its business, financial condition and results of operations.

A downgrade of BPI’s credit rating could have a negative effect on its business, financial
condition and results of operations.

As of June 30, 2019, BPI has a local long-term bank deposit rating of Baa2 from Moody’s and a long-term
local currency issuer default rating of BBB- from Fitch. On August 27, 2019, S&P assigned a long-term
issuer credit rating of BBB+ to BPI. In the event of a downgrade of BPI by one or more credit rating
agencies, BPI may have to accept terms that are not as favourable in its transactions with counterparties
or may be unable to enter into certain transactions. This could have a negative impact on BPI’s treasury
operations and also adversely affect its financial condition and results of operations. Rating agencies may
reduce or indicate their intention to downgrade the ratings at any time. The rating agencies can also
decide to withdraw their ratings altogether, which may have the same effect as a downgrade of ratings.
Any downgrade in BPI’s ratings (or withdrawal of ratings) may increase its borrowing costs, limit its access

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to capital markets and adversely affect its ability to sell or market its products, engage in business
transactions, particularly longer-term and derivatives transactions, or retain its customers. This, in turn,
could reduce BPI’s liquidity and negatively impact its operating results and financial condition.

BPI relies on certain key personnel and the loss of any such key personnel or the inability to
attract and retain them may negatively affect its business.

BPI’s success depends upon, among other factors, the retention of its key management, senior
executives and upon its ability to attract and retain other highly capable individuals. The loss of some of
the BPI’s key management, and senior executives, some of whom will be reaching retirement age in 2019,
or an inability to attract or retain other key individuals could materially and adversely affect BPI’s business,
financial condition and results of operations.

BPI’s business, reputation and prospects may be adversely affected if BPI is not able to detect
and prevent fraud or other misconduct committed by BPI’s employees or outsiders on a timely
basis.

BPI is exposed to the risk that fraud and other misconduct committed by employees or outsiders could
occur. Such incidences may adversely affect banks and financial institutions more significantly than
companies in other industries due to the large amounts of cash that flow through their systems. Any
occurrence of such fraudulent events may damage the reputation of BPI and may adversely affect its
business, financial condition, results of operations and prospects. In addition, failure on the part of BPI to
prevent such fraudulent actions may result in administrative or other regulatory sanctions by the BSP or
other government agencies, which may be in the form of suspension or other limitations placed on BPI’s
banking and other business activities. Although BPI has in place certain internal procedures to prevent
and detect fraudulent activities, these may be insufficient to prevent such occurrences from transpiring.
There can be no assurance that BPI will be able to avoid incidents of fraud in the course of its business.

BPI is involved in litigation, which could result in financial losses or harm its business.

BPI is and may in the future be, implicated in lawsuits on an ongoing basis. Litigation could result in
substantial costs to, and a diversion of effort by, BPI and/or subject BPI to significant liabilities to third
parties. There can be no assurance that the results of such legal proceedings will not materially harm
BPI’s business, reputation or standing in the market place or that BPI will be able to recover any losses
incurred from third parties, regardless of whether BPI is at fault. Furthermore, there can be no assurance
that (a) losses relating to litigation will not be incurred beyond the limits, or outside the coverage, of BPI’s
insurance, or that any such losses would not have a material adverse effect on the results of the Bank’s
business, financial condition or results of operation, or (b) provisions made for litigation related losses will
be sufficient to cover BPI’s ultimate loss or expenditure.

The Bank faces risks and challenges associated with acquisitions and investments.

From time to time, BPI acquires companies or businesses, enters into strategic alliances and joint
ventures and makes investments, and will continue to seek opportunities to do so in the future as part of
its expansion plan. In order to pursue this strategy successfully, BPI must effectively identify suitable
targets for, and negotiate and consummate, acquisition or investment transactions, some of which may
be large or complex, and manage post-closing issues such as the integration of acquired businesses,
products, services or employees.

Risks associated with business combination and investment transactions include the following, any of
which could adversely affect the Bank’s revenue, gross margin and profitability:

• managing business combination and investment transactions often requires significant

management resources, which may divert BPI’s attention from other business operations;

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• BPI may not fully realise all of the anticipated benefits of any business combination and
investment transaction, and the timeframe for realising benefits of a business combination and
investment transaction may depend partially upon the actions of employees, advisors, suppliers
or other third parties;

• business combination and investment transactions may result in significant costs and expenses
and charges to earnings, including those related to severance pay, early retirement costs,
employee benefit costs, goodwill and asset impairment charges, charges from the elimination of
duplicative facilities and contracts, assumed litigation and other liabilities, legal, accounting and
financial advisory fees, and required payments to executive officers and key employees under
retention plans;

• BPI’s due diligence process may fail to identify significant issues with the acquired company’s
product quality, financial disclosures, accounting practices or internal control deficiencies;

• BPI may borrow to finance business combination and investment transactions, and the amount
and terms of any potential future acquisition-related or other borrowings, as well as other factors,
could affect BPI’s liquidity and financial condition; and

• if disputes arise in connection with business combination and investment transactions, such
disputes may lead to litigation, which may be costly and divert BPI’s resources.

BPI’s principal businesses are in the highly competitive Philippine banking industry and increases
in competition may result in declining margins in BPI’s principal businesses.

BPI is subject to significant levels of competition from many other Philippine banks and branches of
international banks, including, in some instances, competitors that have greater financial and other capital
resources, greater market share and greater brand name recognition than BPI. The banking industry in
the Philippines is a mature market that has, in recent years, been subject to consolidation and
liberalisation, including liberalisation of foreign ownership restrictions, such as the lifting in 2014 of
restrictions that previously barred the full entry and operation of foreign banks in the Philippines. Since
2014, several foreign banks have entered the Philippine banking market. In addition, the establishment
of Association of Southeast Asian Nations (“ASEAN”) economic integration, which envisions providing a
platform for ASEAN banks to enjoy greater market access and operational flexibility across ASEAN
member states, including the Philippines, could further increase competition from foreign banks.

According to data published by the BSP, there were a total of 46 domestic and foreign universal and
commercial banks operating in the Philippines as of June 30, 2019.

In the future, BPI may also face increased competition from financial institutions offering a wider range of
commercial banking services and products than BPI and having larger lending limits, greater financial
resources and stronger balance sheets than BPI. Increased competition may arise from:

• other large Philippine banking and financial institutions with significant presence in Metro Manila
and large country-wide branch networks;

• foreign banks, due to, among other things, relaxed foreign bank ownership standards permitting
large foreign banks to set up their own branches in the Philippines or expand their branch
network through acquiring domestic banks;

• ability of BPI’s competitors to establish new branches in Metro Manila due to the removal of the
existing new branch license restriction scheme in 2014;

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• domestic banks entering into strategic alliances with foreign banks with significant financial and
management resources; and

• continued consolidation in the banking sector involving domestic and foreign banks, driven in
part by the gradual removal of foreign ownership restrictions.

The ongoing mergers and consolidations in the banking industry, as well as the liberalisation of bank
foreign ownership restrictions, have allowed the emergence of foreign and bigger local banks in the
market. This is expected to increase the level of competition both from Philippine and foreign banks and
may impact BPI’s operating margins.

There can be no assurance that BPI will be able to compete effectively in the face of such increased
competition. Increased competition may make it difficult for BPI to increase the size of its loan portfolios
and deposit bases and may cause increased pricing competition, which could have a material adverse
effect on its growth plans, margins, ability to pass on increased costs of funding, results of operations and
financial position.

The Philippine banking sector may face another downturn, which could materially and
adversely affect BPI.

The Philippine banking industry has recovered from the global economic crisis as evidenced by the steady
decrease in average NPL ratios (including interbank loans) in the Philippine banking system from 3.6%
in 2010 to 2.2% as of May 2019. BPI has realised some benefits from this recovery, including increased
liquidity levels in the Philippine market, lower levels of interest rates as well as lower levels of NPLs.
However, the Philippine banking industry may face significant financial and operating challenges. These
challenges may include, among other things, a sharp increase in the level of NPLs, variations of asset
and credit quality, significant compression in bank margins, low loan growth and potential or actual under-
capitalisation of the banking system. Disruptions in the Philippine financial sector, or general economic
conditions in the Philippines, may cause the Philippine banking industry in general, and BPI in particular,
to experience similar problems to those faced in the past, including substantial increases in NPLs,
problems meeting capital adequacy requirements, liquidity problems and other challenges.

BPI may have to comply with strict rules and guidelines issued by regulatory authorities in the
Philippines, including the BSP, the PSEC, the NPC, the PSE, the BIR and international bodies,
including the FATF.

BPI’s banking interests are regulated and supervised principally by the BSP, to which the Bank has
reporting obligations. BPI is also subject to banking, corporate, taxation, data privacy laws and other
relevant laws and regulations in effect in the Philippines, administered by agencies such as the BIR, the
Philippine SEC, the PSE, the National Privacy Commission (the “NPC”) and the Anti-Money Laundering
Council (“AMLC”). The Bank is also subject to recommendations and pronouncements of international
bodies such as the FATF which have been adopted, incorporated, or referred to by the BSP in its
regulatory issuances.

In recent years, existing BSP and BIR rules have been modified, new regulations and rules have been
enacted and reforms have been implemented by the BSP and the BIR which are intended to provide
tighter control and added transparency in the Philippine banking sector. Rules governing banks’ capital
adequacy and reserve requirements, ceilings on loans to subsidiaries and affiliates, as well as limits on
the amount of loans, credit accommodations and guarantees to a single borrower have also evolved over
the years. Guidelines on the monitoring and reporting of suspected money laundering activities were
incorporated into the BSP Manual. Institutions that are subject to the AMLA are required to establish and
record the identities of their clients based on official documents. In addition, under the AMLA regulations,
all records of customer identification and transaction documents are required to be maintained and stored
for a minimum of five years from the date of a transaction. Records of closed accounts must also be kept

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for at least five years after their closure. The AMLA regulations also require covered institutions to report
covered and suspicious transactions as defined under the relevant law.

The BSP has also ordered universal, commercial and thrift banks to conduct real estate stress tests to
determine whether their capital is sufficient to absorb a severe shock. The Real Estate Stress Test Limit
(“REST Limit”) combines a macro-prudential overlay of a severe stress test scenario, the principle of loss
absorbency through minimum capital ratio thresholds and heightened supervisory response. Should a
bank fail to comply with the prescribed REST Limits, it shall be directed to explain why its exposures do
not warrant immediate remedial action. If the explanation is deemed insufficient, the bank shall be required
to submit an action plan to meet the REST Limits within a reasonable time frame. If a bank fails to submit
an action plan or persistently breaches the REST Limits due to non-compliance with the commitments in
its submitted action plan, it may be considered to be engaging in unsafe or unsound banking which may
subject it to appropriate sanctions.

In June 2016, the BSP implemented the interest rate corridor (“IRC”) which effectively narrowed the band
among the BSP’s key policy rates. The pricing benchmark, which used to be the “special deposit account”
prior to the implementation of the IRC, was replaced by the “overnight deposit facility” with a current rate
of 4.25%, and forms the lower bound of the IRC. Meanwhile, the rate for the “overnight lending facility”,
which replaced the previous repurchase facility, and forms the upper bound of the IRC, is currently at
5.25%. The BSP likewise introduced the “term deposit facility” to serve as the main tool for absorbing
liquidity through weekly term deposit facility auctions, the frequency for which may be changed depending
on the BSP’s liquidity forecasts. According to the BSP, the changes from IRC are purely operational in
nature to allow it to conduct monetary policy effectively.

Additionally, the BSP pursuant to BSP Circular No. 1041 (Series of 2019) reduced the rates of required
reserves against deposit and deposit substitute liabilities for universal and commercial banks commencing
on reserve week May 31, 2019, as follows: (a) 17% against demand deposits, savings deposits (excluding
basic deposit accounts), time deposits and deposit substitutes, negotiable CTDs, long-term non-
negotiable tax-exempt CTDs, Peso deposits lodged under due to foreign banks, Peso deposits lodged
under due to head office/branches/agencies abroad (Philippine branch of a foreign bank); (b) 17% against
NOW accounts; (c) 0% against deposit substitutes evidenced by repurchase agreements; (d) 4% against
LTNCDs; (e) 6% against bonds; and (f) 0% against basic deposit accounts as defined under Section X222
of the Manuel of Regulations for Banks and for IBCL (Sec. 315). Beginning June 28, 2019, the 17%
reserve rates will be reduced to 16.5% across the board, and further reduced to 16% beginning July 26,
2019.

The BIR has also promulgated rules on the submission of an alphabetical list of portfolio investors
receiving income payments and dividends. The BIR requires all withholding agents to submit such list of
payees on income payments subject to creditable and withholding taxes and prohibit the lumping into a
single amount and account of various income payments and taxes withheld. The Supreme Court (“SC”),
however, issued a temporary restraining order (“TRO”) against the said BIR rule on September 9, 2014
insofar as they prohibit the naming of an entity called the Philippine Central Depository (“PCD”) Nominee,
or any other securities intermediaries representing the beneficial owner, as the payee for dividend
payments made by listed companies.

BPI’s failure to comply with current or future regulations and guidelines issued by regulatory authorities in
the Philippines or significant compliance and monitoring costs resulting from current or future regulations
and guidelines could have a material adverse effect on BPI’s business, financial condition and results of
operations. In addition, as a result of a failure to comply with any current or future regulations and
guidelines, BPI may become subject to sanctions, warning or reprimand and incur monetary penalties.

BPI may experience difficulties due to the implementation of Basel III in the Philippines.

On July 1, 2007, Circular No. 538, which was issued by the BSP on August 4, 2006, took effect. This
circular contains the implementing guidelines of the revised International Convergence of Capital
Measurement and Capital Standards known as Basel II.

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On January 15, 2009, the BSP issued Circular No. 639 covering the ICAAP which supplements the BSP’s
risk-based capital adequacy framework under BSP Circular No. 538. The BSP requires banks to have in
place an ICAAP that (a) takes into account not just the credit, market and operational risks but also all
other material risks to which a bank is exposed (such as interest rate risk in the banking book, liquidity
risk, compliance risk, strategic/business risk and reputation risk); (b) covers more precise assessments
and quantification of certain risks (i.e. credit concentration risk); and (c) evaluates the quality of capital.

In December 2010, a new update to the Basel Accords, known as Basel III, was issued by the Basel
Committee containing new standards that modify the structure of regulatory capital. The Basel III
regulations include tighter definitions of Tier 1 capital and Tier 2 capital, the introduction of a leverage
ratio, changes in the risk weighting of counterparty credit risk, a framework for counter-cyclical capital
buffers, and short and medium-term quantitative liquidity ratios.

In 2011, the BSP issued BSP Circular 709, which aligns with the Basel Committee on the eligibility criteria
on Additional Group Concern Capital and Tier 2 Capital to determine eligibility of capital instruments to
be issued by Philippine banks/quasi-banks as Hybrid Tier 1 Capital and Lower Tier 2 Capital. In January
2012, the BSP announced that the Philippines’ universal and commercial banks, including their subsidiary
banks and quasibanks, will be required to adopt in full the capital adequacy standards under Basel III with
effect from January 1, 2014.

Further, in January 2013, the BSP issued Circular No. 781 as the Basel III Implementing Guidelines on
Minimum Capital Requirements, which took effect in January 2014, highlights of which include:

• adopting a new categorisation of the capital base;

• adopting eligibility criteria for each capital category that is not yet included in Circular 709;

• as applicable, allowing the BSP to adopt regulatory deductions in Basel III;

• keeping minimum CAR at 10%, and prescribing:

o a minimum Common Equity Tier 1 (“CET1”) ratio of 6.0%;

o a minimum Tier 1 ratio of 7.5%; and

o a capital conservation buffer of 2.5%;

• by January 1, 2014, rendering ineligible existing capital instruments as of December 31, 2010
that do not meet eligibility criteria for capital instruments under the revised capital framework;

• by January 1, 2016, rendering ineligible regulatory capital instruments issued under circulars 709
and 716 before the revised capital framework became effective; and

• by subjecting covered banks and quasi-banks to the enhanced disclosure requirements

pertaining to regulatory capital.

On October 29, 2014, the BSP issued Circular No. 856, or the “Implementing Guidelines on the
Framework for Dealing with DSIBs under Basel III” to address systemic risk and interconnectedness by
identifying banks which are deemed systemically important within the Philippine banking industry. Banks
identified as DSIBs will be required to have higher loss absorbency capabilities, in addition to minimum
CET1 capital and capital conservation buffer requirements. Identified DSIBs will need to put up an
additional 1.5% to 3.5% of common equity Tier 1 depending on their classification. Compliance with this
requirement is phased-in starting January 1, 2017, with full compliance on January 1, 2019.

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In May 2015, the BSP issued Circular No. 881 setting out the approved guidelines for the implementation
of Basel III leverage ratio. Subsequently, guidelines were issued by the BSP requiring universal and
commercial banks to maintain a minimum leverage ratio of 5%, which is more stringent than the 3%
minimum leverage ratio under Basel III.

In addition, the BSP issued Circular No. 905 providing new liquidity requirements under Basel III’s new
liquidity framework, namely, the LCR and the NSFR. The LCR requires banks to hold a sufficient level of
HLQA to enable them to withstand a 30 day-liquidity stress scenario. As of January 1, 2018, the LCR
threshold that banks are required to meet is 90% and will be increased to 100% beginning January 1,
2019. The NSFR requires that banks’ assets and activities are structurally funded with long-term and
more stable funding sources. On June 4, 2018, the BSP announced the Monetary Board’s approval of
the adoption of the NSFR for universal and commercial banks. Beginning January 1, 2019, covered
institutions are required to maintain an NSFR of 100% on both solo and consolidated bases. On March
15, 2019, the Monetary Board approved the extension of the observation period for the LCR and NSFR
for subsidiary banks and quasi-banks of universal and commercial banks until December 31, 2019,
moving the effectivity dates of said ratios to January 1, 2020. During the extended observation period,
subsidiary banks and quasi-banks of universal and commercial banks are required to comply with a 70%
LCR and NSFR, which shall increase to 100% on January 1, 2020. On March 15, 2019, the Monetary
Board also approved amendments to the LCR framework and minimum liquidity ratio guidelines, and
disclosure requirements of information related to LCR starting 2019 for universal and commercial banks
and 2020 for subsidiary banks and quasi banks of universal and commercial banks. Although these
measures are aimed at strengthening the ability of banks to withstand liquidity stress and promote
resilience of the banking sector, compliance with these ratios may also further increase competition
among banks for deposits as well as high quality liquid assets.

The BSP Monetary Board subsequently approved the adoption of a minimum leverage ratio requirement
for universal banks, commercial banks and their subsidiary banks and quasi-banks. Beginning on July 1,
2018, covered institutions must maintain a leverage ratio of no lower than 5%. The leverage ratio is a
non-risk based measure, which serves as a backstop to the CAR.

The BSP introduced the leverage ratio framework on June 5, 2015 under Circular No. 881 with the
implementation limited to monitoring purposes. With the Monetary Board’s recent decision, the leverage
ratio will form part of the Basel III minimum capital requirements, along with the 6% CET1 Ratio, 7.5%
Tier 1 Ratio and the 10% CAR.

In addition, Basel III capital rules for banks include setting up a CCyB buffer wherein banks build up the
required level of capital during boom times and draw down on the buffer in the event of an adverse turn
in the cycle or during periods of stress, thus helping to absorb losses. The CCyB will require banks to
hold additional common equity or other fully loss absorbing capital in amounts ranging from 0% to 2.5%
of the risk-weighted assets. Under BPI for International Settlements, the CCyB was phased in beginning
on January 1, 2016 and became fully effective on January 1, 2019. The BSP, however, has yet to release
the guidelines on the CCyB.

As of June 30, 2019, the Bank had CAR of 16.44%, Tier 1 ratio of 15.55% and capital conservation buffer
of 9.55%. Compliance with these ratios may further increase competition among banks for deposits as
well as high quality liquid assets.

Unless the Bank is able to access the necessary amount of additional capital, any incremental increase
in the capital or liquidity requirement due to the implementation of ICAAP and Basel III may result in BSP
imposed monetary and non-monetary sanctions, including prohibition on the declaration of dividends, and
may impact the Bank’s ability to grow its business and may even require the Bank to withdraw from or to
curtail some of its current business operations, which could materially and adversely affect the Bank’s
business, financial condition and results of operations. There can also be no assurance that the Bank will
be able to raise adequate additional capital in the future at all or on terms favourable to it. There can be

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no assurance that the Bank will be able to meet the requirements of Basel III as implemented by the BSP.
In addition, the limitations or restrictions imposed by the BSP’s implementation of Basel III could materially
and adversely affect the Bank’s business, financial condition and results of operations.

The Philippine banking industry is generally exposed to higher credit risks and greater market
volatility than that of more developed countries.

Philippine banks are subject to the credit risk that Philippine borrowers may not make timely payment of
principal and interest on loans and, in particular that, upon such failure to pay, Philippine banks may not
be able to enforce the security interest they may have. The credit risk of Philippine borrowers is, in many
instances, higher than that of borrowers in developed countries due to:

• the greater uncertainty associated with the Philippine regulatory, political, legal and economic
environment;

• the vulnerability of the Philippine economy in general to a severe global downturn as it impacts
on its export sector, employment in export-oriented industries, and OFW remittances

• the large foreign debt of the Government and the corporate sector, relative to the GDP of the
Philippines; and

• volatility of interest rates and U.S. Dollar/Peso exchange rates.

Higher credit risk has a material adverse effect on the quality of loan portfolios and exposes Philippine
banks, including BPI, to more potential losses and higher risks than banks in more developed countries.
In addition, higher credit risk generally increases the cost of capital for Philippine banks compared to their
international counterparts. Such losses and higher capital costs arising from this higher credit risk may
have a material adverse effect on BPI’s financial condition, liquidity and results of operations. According
to data from the BSP, the average NPL ratios exclusive of interbank loans in the Philippine Universal and
Commercial banking industry were 1.4%, 1.4%, 1.3% and 1.7% as at 31 December 2016, 2017 and 2018
and May 31, 2019, respectively.

BPI’s ability to identify, assess, monitor and manage risks inherent in its business is anchored
on the quality and timeliness of available industry and internal risk data.

BPI, through its Risk Management Office, classifies its risk exposures according to three major
component areas, namely credit risk, market and liquidity risks, and operational and IT risks. The
effectiveness of BPI’s risk management, particularly on the management of credit risk which inherent
in its core businesses, is bounded by the quality and timeliness of available data in the Philippines as
well as internal risk data in relation to different factors such as, but not limited to, the proposed
borrowers’ credit history, loan exposures with other financial institutions and other external and market
factors affecting overall credit including information provided by credit bureaus and market data
providers. Insufficient or inaccurate risk and financial data including limitations of BPI’s risk
management systems and risk data infrastructure, if any, may result to BPI granting loans that may
expose BPI to significant credit risk, take positions that may expose BPI to market and liquidity risks,
or undertake business activities that may result to operational, IT and other material risks. To the best
of the Bank's knowledge, there are no anticipated and/or significant changes in the Bank's risk
exposures that shall materially affect the Bank's financial condition, results of operations, and/or
reputational stance to date, given the adequacy of risk mitigation and effectiveness of controls in place.

Risk Management

BPI espouses a comprehensive risk management and capital management framework, which integrates
the management of all its financial and non-financial risk exposures. The framework conforms not only to
BPI’s own rigorous standards, but also the BSP directives in promoting an effective ICAAP and other risk

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management processes; and ensures that BPI has adequate liquidity and capital levels to mitigate risks,
as well as robust business continuity and crisis resiliency standards in place. The framework focuses on
three (3) key components of:

• Sound risk management governance;

• Effective risk processes, information systems, and controls; and
• Timely and reliable risk data.

BPI’s Board of Directors fulfills its risk management function through the Risk Management Committee
(“RMC”). At the management level, the Risk Management Office (“RMO”) is headed by the Chief Risk
Officer (“CRO”). The CRO is responsible in leading the formulation of risk management policies,
methodologies, and metrics in alignment with the overall business strategy of BPI, ensuring that risks are
prudently and rationally undertaken and within BPI’s risk appetite, as well as commensurate and
disciplined to maximize returns on capital. The CRO and the RMO facilitate risk management learning
programs and promote best practices on an enterprise-wide basis.

BPI’s risk exposures are identified, measured, and monitored, and controlled according to three (3) major
classifications:

• Credit Risk, the largest single risk for most local banks, arises from the Bank’s core lending and
investing businesses, and involves the thorough credit evaluation, appropriate approval,
management and continuous monitoring of exposure risks, such as borrower (or counterparty)
risk, facility risk, concentrations and industry risk relating to each loan account. In BPI, the entire
credit risk management process is governed by stringent underwriting policies and rating
parameters, and lending procedures and standards which are regularly reviewed and updated
given regulatory requirements and market developments. BPI’s loan portfolio is continuously
monitored and reviewed as to overall asset quality, concentration and utilization of limits. BPI
continuously experiences growth in loan volumes but is able to manage overall low credit risk and
maintain asset quality (as evidenced by generally low NPLs and adequate reserves cover), and
did so in general compliance with regulatory and prudential requirements relating to credit risk
management (e.g., Related Party Transactions (“RPT”) and DOSRI restrictions, single borrower’s
limits, and credit concentration, internal and regulatory stress tests, among others).

• Market and Liquidity Risks arise from BPI’s business in managing interest rate and liquidity
gaps, as well as in the trading and distribution of fixed income, foreign exchange, and derivative
instruments (as allowed by regulation). Price risk and liquidity risk are managed using a set of
established policies and metrics guided by the Bank's market risk management framework set by
the BPI Board of Directors/RMC. Price risk is the risk that BPI's earnings will decline immediately
(or over time) because of volatility in interest rates, FX rates, or equity prices. BPI employs various
methodologies such as value-at-risk (“VaR”), loss limits, balance sheet value-at-risk, and earnings
at-risk, supplemented by regular stress tests. Liquidity exposures on funding mainly come from
the mismatches of asset, liability, and exchange contract maturities. BPI manages liquidity risk by
setting a minimum cumulative liquidity gap (MCLG – smallest net cumulative cash inflow or the
largest net cumulative cash outflow), conducting internal and regulatory liquidity stress tests, and
testing an established contingency funding plan. BPI’s market and liquidity risk exposures are
generally well within the RMC (i.e., at the BPI Board of Directors-level) approved VaR, stop loss,
and other risk limits at the BPI Parent and consolidated group levels.

• Operational and IT Risks arise from BPI’s people and processes, its information technology,
threats to the security of its facilities, personnel, or data, models, business interruption risk,
reputational risk, and compliance obligations to regulatory or taxing authorities, amongst others.
Operational and IT risk management in BPI involves the formulation of policies, setting and
monitoring of key risk indicators, overseeing the thoroughness of bank-wide risk and control self-
assessments and loss incident management; and in the process, creating and maintaining a
sound business operating environment that ensures and protects the integrity of BPI’s assets,
transactions, reputation, records and data of BPI and its customers, the enforceability of BPI’s

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claims, and compliance with all pertinent legal and regulatory parameters. BPI’s actual operational
losses are generally less than 1% of BPI’s annual gross income, which is well within BPI’s appetite
for operational and IT risks.

BPI also has a BPI Board of Directors-approved IT risk governance structure that espouses the three lines
of defense. Identification, assessment, monitoring and addressing IT Risks is the primary responsibility of
the business and operating units, including BPI's Information Systems Group, through tools such as Risk
Assessments, Key Risk Indicator (“KRI”) monitoring, Loss Event Data (“LED”) collection and analysis.
There is an IT Risk Committee and IT Steering Committee that meets regularly, where IT risk issues are
discussed at management level. The second line of defense is performed by the Risk Management Office,
under which the Operational and Information Technology Risk Management unit develops and deploys
the tools (such as Risk Assessments, KRIs, LED) used to identify, assess and monitor IT risks, and
provides the RMC with reports on BPI's IT risk profile. BPI also has an Enterprise Information Security
Management team which develops strategies and provides oversight in mitigating risks to the
confidentiality, integrity, and availability of BPI’s information assets and information systems. BPI also has
in place business continuity and disaster recovery plans to ensure the recovery and availability of all critical
organizational assets and customer-servicing infrastructure. Incident Management processes are in place
to properly manage incidents. A Crisis Resiliency Committee and process is in place to prevent incidents
from escalating to catastrophic proportions. Robust BCP sites are situated in strategic locations for critical
head office services to meet the increasing demand on business continuity preparedness of the bank’s
operations. The BPI Board of Directors-level RMC is regularly apprised of IT risks through comprehensive
reporting and discussions during monthly meetings. To further strengthen information security awareness,
the BPI Board of Directors is continually briefed on current cybercrime landscapes, emerging risks and
industry trends, as well as mitigating measures implemented by BPI.

Risk management is carried out by a dedicated team of skilled risk managers and senior officers who have
extensive prior operational experience working within BPI. BPI’s risk managers regularly monitor key risk
indicators and report exposures against carefully-established credit, market, liquidity and operational and
IT risk metrics and limits approved by the RMC. Finally, independent reviews are regularly conducted by
BPI’s Internal Audit group, regulatory examiners, and external auditors to ensure that risk controls and
mitigants are in place and functioning effectively as intended.

Dividends

As approved by BPI’s Board of Directors, BPI’s dividend policy is to declare cash dividends to its common
stockholders on a regular basis as may be determined by the BPI Board of Directors. As its dividend
payout history shows, BPI has consistently paid at least ₱1.80 per share in annual dividends; however,
BPI evaluates its dividend payments from time to time in accordance with business and regulatory
requirements, and cannot make explicit warranties about the quantum of future dividend payments.

Cash dividends declared and paid during the following periods are as follows:

Date Declared Date of Payment Amount of Dividends

Per Share Total
(in Million Pesos)
June 15, 2017 July 27, 2017 0.90 3,545
December 15, 2017 January 19, 2018 0.90 3,546
June 20, 2018 July 25, 2018 0.90 4,052
December 19, 2018 January 29, 2019 0.90 4,052
May 15, 2019 June 19, 2019 0.90 4,056

There are no known restrictions or impediments to BPI’s ability to pay dividends on common equity,
whether current or future.

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Dividend declaration is ultimately the responsibility of BPI and the BPI Board of Directors which has the
authority to declare dividends as it may deem appropriate. Banks that meet the prequalification criteria
including capital adequacy requirements and applicable laws and regulations of the BSP can declare and
pay dividends without prior BSP verification.

Details of the dividend declaration, BSP approval and manner of payment are reflected in Note 11 of the
June 2019 Unaudited Condensed Consolidated Interim Financial Statements.

TELECOMMUNICATIONS

Globe Telecom, Inc. is a leading full-service telecommunications company in the Philippines, supported by
over 7,700 employees and over 1.2 million AutoloadMax (“AMAX”) retailers, distributors, suppliers, and
business partners nationwide. Globe serves the telecommunications and technology needs of consumers
and businesses across an entire suite of products and services including mobile, fixed, broadband, data
connectivity, internet and managed services. It has major interests in financial technology, digital marketing
solutions, venture capital funding for startups and virtual healthcare. Globe currently has 92.9 million Mobile
subscribers (including fully Mobile Broadband), over 1.8 million Home Broadband customers, and 1.4
million landline subscribers.

Globe is one of the largest companies in the country, and has been consistently recognized both locally
and internationally for its corporate governance practices. It is listed on the Philippine Stock Exchange
under the ticker symbol “GLO” and had a market capitalization of US$5.9 billion as of the end of June 2019.

Globe’s principal shareholders are Ayala and Singapore Telecom International Pte. Ltd. (“STI”),
acknowledged industry leaders in the country and in the region. Aside from providing financial support, this
partnership has created various synergies and has enabled the sharing of best practices in the areas of
purchasing, technical operations, and marketing, among others.

Sustainability at Globe is anchored on The Globe Purpose, that is, “[i]n everything we do, we treat people
right to do a Globe of Good. As a purpose-led organization, we airm to contribute to the UN Sustainable
Development Goals by promoting innovation and technology for greater social impact. Together with
business growth, we actively participate in nation-building through an engaged and empowered workforce
that strives to achieve inclusive and sustainable development for all.” In 2019, Globe became a signatory
to the United Nations Global Compact, committed to implement universal sustainability principles.

Globe Bridging Communities (GlobeBridgeCom) is the corporate social responsibility arm of Globe, which
leads various programs that promote quality education, environmental conservation, social innovation,
active citizenship through volunteerism and responsible use of information and communications technology
to enrich the lives of our key stakeholders.

The Globe Group is composed of the following companies:

Globe provides digital wireless communications services in the Philippines under the Globe Postpaid, Globe
Prepaid, and Touch Mobile (“TM”) brands, using a fully digital network. It also offers domestic and
international long-distance communication services or carrier services;

• Innove Communications Inc. (“Innove”), a wholly-owned subsidiary, provides fixed line

telecommunications and Broadband services, high-speed internet and private data networks for
enterprise clients, services for internal applications, internet protocol-based solutions and
multimedia content delivery.

On December 14, 2018, the President of the Philippines signed House Bill No. 5556 into Republic Act No.
11151 entitled “Act Renewing For Another Twenty Five (25) Years the Franchise Granted to Isla
Communications Company, Inc. Presently Known as Innove Communications, Inc., Amending for the
Purpose Republic Act No. 7372 entitled “An Act Granting the Isla Communications Co. a Franchise to

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Install, Operate and Maintain Telecommunications Services Within the Territory of the Republic of the
Philippines and International Points and for Other Purposes”. Republic Act No. 11151 shall take effect 15
days after its publication in the Official Gazette or a newspaper of general circulation. Republic Act No.
11151 was published in the Official Gazette and in a newspaper of general circulation on January 14, 2019.

On November 2, 2015, Innove and Techzone Philippines incorporated TechGlobal Data Center, Inc.
(“TechGlobal”), a joint venture company formed for the purpose of operating and managing all kinds of data
centers, and providing information technology-enabled, knowledge-based and computer-enabled support
services. Innove and Techzone hold ownership interest of 49% and 51%, respectively. TechGlobal started
commercial operations in August 2017;

• GTI Business Holdings, Inc. (“GTI”), is a wholly-owned subsidiary with authority to provide voice-
over-internet-protocol (“VOIP”) services. GTI was incorporated and registered under the laws of
the Philippines, on November 25, 2008, as a holding company.

GTI Corporation (“GTIC”)

In July 2009, GTI incorporated a wholly owned subsidiary, GTIC, a company organized under the General
Corporation Law of the United States of America, State of Delaware as a wireless and data communication
services provider.

Globe Telecom HK Limited (“GTHK”)

In December 2011, GTI incorporated a wholly owned subsidiary, GTHK, a limited company organized under
the Companies Ordinance of Hong Kong as a marketing and distribution company. On March 17, 2015,
GTHK applied for a services-based operator license with the Office of the Communications Authority in
Hong Kong which was subsequently approved on May 7, 2015. GTHK is engaged in the marketing and
selling of telecommunication products and services in the international market, except the United States of
America and the Philippines, under a distributor arragement.

Globetel European Limited (“GTEU”) and Subsidiaries

On May 10, 2013, GTI incorporated a wholly owned subsidiary, GTEU as holding company for the operating
companies of the Globe Group located in the United Kingdom, Spain and Italy.

In 2013, GTEU incorporated its wholly owned subsidiaries, UK Globetel Limited (“UKGT”), Globe Mobilé
Italy S.r.l. (“GMI”), and Globetel Internacional European España, S.L. (“GIEE”), for the purpose of
establishing operations in Europe by marketing and selling Mobile telecommunications services to Filipino
individuals and businesses located in the United Kingdom, Spain and Italy.

On June 2, 2016, the Board of Directors of Globe approved the cessation of the operations of UKGT, GMI
and GIEE effective July 31, 2016. UKGT and GMI completed the liquidation process in 2018. The
completion of the regulatory requirements on the liquidation of GIEE is still in process as of June 30, 2019.

Globetel Singapore Pte. Ltd. (“GTSG”)

On November 12, 2014, GTI incorporated GTSG, a wholly owned subsidiary, for the purpose of offering full
range of international data services in Singapore under a facilities-based operations license with
Infocommunications Development Authority in Singapore which was granted on January 7, 2015;

• Kickstart Ventures, Inc. (“Kickstart”), a wholly-owned subsidiary and is the Philippines' most active
Corporate Venture Capital firm investing in Seed to Series D digital startups. On March 28, 2012,
Globe Telecom incorporated Kickstart, a stock corporation organized under the laws of the
Philippines and formed for the purpose of investing in individual, corporate, or start-up businesses,
and to do research, technology development and commercializing of new business ventures.

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In February 2014, Kickstart acquired 40% equity interest in Flipside Publishing Services, Inc. (“FPSI”). Since
Kickstart was able to demonstrate control over FPSI despite of less than 50% ownership interest, FPSI was
assessed to be a subsidiary of Kickstart and is included in the consolidation of Globe Group. FPSI is
engaged primarily to acquire publishing rights, produce, publish, market, and sell printed and electronic
books (“e-books”) and other electronic documents and content for international and domestic sales. FPSI
ceased operations in July 2016. FPSI remains a dormant company as of reporting date;

• Asticom Technology, Inc. (“Asticom”), a wholly-owned subsidiary, is engaged in trading, marketing,

installing and servicing of computer equipment, peripherals, manpower, software and other data
processing devices. Asticom was consolidated beginning June 2014;

• Globe Capital Venture Holdings, lnc. (“GCVHI”), a wholly-owned subsidiary incorporated on June
29, 2015. AHI’s subsidiaries are Adspark Inc. (“AI”) and Socialytics Inc. (“Socialytics”). GCVHI also
owns 45% of Globe Fintech and 50% of Globe Telehealth;

On June 29, 2015, Globe incorporated its wholly owned subsidiary, GCVHI as an investing and holding
company primarily engaged in purchasing, subscribing, owning, holding, assigning real and personal
property, shares of stock and other securities. On October 13, 2015, GCVHI incorporated its wholly owned
subsidiary Adspark Holdings, Inc. (“AHI”), a holding company established for the acquisition of additional
investment in Globe Telecom’s non – core business.

AHI hold 100% of AI, an advertising company. On January 29, 2016, AI acquired 70% of the outstanding
shares of Socialytics Inc., a social media marketing firm.

As of December 31, 2018, GCVHI holds 45% ownership interest in Globe Fintech Innovations, Inc. (“GFI”)
and 50% ownership interest in Global Telehealth, Inc. (“GTHI”). GCVHI, GFI and AHI (collectively referred
here as “GCVHI Group”) are holding companies for Globe Telecom’s non-core businesses;

• Bayan Telecommunications, Inc. (“Bayantel”) is a provider of data and communications services

such as dedicated domestic and international leased lines, frame relay services, Internet access,
and other managed data services like Digital Subscriber Lines (“DSL”). Globe owns approximately
99% of Bayantel.

On July 2, 2015, Bayantel issued additional shares to Globe following the approval of National
Telecommunications Commission (“NTC”) on the conversion of Bayantel’s Tranche A convertible debt to
equity. The conversion increased the ownership of Globe on Bayantel’s outstanding shares from 38% to
54% controlling interest. On July 20, 2015, Globe acquired additional voting shares of Bayantel, which
further increased its controlling interest to 99%. Bayantel is a facilities-based provider of data services and
fixed-line telecommunications.

Bayantel’s subsidiaries are: Radio Communications of the Philippines, Inc. (“RCPI”), Telecoms
Infrastructure Corp. of the Philippines (“Telicphil”), Sky Internet, Incorporated (“Sky Internet”), GlobeTel
Japan (formerly BTI Global Communications Japan, Inc.), and NDTN Land, Inc. (“NLI”).

On May 30, 2017, the Management Committee, with representation of at least sixty-seven percent of the
total voting interest, approved the termination of the Agreement on the Construction, Operation and
Maintenance of the National Digital Transmission Network dated November 28, 1996, as well as the
dissolution of Telicphil and NLI;

• TaoDharma (“Tao”), 67% owned by Globe. Tao was established to operate and maintain retail
stores in strategic locations within the Philippines that will sell telecommunications or internet-
related services, and devices, gadgets and accessories.

On November 4, 2016, Globe increased its ownership interest on Tao from 25% to 67% controlling interest.
The transaction was accounted for as an acquisition of a subsidiary.

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• GTowers Inc (“GTowers”), a fully owned subsidiary of Globe incorporated on August 17, 2018.
GTowers is still under pre-operating stage.

Globe is a grantee of various authorizations and licenses from the NTC as follows: (1) license to offer and
operate facsimile, other traditional voice and data services and domestic line service using Very Small
Aperture Terminal (“VSAT”) technology; (2) license for inter-exchange services; and (3) Certificate of Public
Convenience and Necessity (“CPCN”) for: (a) international digital gateway facility (“IGF”) in Metro Manila,
(b) nationwide digital cellular mobile telephone system (“CMTS”) under the GSM standard, (c) nationwide
local exchange carrier services after being granted a provisional authority in June 2005, and (d)
international cable landing stations located in Nasugbu, Batangas, Ballesteros, Cagayan and Brgy.
Talomo, Davao City.

A. Business Development and Corporate History

In 1928, Congress passed Act No. 3495 granting the Robert Dollar Company, a corporation organized and
existing under the laws of the State of California, a franchise to operate wireless long-distance message
services in the Philippines. Subsequently, Congress passed Act No. 4150 in 1934 to transfer the franchise
and privileges of the Robert Dollar Company to Globe Wireless Limited which was incorporated in the
Philippines on 15 January 1935.

Globe Wireless Limited was later renamed as Globe-Mackay Cable and Radio Corporation (“Globe-
Mackay”). Through Republic Act No. 4630 enacted in 1965 by Congress, its franchise was further expanded
to allow it to operate international communications systems. Globe-Mackay was granted a new franchise
in 1980 by Batasan Pambansa under Batas Pambansa 95.

In 1974, Globe-Mackay sold 60% of its stock to Ayala, local investors and its employees. It offered its shares
to the public on August 11, 1975.

In 1992, Globe-Mackay merged with Clavecilla Radio Corporation, a domestic telecommunications pioneer,
to form GMCR, Inc. (“GMCR”). The merger gave GMCR the capability to provide all forms of
telecommunications to address the international and domestic requirements of its customers. GMCR was
subsequently renamed Globe Telecom, Inc.

In 1993, Globe welcomed a new foreign partner, STI, a wholly-owned subsidiary of Singapore
Telecommunications Limited, after Ayala and STI signed a Memorandum of Understanding.

In 2001, Globe acquired Isla Communications Company, Inc. (“Islacom”) which became its wholly- owned
subsidiary effective June 27, 2001. In 2003, the NTC granted Globe’s application to transfer its fixed line
business assets and subscribers to Islacom, pursuant to its strategy to integrate all of its fixed line services
under Islacom. Subsequently, Islacom was renamed as Innove Communications, Inc.

In 2004, Globe invested in G-Xchange, Inc. (“GXI”), a wholly-owned subsidiary, to handle the mobile
payment and remittance service marketed under the GCash brand using Globe’s network as transport
channel. GXI started commercial operations on October 16, 2004.

In November 2004, Globe and seven other leading Asia Pacific mobile operators (‘‘JV partners’’) signed an
agreement (‘’JV agreement’’) to form Bridge Alliance. The joint venture company operates through a
Singapore-incorporated company, Bridge Mobile Pte. Limited (BMPL) which serves as a commercial
vehicle for the JV partners to build and establish a regional mobile infrastructure and common service
platform to deliver different regional mobile services to their subscribers. As of December 31, 2018, the
Bridge Alliance currently has a combined customer base of over 250 million subscribers among its partners
in India, Thailand, Hong Kong, South Korea, Macau, Philippines, Malaysia, Singapore, Australia, Taiwan
and Indonesia.

In 2005, Innove was awarded by the NTC with a nationwide franchise for its fixed line business, allowing it
to operate a Local Exchange Carrier service nationwide and expand its network coverage. In December

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2005, the NTC approved Globe’s application for third generation (3G) radio frequency spectra to support
the upgrade of its CMTS network to be able to provide 3G services. Globe was assigned with 10-Megahertz
(MHz) of the 3G radio frequency spectrum.

On May 19, 2008, following the approval of the NTC, the subscriber contracts of Touch Mobile or TM
prepaid service were transferred from Innove to Globe which now operates all wireless prepaid services
using its integrated cellular networks.

In August 2008, and to further grow its mobile data segment, Globe acquired 100% ownership of
Entertainment Gateway Group (“EGG”), a leading mobile content provider in the Philippines. EGG offers a
wide array of VAS covering music, news and information, games, chat and web-to-mobile messaging.

On November 25, 2008, Globe formed GTI Business Holdings, Inc. primarily to act as an investment
company.

On October 30, 2008, Globe, BPI and Ayala signed a memorandum of agreement to form a joint venture
that would allow rural and low-income customers’ access to financial products and services. Last October
2009, the BSP approved the sale and transfer by BPI of its shares of stock in Pilipinas Savings Bank, Inc.
(PSBI), formalizing the creation of the venture. Globe and BPI’s ownership stakes in PSBI is at 40% each,
while Ayala’s shareholding is at 20%. The partners plan to transform PSBI (now called BPI Globe BanKO,
Inc.) into the country’s first mobile microfinance bank. The bank’s initial focus will be on wholesale lending
to other microfinance institutions but will eventually expand to include retail lending, deposit-taking, and
micro-insurance. BPI Globe BanKO opened its first branch in Metro Manila in the first quarter of 2011 and
now has 6 branches nationwide, over 2,000 partner outlets, 261,000 customers and over ₱2.4 billion in its
wholesale loan portfolio.

On March 2012, Globe launched Kickstart to help, support and develop the dynamic and growing
community of technopreneurs in the Philippines. Kickstart is a business incubator that is focused on
providing aspiring technopreneurs with the efficient environment and the necessary mechanisms to start
their own business. Since its launch, Kickstart has 10 companies in its portfolio covering the digital media
and technology, and web/mobile platform space.

In October 2013, following the court's approval of the Amended Rehabilitation Plan (jointly filed by Globe
and Bayantel in May 2013), Globe acquired a 38% interest in Bayantel by converting Bayantel's
unsustainable debt into common shares. This follows Globe's successful tender offer for close to 97% of
Bayantel's outstanding indebtedness as of December 2012. As part of the amended rehab plan and pending
regulatory approvals, Globe would further convert a portion of its sustainable debt into common shares of
Bayantel, bringing up its stake to around 57%. On October 2014, Globe Telecom received a copy of the
TRO issued by the CA stopping the NTC proceedings in connection with the bid of Globe Telecom Inc. to
take over Bayantel. Despite the lapse of the TRO last December 9, 2014, the CA has advised the NTC to
refrain from conducting any proceedings in connection with the bid of Globe assume majority control of
Bayantel.

On June 3, 2014, Globe signed an agreement with Azalea Technology, Inc. and SCS Computer Systems,
acquiring the entire ownership stake in Asticom, a systems integrator and information technology services
provider to domestic and international markets.

On July 20, 2015, Globe has agreed to purchase from Bayan Telecommunications Holdings, Corporation
("BTHC') and Lopez Holdings, Corporation ("LHC") all the equity in the capital stock of Bayantel that is held
by BTHC and LHC. The transaction involved up to 70,763,707 Bayan shares and increased Globe's equity
interests in BTI from 56.87% to 98.57% of outstanding capital stock.

On November 12, 2015, Globe received the resolution from the rehabilitation court granting its motion for
the termination of the rehabilitation proceedings involving Bayantel. The resolution sets a key milestone for
Bayantel, wherein it successfully exits rehabilitation and provides key steps for Globe to continue to unlock
opportunities for synergies with Bayantel.

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Globe, Ayala and BPI signed an agreement on August 27, 2015 to turn over full ownership of BanKO to
BPI, one of the majority owners of the joint venture. Despite the change in shareholder structure, BanKO
will continue to provide broader and more competitive access to funds and critical financial services to the
underbanked. Globe and Ayala sold their respective 40% and 20% stakes in BanKO to BPI, which already
owned 40% of BanKO.

Xurpas Inc. signed an agreement with Globe on September 1, 2015, investing ₱900 Million for a 51% equity
stake in Yondu Inc. The investment solidifies the Globe and Xurpas, Inc. partnership in the internet and
digital space and will transform Yondu Inc. into a regional arm for digital content distribution and other
technology driven services. The strategic alliance of Globe and Xurpas Inc. in Yondu bolsters Globe’s track
record of partnering with leading digital players to strengthen its position as the purveyor of the Filipino
digital lifestyle.

On September 1, 2015, Yondu Inc. and GCVHI entered into a Deed of Assignment to assign the former’s
interest in Global Telehealth, Inc. (“GTHI”) to GCVHI for a total consideration of ₱15 million.

On September 15, 2015, Globe sold its controlling interest in Yondu for a total consideration of ₱670 million.
On the same date, Yondu Inc. issued additional 5,000 common shares from its unissued authorized capital
stock to a third party which further dilutes Globe’s ownership interest to 49% as of September 2015.

On May 30, 2016, the Board of Directors of Globe, through its Executive Committee, approved the
acquisition and signing of a sale and share purchase agreement and other related definitive agreements
for the following entities:

• 50% of the issued and outstanding capital stock of Vega Telecom, Inc. (“VTI”) from San Miguel
Corporation (“SMC”);

• 50% of the issued and outstanding capital stock of Bow Arken Holdings Company Inc. (“BAHC”);
and,

• 50% of the issued and outstanding capital stock of Brightshare Holdings Corporation (“BHC”).

VTI owns an equity stake in Liberty Telecom Holdings, Inc. (“LIB”), a publicly listed company in the PSE. It
also owns, directly and indirectly, equity stakes in various enfranchised companies, including Bell
Telecommunication Philippines, Inc. (“BellTel”), Eastern Telecom Philippines, Inc., Express Telecom, Inc.,
and Tori Spectrum Telecom, Inc., among others.

The remaining 50% equity stake in VTI, BAHC and BHC was acquired by PLDT, Inc. (“PLDT” or formerly
known as Philippine Long Distance Telephone Company under similar definitive agreements.

The acquisition provided Globe access to certain frequencies assigned to BellTel in the 700 Mhz, 900 Mhz,
1800 Mhz, 2300 Mhz and 2500 Mhz bands through a co-use arrangement approved by the NTC on May
27, 2016. NTC's approval is subject to the fulfilment of certain conditions including roll out of telecom
infrastructure covering at least 90% of the cities and municipalities in three years to address the growing
demand for broadband infrastructure and internet access.

On June 21, 2016, Globe Telecom exercised its rights as holder of 50% equity interest of VTI to cause VTI
to propose the conduct of a tender offer on the common shares of LIB held by minority shareholders as
well as the voluntary delisting of LIB. At the completion of the tender offer and delisting of LIB, VTI’s
ownership of LIB is at 99.1%.

On August 17, 2018, Globe incorporated GTowers, a fully owned subsidiary aimed at the building and
deployment of cellular towers in the country. As of December 31, 2018, GTowers is still under pre-operating
stage.

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On June 2019, Globe signs Memorandum of Understanding with ISOC Infrastructure Inc. and Malaysia-
based tower giant edotco Group Sdn. Bhd., to fast Track ICT Infra Build in the Philippines.

There was no bankruptcy, receivership or similar proceedings initiated during the past four years.

B. Business Segments

Mobile Business

Globe provides digital Mobile communication and internet-on-the-go services nationwide using a fully digital
network based on the Global System for Mobile Communication (GSM), 3G, HSPA+, 4G, and LTE
technologies. It provides voice, SMS, data and VAS to its Mobile subscribers through three major brands:
Globe Postpaid, Globe Prepaid and TM (including fully Mobile, internet-on-the-go service).

Postpaid

Globe Postpaid is the leading brand in the postpaid market, with various plan offerings. Over the years,
these plans have evolved in order to cater to the changing needs, lifestyles and demands of its customers.

In 2018, in order to keep up with this growing market, Globe once again highlights its portfolio of postpaid
plans featuring “ThePLAN PLUS” which is Globe’s SIM-ONLY Plans, that offers up to 2x larger than life
data. With ThePLAN PLUS (ranging from Plan 599 to Plan 2499), all customers have to do is bring their
own smartphone and get as much as 26GB of data for more time online. Plus, unli call to Globe/TM, unli
text to all network, free six months Spotify Premium and 1 GB data allocation per month for six months, all
with a lock-up period of only six months. While the plan with device or “ThePlan” likewise ranges from plan
599 to 799 includes a choice of handset, 24-month FB subscription (with 1GB data allocation per month),
free gadget care and free shipping. While ThePlan 999 to 2499 includes a choice of handset, free Spotify
premium for 3 months (with 1GB data allocation per month for 3 months), free gadget care and free
shipping.

Prepaid

Globe Prepaid and TM are the prepaid brands of Globe. Globe Prepaid is focused on the mainstream
market while TM caters to the value-conscious segment of the market. Each brand is positioned at different
market segments to address the needs of the subscribers by offering affordable innovative products and
services.

Globe Prepaid’s GoSAKTO is a self-service menu that provides its subscribers easy access to avail of the
latest promos and services of Globe by simply dialing *143# or through the GoSakto Mobile app (available
on Android and iOS). This menu also allows the subscribers to build their own promos (call, text and surf
promos) that are best suited for their needs and lifestyle. Globe Prepaid customers can personalize their
call, text and surfing needs for 1 day, 2 days, 3 days, 7 days, 15 days or even for 30 days. They can also
select the type and number of call minutes and texts they need and adjust data allocation (in MBs) of Mobile
surfing the way they want it.

Globe Prepaid and TM subscribers can reload airtime value or credits using various reloading channels
including prepaid call and text cards, gcash, bank channels such as ATMs, credit cards, and through
internet banking. Subscribers can also top-up via AutoLoad Max retailers nationwide, all at affordable
denominations and increments. A consumer-to-consumer top-up facility, Share-A-Load, is also available to
enable subscribers to share prepaid load credits via SMS.

Loyalty & Rewards Program

The Globe Rewards Program – “MyRewards MyGlobe” is Globe’s way of granting special treats to its active
customers for their continued loyal use of Globe's products and services. Awesome rewards await its loyal
customers in exchange for the points earned -- more rewards points mean more wonderful perks. All

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customers with active Globe/TM SIMs are automatically members of the program. No registration required.
Subscribers can:

• Earn Points from Prepaid reloads or monthly Postpaid usage.

• Redeem Rewards in the form of Mobile promos, bill rebates, gadgets and gift certificates,
and more or use the earned points as cash at partner stores. Subscribers have the option
to redeem rewards instantly, or accumulate points to avail of higher value rewards.
Redeemed points in the form of telecom services is netted out against revenues whereas
points redeemed in the form of non-telco services such as gift certificates and other
products are reflected as marketing expense. At the end of each period, Globe estimates
and records the amount of probable future liability for unredeemed points.

• Enjoy Perks through special discounts, exclusive treats, and more wonderful surprises.

Mobile Voice

Globe’s voice services include local, national and international long-distance call services. It has one of
the most extensive local calling options designed for multiple calling profiles. In addition to its standard,
pay-per-use rates, subscribers can choose from bulk and unlimited voice offerings for all-day, and in several
denominations to suit different budgets.

Globe keeps Filipinos connected wherever they may be in the world, through its tie-up with 775 roaming
partners in 237 calling destinations worldwide. Globe also offers roaming coverage on-board selected
shipping lines and airlines, via satellite. Globe also provides an extensive range of international call and
text services to allow OFWs to stay connected with their friends and families in the Philippines. This
includes prepaid reloadable call cards and electronic PINs available in popular OFW destinations
worldwide.

Mobile SMS

Globe’s Mobile SMS service includes local and international SMS offerings. Globe also offers various
bucket and unlimited SMS packages to cater to the different needs and lifestyles of its postpaid and prepaid
subscribers.

Mobile Data

Globe’s Mobile Data services allow subscribers to access the internet using their internet-capable handsets,
devices or laptops with USB modems. Data access can be made using various technologies including
LTE, HSPA+, 3G with HSDPA, EDGE and GPRS. Globe spearheaded the shift from unlimited time-based
data plans to volume-based consumable plans, geared towards improving the Mobile data experience of
its subscribers and ensures the most appropriate pricing of data. Globe and TM subscribers can choose
from a variety of GoSurf consumable data plans, ranging from ₱15 for 40 MB to ₱2,499 for 20 GB per
month.

Globe’s Nomadic (internet-on-the-go service) is for consumers who require a fully Mobile internet, which
allows subscribers to access the internet using LTE, HSPA+, 3G with HSDPA, EDGE, GPRS or Wi-Fi using
a plug-and-play USB modem/Mobile Wifi. This service is available in both postpaid and prepaid packages.

Globe’s Value-Added Services offers a full range of downloadable content covering multiple topics including
news, information, and entertainment through its web portal. Subscribers can purchase or download music,
movie pictures and wallpapers, games, Mobile advertising, applications or watch clips of popular TV shows
and documentaries as well as participate in interactive TV, do Mobile chat, and play games, among others.
Additionally, Globe subscribers can send and receive Multimedia Messaging Service (MMS) pictures and
video, or do local and international 3G video calling.

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Fixed Line and Home Broadband Business

Globe offers a full range of fixed line communications services, wired and wireless Broadband access, and
end-to-end connectivity solutions customized for consumers, SMEs, large corporations and businesses.

Fixed Line Voice

Globe’s fixed line voice services include local, national and international long-distance calling services in
postpaid and prepaid packages through its Globelines brand. Subscribers get to enjoy toll-free rates for
national long-distance calls with other Globelines subscribers nationwide. Additionally, postpaid fixed line
voice consumers enjoy free unlimited dial-up internet from their Globelines subscriptions. Low-MSF
(monthly service fee) fixed line voice services bundled with internet plans are available nationwide and can
be customized with VAS including multi-calling, call waiting and forwarding, special numbers and voice
mail. For corporate and enterprise customers, Globe offers voice solutions that include regular and
premium conferencing, enhanced voice mail, IP-PBX solutions and domestic or international toll-free
services. With Globe’s cutting-edge Next Generation Network, Globe Business Voice solutions offer
enterprises a bevy of fully-managed traditional and IP-based voice packages that can be customized to
their needs.

Corporate Data

Corporate data services include end-to-end data solutions customized according to the needs of
businesses. Globe’s product offerings include international and domestic leased line services, wholesale
and corporate internet access, data center services and other connectivity solutions tailored to the needs
of specific industries.

Globe’s international data services provide corporate and enterprise customers with the most diverse
international connectivity solutions. Globe’s extensive data network allow customers to manage their own
virtual private networks, subscribe to wholesale internet access via managed international private leased
lines, run various applications, and access other networks with integrated voice services over high-speed,
redundant and reliable connections. In addition to bandwidth access from multiple international submarine
cable operators, Globe also has two international cable landing stations situated in different locales to
ensure redundancy and network resiliency.

Globe’s domestic data services include data center solutions such as business continuity and data recovery
services, 24x7 monitoring and management, dedicated server hosting, maintenance for application-hosting,
managed space and carrier-class facilities for co-location requirements and dedicated hardware from
leading partner vendors for off-site deployment. Other corporate data services include premium-grade
access solutions combining voice, Broadband and video offerings designed to address specific connectivity
requirements. These include Broadband Internet Zones (BIZ) for Broadband-to-room internet access for
hotels, and Internet Exchange (GiX) services for bandwidth-on-demand access packages based on
average usage.

Globe Business knows that success is made up of different elements: effective products, streamlined
processes, and reliable manpower, and that is why Globe’s business solutions are a fusion of all three.
Among the products and solutions are as follows:

a. Mobility - Maintain your business momentum with Mobility solutions that increase productivity
within and beyond the workplace. With Globe's enterprise mobility solutions, it’s easier to
build and maintain the business momentum: (1) Postpaid - Leverage on flexible Postpaid
plans that suit companies of every scale (2) Enterprise Mobile Management - Gain more
control over enterprise Mobile devices while simultaneously maximizing workforce
productivity (3) IsatPhone Pro - Take communications to the next level with a satellite phone
that lets you call, text, and do more—even from remote places around the globe.

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b. Voice - Simplify your communications infrastructure with Globe’s wide range of cost-efficient
Voice Solutions and enjoy the freedom of tailoring the services to fit your business needs.
(Globelines; ISDN-PRI; Toll-Free Services; Enhanced Managed Voice Solution (EMVS);
Managed IP-PBX; SIP Trunk; Hosted PBX System & Services; Collaboration Solutions).

c. Connectivity - Keep your business up to speed with a fast and resilient connection powered
by dedicated and reliable technologies (Domestic Data; International Data; Internet Services;
Managed Services).

d. Cloud - Improve efficiency and agility in the face of evolving business environments while
keeping costs low with Globe’s range of cloud services: Infrastructure-as-a-Service (IaaS);
Backup-as-a-Service (BaaS); Disaster-Recovery-as-a-Service (DRaaS); Amazon Web
Services; AWS Direct Connect.

e. Data Center - Globe Data Center provides a superior experience that goes beyond
technology. Ease your worries on day-to-day operations by outsourcing your data center
hosting and management, so you can focus more on your business.

f. Cybersecurity - Handle security threats and IT infrastructure cost-effectively. Manage your

tasks and functions cost-effectively with Globe Business’ Cybersecurity. Gain access to the
best-in-class tool sets, hardware, software, and even niche technology experts while only
paying for what you need, when you need it.

g. Business Applications - Choose from a diverse range of solutions to streamline and enhance
the business’ operations, and raise efficiency, productivity, and customer satisfaction (G
Suite; Go Canvas, Office 365; Learning Management Solutions, HR Solutions, M2M).

Home Broadband

Globe offers wired and fixed wireless Broadband services, across various technologies and connectivity
speeds for its residential and business customers. Globe Home Broadband consists of wired or DSL
Broadband packages bundled with voice, or Broadband data-only services which are available with
download speeds ranging from 1 Mbps up to 15 Mbps. Globe also expanded its Long-Term Evolution
(“LTE”) footprint through LTE @Home offerings, bringing latest internet technology to households and
allowing subscribers to surf the internet at ultrafast speeds to watch high-definition videos, downloading
and uploading large files, seamless music streaming, and voice-over-internet-protocol (VOIP) calling with
clear quality. This LTE service is backed by the largest 4G network in the country deployed by Globe. In
June 2019, Globe joined leaders of the global telecommunications industry, by being the first in Southeast
Asia to commercially introduce 5G fixed wireless home broadband service in the Philippines. This makes
use of fixed location wireless radios instead of fiber and could provide fiber-like speeds ranging from 50
Mbps to 100 Mbps.

With the new Broadband plans, customers get exclusive access to a portfolio of entertainment content
which allows them to watch movies and basketball games, as well as stream music at the comfort of their
homes. As an online entertainment service provider, HOOQ boasts of an extensive content library with
thousands of movies, television episodes and shows available for users to watch, including titles from
partners Sony Pictures and Warner Bros. Entertainment. With Spotify, the world's most popular music
streaming service, customers get the best music experience with access to over 20 million songs. On the
other hand, the NBA League Pass allows customers to watch basketball games along with highlights, stats
and other features. Likewise, with Walt Disney partnership, Globe customers will now have access to an
array of Disney content offerings (whose brands include Disney, Pixar, Marvel, Star Wars and global leader
in short-form video, Maker Studios) including long- and short-form programming, interactive content and
games, theatrical releases and retail promotions. Moreover, Netflix partnership allows customers to watch
today’s top original Netflix series and renowned movie hits. Netflix adds TV programs and films all the time.
Globe is bringing in more content partners, with VIU and FOX+ now joining its extensive roster of content

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providers giving Globe customers access to a wide library of premium shows3. VIU delivers the latest
Korean entertainment, and FOX+ provides an unrivalled combination of TV, blockbuster movies, sports and
documentaries.

Home Broadband Plans available are GoUnli and GoBIG Plans. GoUnli is the ultimate unlimited data
offering that allows customers to stream video, play music and games without having to worry about lock-
up period, data capping, and speed throttling. GoUnli wired plans start at ₱1,699 a month, which come
with unlimited surfing and streaming up to 5 Mbps. Faster speeds are also available with the following plans:
Plan 1899 for speeds up to 10, 15, or 20 Mbps, Plan 2499 for speeds up to 50 Mbps, and Plan 2899 for
speeds up to 100 Mbps. To avail of the no-lock up offer, interested parties need only pay for a one-time
modem fee of ₱2,500 or ₱4,500 depending on the chosen plan. Those who choose to discontinue their
subscription within the first 15 days will get a 100% refund of their modem fee upon the return of the modem
and telephone set provided during installation. For those looking for an option without modem fees, 24-
month contract plans are also available. GoBig plans have bigger data allocations at affordable rates
alongside fast and reliable speeds. Access to free content apps also remain a major part of the Broadband
bundle. For Plan 1299, customers can enjoy 150GB of data allocation per month, with speeds of up
10Mbps. Those who want to stream more can avail of Plan 1699, which has a data allowance of 600GB
and speeds of up to 20Mbps; Plan 4499, which has 1.5TB of data and speeds of up to 200Mbps, Plan
6,999, which has 3TB of data with speeds up to 500Mbps or Plan 9499, which has 6TB of data with speeds
up to 1Gbps. All Broadband Plans (GoUnli and GoBIG) come with free landline with unlimited calls to Globe
and TM for 24 months plus free six months subscription to DisneyLife, FOX+, HOOQ, Amazon Prime Video,
iflix.

Experience reliable prepaid internet that is not just easy to install but also easy on the budget. Globe At
Home Prepaid Wifi is an improved WiFi connection, with wide internet coverage, ready-to-use freebie and
features. Load, track, and manage your Prepaid WiFi with the Globe At Home App. In addition, Globe
Streamwatch Xtreme Prepaid, the world’s first all-in-one entertainment device, is likewise available. It is
equipped with free clear local live TV channels and serves as an internet TV with over a million videos,
shows, and movies. It also boasts of an internet connection that is 2x faster, 2x stronger, with 2x wider
coverage than your average pocket WiFi device. Multiple devices can also be connected to Globe
Streamwatch Xtreme, so everyone can access all the content they want at the same time.

C. Sales and Distribution

Globe has various sales and distribution channels to address the diverse needs of its subscribers.

1. Independent Dealers

Globe utilizes a number of independent dealers throughout the Philippines to sell and distribute its prepaid
wireless services. This includes major distributors of wireless phone handsets who usually have their own
retail networks, direct sales force, and sub-dealers Dealers are compensated based on the type, volume
and value of reload made in a given period. This takes the form of fixed discounts for prepaid airtime cards
and SIM packs, and discounted selling price for phonekits. Additionally, Globe also relies on its distribution
network of over 1.2 million AutoloadMax retailers nationwide who offer prepaid reloading services to Globe
and TM subscribers.

2. Globe Stores

As of June 30, 2019, Globe has a total of 216 Globe Stores all over the country where customers are able
to inquire and subscribe to wireless, broadband and fixed line services, reload prepaid credits, make
GCASH transactions, purchase handsets and accessories, request for handset repairs, try out
communications devices, and pay bills. The Globe Stores are also registered with the BSP as remittance
outlets.

3
FOX+ is a video-streaming service in Asia promising an unrivalled combination of the latest TV series, first-run Hollywood blockbusters, hit Asian series
and movies, live sports, thrilling documentaries and a big library of content all in one place in stunning high-definition.

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In line with Globe’s thrust to become a more customer-focused and service-driven organization, Globe
departed from the traditional store concept which is transactional in nature and launched the redesigned
Globe Store which carries a seamless, semi-circular, two-section design layout that allows anyone to easily
browse around the product display as well as request for after sales support. It boasts of a wide array of
mobile phones that the customers can feel, touch and test. There are also laptops with high speed internet
broadband connections for everyone to try. The Globe store has an Express Section for fast transactions
such as modification of account information and subscription plans; a Full- Service Section for more
complex transactions and opening of new accounts; and a Cashier Section for bill payments. The store also
has a self-help area where customers can, among others, print a copy of their bill, and use interactive touch
screens for easy access to information about the different mobile phones and Globe products and services.
Globe stores also include NegoStore areas, which serve as additional sales channels for current and
prospective Globe customers. Moreover, select stores also have ‘Tech Coaches’ or device experts that can
help customers with their concerns on their smartphones. Globe opened the first concept store in Greenbelt
4 in 2010 and accelerated its roll-out throughout 2011, averaging 4-5 new stores a month.

In 2012, Globe introduced other store formats in response to the need for more customer service channels
to accommodate more subscribers availing of Globe postpaid, prepaid and internet services. The new store
formats - the premium dealership store, pop-up store, microstore, kiosk, and store-on- the-go – were
carefully designed based on demographics, lifestyle and shopping behaviors of its customers, each
providing a different retail mix and experience to subscribers.

In 2013, Globe opened 50 concept stores and will open more concept stores in the country as part of its
commitment to a wonderful customer service experience.

In 2014, Globe simultaneously unveiled its Generation 3 flagship stores in SM North EDSA, Quezon City,
Manila and in Limketkai Mall, Cagayan de Oro. Designed by Tim Kobe, the founder and CEO of Eight, Inc.
and designer of Apple Stores, the Globe Gen3 stores features reconfigurable and interactive elements, all
designed to empower the growing digital lifestyle of customers. The stores feature four lifestyle zones –
music, entertainment, productivity, and life – each with their own interactive kiosks.

Continuing with its journey of transforming customer experience, Globe opened two more Gen3 stores in
2015. On July 2015, Globe opened its third Gen3 store in Ayala Center, Cebu and on August 2015, opened
its fourth Gen3 and first two-storey store in Greenbelt, Makati.

In 2016, Globe opened its Flagship ICONIC store in Bonifacio Global City Central Square Taguig. Designed
by Tim Kobe of Eight Inc., the same designer of the Globe GEN3 stores, the Globe ICONIC store is the first
all-in-one retail and entertainment space and was launched in two phases. Phase 1 was completed in the
June 2016 and featured the entertainment space that will house shows, concerts, and a variety of on-
ground events and activities. Phase 2, completed in December 2016 features the complete Globe ICONIC
Store with a glass bridge that links two Globe stores from opposite sides of the BGC Central Square.

3. Customer Facing Units

To better serve the various needs of its customers, Globe is organized along two key customer facing units
(“CFUs”) tasked to focus on the integrated mobile, Fixed Line and international voice and roaming needs
of specific market segments. Globe has a Consumer CFU with dedicated marketing and sales groups to
address the needs of retail customers, and a Business CFU (Globe Business) focused on the needs of big
and small businesses. Globe Business provides end-to-end mobile and Fixed Line solutions and is
equipped with its own technical and customer relationship teams to serve the requirements of its client
base. Globe Business also caters to the international voice and roaming needs of overseas Filipinos,
whether transient or permanent. Moreover, it is tasked to grow Globe's international revenues by leveraging
on Globe's product portfolio and developing and capitalizing on regional and global opportunities.

4. Others

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Globe also distributes its prepaid products SIM packs, prepaid call cards and credits through consumer
distribution channels such as convenience stores, gas stations, drugstores and bookstores. Lower
denomination IDD prepaid loads are also available in public utility vehicles, street vendors, and selected
restaurants and retailers nationwide via the IDD Tingi load, an international voice scratch card in affordable
denominations.

D. Operating Revenues

Gross Operating Revenues by Business

As of June 30
Segment

% of % of
(in Php Mn) 2019 2018
total total
Service Revenues
Mobile* 54,636 67% 49,014 66%
Voice1 12,316 15% 14,760 20%
SMS2 8,283 10% 10,838 15%
Data3 34,037 42% 23,417 31%
Fixed Line and Home Broadband** 18,243 22% 15,732 21%
Home Broadband4 10,554 13% 8,727 12%
Corporate Data5 6,295 8% 5,493 7%
Fixed Line Voice6 1,394 2% 1,512 2%
Service Revenues 72,879 89% 64,746 87%
Non Service Revenues 8,642 11% 9,700 13%
Operating Revenues 81,521 100% 74,446 100%
*Mobile business includes mobile and fully mobile broadband
**Home Broadband includes fixed wireless and wired broadband
1
Mobile voice service revenues include the following:
a) Prorated monthly service fees on consumable minutes of postpaid plans;
b) Subscription fees on unlimited and bucket voice promotions including the expiration of the unused value of
denomination loaded;
c) Charges for intra-network and outbound calls in excess of the consumable minutes for various Globe Postpaid
plans, including currency exchange rate adjustments, or CERA, net of loyalty discounts credited to subscriber
billings; and
d) Airtime fees for intra network and outbound calls recognized upon the earlier of actual usage of the airtime value
or expiration of the unused value of the prepaid reload denomination (for Globe Prepaid and TM) which occurs
between 3 and 120 days after activation depending on the prepaid value reloaded by the subscriber net of (i) bonus
credits and (ii) prepaid reload discounts; and revenues generated from inbound international and national long
distance calls and international roaming calls; and
e) Mobile service revenues of GTI.

Revenues from (a) to (d) are reduced by any payouts to content providers.
2
Mobile SMS revenues consist of local and international revenues from value-added services such as inbound and outbound SMS
and MMS, infotext, and subscription fees on unlimited and bucket prepaid SMS services, net of any interconnection or settlement
payouts to international and local carriers and content providers.
3
Mobile data service revenues consist of revenues from mobile internet browsing and content downloading, mobile commerce
services, other add-on VAS, and service revenues of GXI and Yondu, Inc., net of any interconnection or settlement payouts to
international and local carriers and content providers, except where Globe is acting as principal to the contract where revenues are
presented at gross billed to subscriber and settlement pay-out are classified as part of costs and expenses. Beginning 2017, revenues
from premium content services (where Globe is acting as principal to the contract) will be reported gross of the licensors’ fees.
4
Home broadband service revenues consist of the following:
a) Monthly service fees of wired, fixed wireless, and bundled voice and data subscriptions;
b) Browsing revenues from all postpaid and prepaid wired and fixed wireless broadband packages in excess of
allocated free browsing minutes and expiration of unused value of prepaid load credits;
c) Value-added services such as games; and
d) Installation charges and other one-time fees associated with the service.
e) Beginning 2017, revenues from premium content services (where Globe is acting as principal to the contract) will
be reported gross of the licensors’ fees. Licensors’ fees will be reflected as part of maintenance expense.

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5
Corporate data (previously called Fixed line data) service revenues consist of the following:
a) Monthly service fees from international and domestic leased lines;
b) Other wholesale transport services;
c) Revenues from VAS; and
d) One-time connection charges associated with the establishment of service.
6
Fixed Line voice service revenues consist of the following:
a) Monthly service fees;
b) Revenues from local, international and national long-distance calls made by postpaid, prepaid fixed line voice
subscribers and payphone customers, as well as broadband customers who have subscribed to data packages
bundled with a voice service. Revenues are net of prepaid and payphone call card discounts;
c) Revenues from inbound local, international and national long-distance calls from other carriers terminating on
Globe’s network;
d) Revenues from additional landline features such as caller ID, call waiting, call forwarding, multi-calling, voice mail,
duplex and hotline numbers and other value-added features;
e) Installation charges and other one-time fees associated with the establishment of the service; and
f) Revenues from DUO and SUPERDUO (fixed line portion) services consisting of monthly service fees for postpaid
and subscription fees for prepaid subscribers.

Globe’s mobile business contributed ₱54.6 billion as of end-June 2019 accounting for 67% of total operating
revenues, 11% higher than last year’s level of ₱49.0 billion. Mobile voice service revenues amounted to
₱12.3 billion in the first half of 2019, contributing 15% of operating revenues. Mobile SMS service revenues
contributed ₱8.3 billion or 10% of operating revenues. Mobile data posted strong revenue growth compared
to last year’s level and contributed ₱34.0 billion as of the first half of the year, 42% of operating revenues.

Accounting for 22% of total operating revenues, Globe’s fixed line and home broadband business grew
16%, registering ₱18.2 billion as of end-June of 2019, compared to ₱15.7 billion in the same period of 2018.
Home broadband contributed revenues of ₱10.6 billion, or 13% of operating revenues. Corporate data
contributed 8%, at ₱6.3 billion and fixed line voice contributed 2% at ₱1.4 billion.

E. Competition

1. Industry, Competitors and Methods of Competition

a. Mobile Market

The Philippine mobile market has a total industry SIM base of more than 160 million with an industry
penetration rate of 147% as of June 30, 2019. With the growing penchant of Filipinos for smartphones, the
mobile data business in the Philippines presents more opportunities for revenue growth. Mobile data usage
of both prepaid and postpaid subscribers continues to be a promising market with fast-paced growth.

The Government liberalized the communications industry in 1993, after a framework was developed to
promote competition in the industry and accelerate the development of the telecommunications market.
Ten (10) operators were granted licenses to provide CMTS services – Globe, Innove (previously Isla
Communications, Inc. or “Islacom”), Bayantel, Connectivity Unlimited Resources Enterprises (“CURE”),
Digitel Telecommunications Philippines, Inc. (“Digitel”), Express Telecom (“Extelcom”), MultiMedia
Telephony, Inc., Next Mobile (“NEXTEL”), Pilipino Telephone Corporation (“Piltel”) and Smart
Communications, Inc. (“Smart”). Nine of the ten operators continued on to operate commercially except for
Bayantel, which have yet to roll out their CMTS services commercially.

When Sun Cellular, Digitel’s mobile brand, entered the market in 2003, it introduced to the market value-
based unlimited call and text propositions, allowing it to build subscriber scale over time. With the market’s
preference for these value-based unlimited and bulk call and text services, Globe and Smart responded by
creating a new set of value propositions for their subscribers. Today, with the high level of mobile
penetration, driven in part by the prevalence of multi-SIMming (i.e., individuals having two SIMs), and the
continued shift of consumer preferences to unlimited and bulk offers, the competition in the mobile market
remains intense, albeit in a more rational environment.

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The mobile market is currently at 160.5 million SIMs, a 30% increase from the first half of 2018 mostly due
to the pronouncement of the NTC, the Department of Information and Communications Technology
(“DICT”), and the Department of Trade and Industry (“DTI”) that under Joint Memorandum Circular No. 05-
12-2017, all prepaid load will now carry a one- year expiration period regardless of amount. Due to this,
Globe closed the first half of 2019 with a higher SIM base of 92.9 million, with an estimated SIM share of
approximately 58%, up from 53% in 2018.

Mobile Subscribers (Mn) Penetration Rates Growth Rate

1998 1.62 2.5 43%
1999 2.68 3.8 65%
2000 5.26 8.6 96%
2001 10.53 14.2 100%
2002 15.17 19.0 44%
2003 22.31 27.3 47%
2004 32.87 39.4 47%
2005 34.61 40.6 5%
2006 42.04 48.3 21%
2007 54.86 61.2 30%
2008 68.03 74.6 24%
2009 75.43* 82.3 11%
2010 86.15* 93.0 14%
2011 93.74* 98.7 9%
2012 102.99* 106.4 10%
2013 108.52* 110.0 5%
2014 113.89* 116.0 5%
2015 124.79 115.2 3%
1 125.56 120.4 1%
2016
2 118.98 111.9 -5%
2017
3 134.59 124.3 13%
2018
4 160.49 146.9 30%
1H’19
*Estimated end of year figures.
Source: National Telecommunications Commission (Statistical Data 2007), publicly available information and Company estimates
1
Starting 2016, nomadic subscribers are included in mobile subscribers (previously reported under broadband subscribers)
2
In 2017, the industry has excluded in their reporting the prepaid subscribers who do not reload within 90 days of the second expiry
period, versus the previous cut-off of 120 days
3
In 2018, under Joint Memorandum Circular No. 05-12-2017, all prepaid load now carries a one-year expiration period
4
Compared to industry subs of 123.65 as of 1H2018, growth rate was at 30%

Since 2000, the mobile communications industry has experienced a number of consolidations and ushered
in new entrants, namely:

• In 2000, PLDT acquired and consolidated Smart and Piltel, complementing the former’s
fixed line businesses with the latter’s wireless businesses. Subsequently in 2008, PLDT,
through Smart, purchased CURE, one of the four recipients of 3G licenses awarded by
the NTC, and has since launched another wireless brand in the market in Red Mobile,
further heightening competition in the market at that time.

In October 2011, PLDT also acquired 99.4% of the outstanding common stock of Digitel, which owns the
Sun Cellular brand, thereby allowing it to control over two-thirds of the industry subscribers. As a condition
of PLDT’s acquisition of Digitel, PLDT returned to the NTC the 3G license in CURE, which is expected to
be re-auctioned in the near-term.

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• In 2008, San Miguel Corporation (“SMC”), partnering with Qatar Telecom, bought interests
in Liberty Telecom Holdings, Inc. (“Liberty”) and announced plans to enter the mobile and
broadband businesses.

In 2010, SMC acquired 100% stake in BellTel, after acquiring shares in three companies that own the
shares of BellTel. Also in 2010, SMC purchased a 40% stake in Eastern Telecommunications Philippines,
Inc. to expand its telecommunications services. SMC subsequently gained a majority stake of Eastern
Telecommunications Philippines, Inc. in 2011. It now owns 77.7% of the telecommunications company.

In 2012, NTC has granted BellTel, SMC’s mobile telephony arm, an extension to its operating license to
provide CMTS service in the country for another three years.

• In 2001, Globe acquired Islacom (now Innove). Globe, likewise, acquired approximately
96.5% of the total debt of Bayantel, in December 2012. On October 2013, Globe
converted a portion of the debt it holds in Bayantel into a 38% interest in the latter, based
on the Amended Rehabilitation Plan approved by the Rehabilitation Court in August of the
same year. Upon obtaining relevant and regulatory approvals, Globe would further convert
debt into a total 56.6% share of the common stock of Bayantel.

• In May 2013, ABS-CBN Convergence, Inc. (“ABS-C”, formerly Multimedia Telephony,

Inc.) announced the launch of its mobile brand, ABS-CBN Mobile. The launch of the new
mobile brand was being supported through a network sharing agreement with Globe,
wherein the latter provides network capacity and coverage to ABS-C on a nationwide
basis. ABS-C formally launched the brand in November 26, 2013. On November 30, 2018,
ABS-C discontinued its mobile phone services business and terminated the mobile
network sharing arrangement with Globe Telecom.

• In November 2015, Cherry Mobile, a leading mobile phone company in the Philippines,
entered into a co-branding partnership with Globe to launch the Cherry Prepaid SIM that
also comes bundled with a Cherry Mobile phone. The Cherry Prepaid SIM will operate
through a network sharing agreement with Globe, similar to ABS-CBN-Mobile.

• In November 2018, the DICT and the NTC declared Mislatel a new major telco player, a
consortium composed of Mindanao Islamic Telephone Inc., Udenna Corporation, Chelsea
Logistics Holdings, and China Telecom. As of reporting date, the new major player has
not begun operations.

Today, only the PLDT Group and the Globe Group have built significant bases of mobile subscribers.

b. Fixed Line Market

Fixed Line Voice

The number of lines in service in the fixed line voice market is estimated at 4.06 million lines as of June 30,
2019 with PLDT’s subscriber market share at 67% and Globe subscriber market share at 33%.

The fixed line voice market is currently in decline as the country continues to shift towards alternative
communication solutions like VoIP and chat messaging applications. Globe’s fixed line voice subscriber
base declined 5% to 1.40 million versus 1.46 million last year.

Corporate Data

The fixed line data business is a growing segment of the fixed line industry. As the Philippine economy
grows, businesses are increasingly utilizing new networking technologies and the internet for critical
business needs such as sales and marketing, intercompany communications, database management and

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data storage. The expansion of the local IT Enabled Service (ITES) industry which includes call centers
and BPO companies have also helped drive the growth of the corporate data business.

Dedicated business units have been created and organized within Globe to focus on the mobile and fixed
line needs of specific market segments and customers – be they residential subscribers, wholesalers and
other large corporate clients or smaller scale industries. This structure has also been driven by Globe’s
corporate clients’ preferences for integrated mobile and fixed line communications solutions.

c. Home Broadband Market

Home broadband continues to be a major growth area for the local telecom industry. Industry home
broadband subscribers is now at 3.92 million, growing 9% versus first half of 2018. Globe’s subscriber
market share stands at 46% as of June 30, 2019, up from 42% a year ago. The aggressive network roll-out
of the various operators, the wider availability of affordable prepaid broadband packages, as well as lower
PC and tablet prices were the main drivers of subscriber growth. Operators used both wired and wireless
technologies to serve the growing demand for internet connectivity.

While household penetration rates remain low, competition continues to intensify as telecom operators aim
to capture the market by accelerating the rollout of broadband network to provide subscribers with faster
internet connection and introducing more affordable and bundled offerings.

2. Principal Competitive Strengths of Globe

a. Market Leadership Position

Globe is a major provider of telecommunications services in the Philippines. It is a strong player in the
market and operates one of the largest and most technologically-advanced mobile, fixed line and
broadband networks in the country, providing reliable, superior communications services to individual
customers, small and medium-sized businesses, and corporate and enterprise clients. Globe’s distinct
competitive strengths include its technologically advanced mobile, fixed line and broadband network, a
substantial subscriber base, high quality customer service, a well-established brand identity and a solid
track record in the industry.

b. Strong Brand Identity

Globe has some of the best-recognized brands in the Philippines. This strong brand recognition is a critical
advantage in securing and growing market share, and significantly enhances Globe’s ability to cross-sell
and push other product and service offerings in the market.

c. Financial Strength and Prudent Leverage Policies

Globe’s financial position remains strong with ample liquidity, and gearing comfortably within bank
covenants. At the end of June 2019, Globe had total interest-bearing debt of ₱132.1 billion representing
63% of total book capitalization. As June 30, 2019, consolidated gross debt to equity ratio is at 1.67x, well
within the 3:1 debt to equity limit. Additionally, gross debt to EBITDA is also well within the 3.5:1 covenant
level, currently at 1.92x. Approximately 83% of its debt is in pesos while the balance of 17% is denominated
in US dollars. Expected US dollar inflows from the business offset any unhedged US dollar liabilities,
helping insulate Globe’s balance sheet from any volatilities in the foreign exchange markets.

Globe intends to maintain its strong financial position through prudent fiscal practices including close
monitoring of its operating expenses and capital expenditures, debt position, investments, and currency
exposures.

d. Proven Management Team

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Globe has a strong management team with the proven ability to execute on its business plan and achieve
positive results. With its continued expansion, it has been able to attract and retain senior managers from
the telecommunications, consumer products and finance industries with experience in managing large
scale and complex operations.

e. Strong Shareholder Support

Globe’s principal shareholders are Ayala and STI, both industry leaders in the country and in the region.
Apart from providing financial support, this partnership has created various synergies and has enabled the
sharing of best practices in the areas of purchasing, technical operations, and marketing, among others.

f. Suppliers

Globe works with both local and foreign suppliers and contractors. Equipment and technology required to
render telecommunications services are mainly sourced from foreign countries. Its principal suppliers,
among others, are as follows:

Globe’s suppliers of mobile equipment include Huawei Technologies Co., Ltd. (China) and Nokia
Corporation (Finland); and for transmission and IP equipment, Company has partnered with Huawei
Technologies Co., Ltd, (China), Nokia Corporation (Finland), NEC (Japan), ECI Telecom, Ltd. (Israel), Aviat
Networks (USA).

For Fixed Line and Fixed Broadband Service, Globe’s principal equipment suppliers include Huawei
Technologies Co., Ltd. (China), FiberHome Telecom Tech (China), Nokia Corporation (Finland), Juniper
Networks (USA), ZTE Corporation, and Tellabs (USA/Singapore).

For WiFi service, Company partnered with Aruba Networks (USA) and Ruckus Networks (USA).

For Network Management and Operational Support Systems, Globe’s primary solution provider includes
IBM (USA), Mycom OSI (United Kingdom), Incognito (Canada), Netcracker (USA), Radcom (Israel) among
others.

For Globe’s IT modernization program, Globe has selected Amdocs, the leading provider of customer
experience systems and services, to improve and upgrade Globe’s Business Support Systems (BSS) and
enterprise data warehouse. As part of the transformation program, Amdocs is tasked to manage and
consolidate all of Globe’s legacy systems onto a single Business Support System (BSS) platform. This will
enable Globe to manage its customer relationships better across all it various product offerings, simplify
business processes and shorten the time to deliver bundled and more innovative products to the market.

g. Customers

Globe has a large subscriber base across the country. Globe ended the first half of 2019 with 92.9 million
mobile subscribers, comprised of 2.6 million postpaid and 90.3 million prepaid subscribers. Meanwhile,
Globe has over 1.8 million home broadband customers and around 1.4 million fixed line voice subscribers.

No single customer and contract accounted for more than 20% of Globe’s total sales in the first half of 2019.

h. Licenses, Patents, and Trademarks

Licenses

Globe currently holds the following major licenses:

Service Type of Date Issued or Last Expiration Date

License Extended
Globe

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Wireless CPCN (1) July 22, 2002 December 24, 2030

Local Exchange Carrier CPCN (1) July 22, 2002 December 24, 2030
International Long Distance CPCN (1) July 22, 2002 December 24, 2030
Interexchange Carrier CPCN (1) February 14, 2003 December 24, 2030
VSAT CPCN (1) February 6, 1996 February 6, 2021
International Cable Landing CPCN (1) October 19, 2007 December 24, 2030
Station & Submarine Cable
System (Nasugbu, Batangas)
International Cable Landing CPCN (1) June 29, 2010 December 24, 2030
Station & Submarine Cable
System (Ballesteros, Cagayan)

Innove Type of Date Issued or Last Expiration Date

License Extended
Wireless CPCN (1) December 14, 2018 January 29, 2044
Local Fixed line CPCN (1) December 14, 2018 January 29, 2044
International Long Distance CPCN (1) December 14, 2018 January 29, 2044
Interexchange Carrier CPCN (1) December 14, 2018 January 29, 2044

Bayantel Type of Date Issued or Last Expiration Date

License Extended
Local Exchange Carrier
(a) Quezon City, Malabon & CPCN (1) (a) July 9, 1999 (a) July 8, 2024
Valenzuela, all in M.M.,
Albay, Camarines Norte,
Camarines Sur,
Catanduanes, Sorsogon
& Masbate, all in Bicol
Region
(b) Manila, Caloocan, CPCN (1) (b) May 3, 2007 (b) August 9, 2021
Navotas
(c) Tacloban City, Tanauan CPCN (1) (c) March 16, 2004 (c) March 15, 2029
and Palo, Leyte & Sogod,
Southern Leyte
(d) Leyte (Abuyog, Baybay, CPCN (1) (d) March 18, 2008 (d) August 9, 2021
Burauen, Carigara,
Dulag, Hilongos, Isabel,
Palompon & Hilaga)
Eastern Samar (Guiuan
& Borongan) Western
Samar (Catbalogan &
Basey) Southern Leyte
(Maasin)
(e) Antique, Iloilo, Bohol, PA (e) March 9, 1998 (e) July 25, 2006 (2)
Bukidnon, Misamis
Occidental, Misamis,
Zamboanga del Sur,
Davao del Norte, Davao
del Sur, Davao Oriental,
Saranggani, South
Cotabato and Surigao del
Sur
(f) Aklan, Capiz (including PA (f) November 18, 2004 (f) May 1, 2006 (2)
Roxas City), Guimaras,
Negros Occidental
(including cities of Bacolod
and Bago),

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Negros Oriental (including

Dumaguete City), Cebu
(including cities of Cebu, Lapu-
Lapu and Mandaue), Zamboanga
del Norte, Surigao del Norte
(including Surigao City),
Tagbilaran City, Cagayan de Oro
City and Tagum City
(g) Butuan City, Agusan del
Norte & Agusan del Sur

PA (g) December 14, 1998 (g) June 14, 2005 (2)

VSAT CPCN (1) January 11, 2001 January 10, 2026

International Gateway Facility CPCN (1) April 19, 1996 April 18, 2021
Trunked Mobile Radio System CPCN (1) April 2, 1998 April 1, 2023
Domestic Data and Voice CPCN (1) April 10, 2008 August 9, 2021
Communications
1Certificate of Public Convenience and Necessity. The term of a CPCN is co-terminus with the franchise term.
2 Motion for Extension of PA still pending with the NTC. No roll-out to justify the PA extension

In July 2002, the NTC issued CPCNs to Globe and Innove which allow Globe to operate respective services
for a term co-terminus with the congressional franchise under Republic Act No. 7229 for Globe and Republic
Act No. 11151 (amending Republic Act No. 7372 for Innove). Globe was granted permanent licenses after
having demonstrated legal, financial and technical capabilities in operating and maintaining wireless
telecommunications systems, local exchange carrier services and international gateway facilities.
Additionally, Globe and Innove have exceeded the 80% minimum roll-out compliance requirement for
coverage of all provincial capitals, including all chartered cities within a period of seven years.

Trademarks

Globe has the following registered trademarks in the Philippines: Globe, Globe Life Device, #LevelUpPH,
#Next Level Ka Tournament, 0917,Adblast,AdSpark, Airfair, Airfair Enterprise, Barkada Congress,
Bingeon,, BingeWatch, BingeWatching, Create Wonderful, Creating a Wonderful World, Data Rollover,
DigiAds,Digimall, Duo International, EasyShare, EasyExtend, Game Sa Lahat, GG30, GG50, Globe
AppMarket, Globe At Home, Globe At Home Streamfest, Globe Broadband, Globe Creating a Wonderful
World, Globe Home Broadband,Globe International, Globe Live, Globe MyBusiness, Globe Prepaid
#LevelUpPH, Globe Prism, Globe Rewards, Globe Rollover, Globe Streamwatch, Globe Studios, Globe
Switch, Gmovies, GoBinge, Gocery, Good Games, GoWatch, Load Up, Konekt, My Shopkeeper, MyBizKit,
MyBusiness Tracker, Park Ninja, Points Battle, Rollover, Rush, Seats, Sunkissed Boracay, SurfAlert,
Supersurf, Tattoo,Tattoo Home Broadband, Tattoo@Home, Ticket Hub, TM Barkada Congress, Txt
Connect and W00T. Globe also applied for the following trademarks: Elements Music Camp, Globe At
Home Air, Globe at Home Air Fiber.

Globe and Saga Events, Inc. own the registered trademark “Stylefestph”.

Further, Globe also applied and registered the following brand names: Globe Telecom (Australia, Taiwan,
Japan, Singapore, Macau, Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France,
Germany, Great Britain, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta,
Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Korea, Canada, China, Saudi
Arabia), Globe and Globe Life Device (Hong Kong, Taiwan, Singapore, Japan, Austria, Belgium, Cyprus,
Czech Republic, Denmark, Estonia, Finland, France, Germany, Great Britain, Greece, Hungary, Ireland,
Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovak Republic, Slovenia,
Spain, Sweden, Macau, Qatar, UAE, USA, Saudi Arabia), Globe GCash (Singapore, Hong Kong, United
Kingdom, Taiwan, Japan, Macau, Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland,
France, Germany, Great Britain, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta,
Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Qatar, Korea, UAE, Saudi

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Arabia, New Zealand, Ireland, Lebanon, Denmark, Sweden, Switzerland, Israel), Globe Kababayan
(Singapore, Hong Kong, Taiwan, United Kingdom, Australia, Japan, Macau, USA, Saudi Arabia, Austria,
Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Great Britain, Greece,
Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovak
Republic, Slovenia, Spain, Sweden, Malaysia, UAE, Italy, Korea, Taiwan), Globe Autoload Max (Norway,
Singapore, Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Great
Britain, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland,
Portugal, Slovak Republic, Slovenia, Spain, Sweden, Japan, Hong Kong), Globe M-Commerce Hub
(Taiwan, Singapore, Korea, Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France,
Germany, Great Britain, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta,
Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Australia, Macau, Qatar,
Malaysia), Muzta, and Smiley With Salakot Device (Japan, UK, Australia, Kuwait, USA, Saudi Arabia,
Bahrain, UAE), Smiley with Salakot (Japan, United Kingdom, Australia, USA, Saudi Arabia, Bahrain, UAE),
and Muzta (Bahrain, UAE, Canada, Qatar, Saudi Arabia, UAE), GCash Remit and Logo (Austria, Belgium,
Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Great Britain, Greece, Hungary,
Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovak Republic,
Slovenia, Spain, Sweden. Lebanon, Japan, Switzerland, Macau, Hong Kong, Taiwan, New Zealand, China,
Japan, Israel), GCash Express and Logo (Hong Kong, Singapore, Taiwan, Malaysia), Globe Load (Austria,
Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Great Britain, Greece,
Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovak
Republic, Slovenia, Spain, Sweden, Switzerland, Macau).

Globe subsidiaries and affiliates have applied/registered their respective marks with the Intellectual
Property Office, namely:

(a) Innove Communications, Inc. has registered the mark GoWifi. Innove also applied EasySurf and
GoWifi Auto.

(b) GXchange has the following registered trademarks GCash, GCash Remit, G-Xchange and
PowerPay+. It has pending trademark applications for Cash In, GCash QR, GCash Mo na Yan! and
GScore.

(c) Globe Fintech Innovations, Inc. has the following registered trademarks: GPay and A Fresh Look at
Money.

(d) Fuse Lending, Inc. has the following registered marks Fuse, Fuse and Logo, First Loan for Everyone,
Power Payday Advance, Go Loan, Spark Loan, Instaloan, and Fuse Business Loan

(e) Asticom Technology, Inc. applied “Asticom”

(f) Global Telehealth, Inc. applied “Konsulta MD”

Patents

Gxchange, Inc. and UTIBA Pty Ltd. have registered the following patents in the Philippines:

(1) Person-to-Person Virtual Cash Transfer Transaction Using Mobile Phones;

(2) A Method of Converting Cash into Virtual Cash and Loading it to Mobile Phone
Cash Account;
(3) A Method of Cashless, Cardless Purchase Transaction Using Mobile Phones; and
(4) A Method of Converting Virtual Cash into Cash and Deducting it to Mobile Phone
Cash Account.

Gxchange, Inc. and UTIBA Pty Ltd. have likewise registered the following patents in the United States:

(1) Person-to-Person Virtual Cash Transfer Transaction Using Mobile Phones; and

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(2) A Method of Converting Virtual Cash into Cash and Deducting it to Mobile Phone
Cash Account

Gxchange, Inc. and UTIBA Pty Ltd. have likewise filed the following patent applications in Indonesia,
Singapore and Europe.

(1) Person-to-Person Virtual Cash Transfer Transaction Using Mobile Phones;

(2) A Method of Converting Cash into Virtual Cash and Loading it to Mobile Phone
Cash Account;
(3) A Method of Cashless, Cardless Purchase Transaction Using Mobile Phones; and
(4) A Method of Converting Virtual Cash into Cash and Deducting it to Mobile Phone
Cash Account.

Globe has applied the patent for “Systems and/or Methods for Authorizing and Facilitating Third-Party
Withdrawals or Payment” with the Intellectual Property Office.

i. Government approvals/regulations

The Globe Group is regulated by the NTC under the provisions of the Public Service Act (“CA 146”),
Executive Order (“EO”) 59, EO 109, and Republic Act No. 7925. Under these laws, Globe is required to do
the following:

(a) To secure a CPCN/PA from the NTC for those services it offers which are deemed regulated services,
as well as for those rates which are still deemed regulated, under Republic Act No. 7925.

(b) To observe the regulations of the NTC on interconnection of public telecommunications networks.

(c) To observe (and has complied with) the provisions of EO 109 and Republic Act No. 7925 which impose
an obligation to rollout 700,000 fixed lines as a condition to the grant of its provisional authorities for
the cellular and international gateway services.

(d) Globe remains under the supervision of the NTC for other matters stated in CA 146 and Republic Act
No. 7925 and pays annual supervision fees and permit fees to the NTC.

On October 19, 2007, the NTC granted Globe a CPCN to operate and maintain an International Cable
Landing Station and submarine cable system in Nasugbu, Batangas.

On May 19, 2008, Globe Telecom, Inc. announced that the NTC has approved the assignment by its wholly-
owned subsidiary Innove of its TM consumer prepaid subscriber contracts in favor of Globe. Globe would
be managing all migrated consumer mobile subscribers of TM, in addition to existing Globe subscribers in
its integrated cellular network.

On September 11, 2008, the NTC granted Globe a CPCN to operate and maintain an International Cable
Landing Station in Ballesteros, Cagayan Province.

j. Research and Development

Globe incurred market research costs amounting to ₱56.7 million in the first half of 2019, 5% higher versus
2018 spend.

k. Compliance with Environmental Laws

The Globe Group complies with the Environmental Impact Statement (“EIS”) system of the DENR and pays
nominal filing fees required for the submission of applications for Environmental Clearance Certificates
(“ECC”) or Certificates of Non- Coverage (“CNC”) for its cell sites and certain other facilities, as well as

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miscellaneous expenses incurred in the preparation of applications and the related environmental impact
studies. The Globe Group does not consider these amounts material.

Globe has not been subject to any significant legal or regulatory action regarding non-compliance to
relevant environmental regulations.

l. Employees

The Globe Group has 7,714 active regular employees as of June 30, 2019, of which 4% or 296 are covered
by a CBA through the GTEU.

Breakdown of employees by main category of activity from 2016 to 1H’2019 are as follows:

Employee Type 1H’2019 2018 2017 2016

Rank & File, CBU 2,606 2,791 2,527 2,617
Supervisory 2,860 2,760 2,605 2,546
Managerial 1,751 1,698 1,598 1,540
Executives 497 480 476 477
Total 7,714 7,729 7,206 7,180

In conformance with the Department of Labor and Employment’s (“DOLE”) CBA, the Globe Employees
Union-Federation of Free Workers (GTEU-FFW) remains active to pledge the right of every Ka-Globe to
form a collective bargaining unit. All employees are allowed to participate in CBA and through GTEU-FFW,
everyone is informed and made aware of the mandates.

Globe has a long-standing, healthy, and constructive relationship with the GTEU characterized by healthy
and constructive discussions and industrial peace. Both have shared goals such as enhancing productivity
levels and ensuring consistent quality of service to customers across various segments.

Globe and GTEU-FFW renewed their collective bargaining agreement for another 5 years, beginning 2016.
This is a testament to the strong partnership built between them and the alignment in their advocacies.

m. Risk Factors

The achievement of Globe’s key business objectives can be affected by a wide array of risk factors. Some
of these risk factors are universal while some are unique to the telecommunications industry. The risks vary
widely in occurrence and severity, some of which are beyond the company’s control. There may also be
risks that are either presently unknown or not currently assessed as significant, which may later prove to
be material. We aim to mitigate these exposures through appropriate RM strategies, strong internal controls
and capabilities, close monitoring of risks and mitigation plans. The section below sets out the principal risk
types, listed in no particular order of significance:

Political and Socio-Economic Risks

The company’s growth and profitability may be influenced by the overall political and economic situation of
the Philippines. Any political or geopolitical instability in the Philippines could negatively affect the country’s
general economic conditions which, in turn, could adversely affect our business, financial condition or
results of operations, including the ability to enhance the growth of its customer base, improve our revenue
base and implement our business strategies.

The current administration is implementing major changes to the telecommunications industry that can
positively or negatively affect the company’s business. These include:
• Pressure to improve network performance
• Sharing of network/facilities across operators
• Providing portability of mobile numbers
• Possible pressure on pricing

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• Potential entry of foreign telecom players

• Potential improved LGU support
• Promise of increased infrastructure spend
• Potential changes that aim to disrupt the current industry model

The current proposal of shifting to a federal form of government could also impact Globe’s business model.

A regular environmental scanning exercise is performed to ensure the identification of any uncertainties
arising from political and socio-economic factors. Management is closely monitoring the shift in policies to
anticipate the potential impact to the business plans as well as maintaining open communication lines with
the various government sectors.

Financial Markets Risk

a. Foreign Exchange Risk

Exposure to foreign exchange risks remains a risk to Globe. ’s foreign exchange risk results primarily from
movements of the Philippine peso against the US dollar (USD) with respect to USD-denominated financial
assets, liabilities, revenues and expenditures.

There are no assurances that declines in the value of the peso will not occur in the future or that the
availability of foreign exchange will not be limited. Recurrence of these conditions may adversely affect the
company’s financial condition and results of operations.

b. Interest Rate Risk

In order to fund our major expenditures, Globe has entered in various short and long-term debt obligations,
which exposes the company to the risk of changes in interest rates.

Globe’s exposure to interest rate risk and currency risk are being managed by:

• Using a mix of fixed and variable rate debt that are meant to achieve a balance between cost and
volatility.

• Entering into interest rate swaps, in which the company agrees to exchange, at specified intervals,
the difference between fixed and variable interest amounts calculated by reference to an agreed-
upon notional principal amount.

• Using a combination of natural hedges and derivative hedging to manage its foreign exchange
exposure.

We also regularly evaluate its projected and actual cash flows and continuously assess conditions in the
financial markets for opportunities to pursue fund raising activities, in case any requirements arise.

Competition Risk

a. Traditional Competition

Competition remains intense in the Philippine telecommunications industry amidst a mature mobile market
and high growth data business, as current competitor seeks to regain market share with aggressive
offerings. In late 2018, a 3rd player was allowed by the government to enter the Philippine
telecommunications industry, selected through a bidding process, spearheaded by the DICT.

These factors are seen to further heighten the competitive dynamics amidst a mature mobile market.

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b. Alternative Competition

The competitiveness of the industry is further underscored by cheap alternatives to communication such
as instant messaging, social network services and voice over internet protocol (“VOIP”). These alternatives
are also driven by the proliferation of affordable smartphones and internet-capable mobile devices.

The continued growth and development of the telecommunications industry will depend on many factors.
Any significant economic, technological, or regulatory development could result in either a slowdown or
growth in demand for mobile services and may impact Globe’s business, revenues, and net income.

These factors heighten the need to continuously expand and modernize the company’s Network and IT
services, thus requiring an equally heightened level of capital spending.

We continue to assert our market position through the offering of personalized plans and attractive
product/device bundles, and launching innovative products and services that are relevant and responsive
to the needs of our customers coupled with a focus on superior customer experience. We also partner with
leading providers of content, mobile messaging, social media and other popular applications in order to
provide products and services that anticipate and cater to shifting customer preferences.

Regulatory Risk

Globe is regulated by the NTC, an attached agency of the DICT, for its telco business, and by the SEC for
other aspects of the business as well as the PSE as one of its capital market regulators, to name a few. On
the other hand, the PCC has oversight over our mergers, acquisitions, and other similar transactions as it
is tasked to effectively level the playing field among businesses and penalize anti-competitive agreements
and abuse of market dominance.

The introduction of new, modifications, or the inconsistent application of laws or regulations from time to
time, may materially affect the company’s operations, and ultimately the company’s earnings which could
impair the ability to service debt. There is no assurance that the regulatory environment will support any
increase in the company’s business and financial activity.

Globe manages regulatory risks through regular monitoring of regulatory rulings, especially those that could
negatively impact the businesses and proactive engagement with the regulators.

Customer Preference and Technology Shift Risk

Globe’s ability to recognize and quickly respond to changes in customer preferences by upgrading existing
infrastructure and systems may impact its competitiveness in the marketplace.

Mobile data applications and the rising popularity of smartphones, mobile applications, social media
platforms as enabled by mobile and connected devices are key contributors to the explosion of data traffic.
This phenomenon is putting a strain on the company’s network capacity as well as the supporting back end
systems, negatively impacting customer experience.

Our business, product and technical teams continue to keep abreast of the latest innovations and trends in
telco technologies, devices and gadgets. The information and insights gathered are considered in the
roadmap of future products, services, and network and IT infrastructure evolution. Proper timing of
investments in technology and infrastructure always consider its strategic implications, velocity of
technology cycles and customer adoption.

The Globe data network is continuously being enhanced by deploying new mobile and data technologies,
increasing network capacity and coverage while modernizing the fixed line data infrastructure.

Change Program Risk

Globe is in the process of transforming its businesses and such changes permeate into its Network and IT
systems and supporting processes. Crucial changes in our network infrastructure are being pursued mainly

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to improve network quality, anticipate the surge in voice and data traffic, decrease total cost of ownership
and make the network robust enough to meet future needs. IT transformation programs are set to re-
engineer the company’s IT systems and key processes to enhance its ability to deliver superior customer
experience and understand what its customers value, while being able to roll out products to the market in
a more efficient and effective manner.

Should the company’s ambitious and complex transformation programs fail to achieve the desired
outcomes, the company could ultimately lose market share thus impacting its financial results.

Globe has institutionalized the appropriate program governance organizations with Management oversight
and accountability to ensure program risks are properly considered and managed aimed at achieving key
program objectives and improving customer experience. We ensure that a competent program office and
project organization is in place for major change programs. Supporting processes have been established
to closely monitor and provide a venue for regular progress updates, alignment of efforts, discussion of
critical implementation issues and challenges and help ensure successful execution of the company’s
change programs.

Organizational Agility Risk

Leading the digital lifestyle for Globe’s customers and diversification of business portfolio is critical to
maintain market competitiveness. Failure to drive the entire organization to quickly adapt work practices
and make the right shift in skills and competencies necessary for Globe to lead in the digital space and
forge into adjacent spaces may lead to missed business opportunities.

The company has initiated cultural change programs that focus on customer centricity and innovation.
Opportunistic hiring of talents required for innovation and new investment areas are also carefully
considered. Globe continues to build the right leadership structures and systems team that will support an
agile, future-ready and customer-centric organization.

Human Capital Risks

Globe is exposed to risks in staffing critical functions with competent management and technical expertise.
Globe’s greatest asset is its people and the company’s success is largely dependent on its ability to attract
highly skilled personnel and to retain and motivate the best employees.

As new players are poised to ramp up their operations, this may result in poaching of key employees from
the company’s talent pool.

In line with Globe's purpose of treating people right, and in support of the DOLE’s campaign against all
illegal forms of contractualization, Globe strictly monitors its accredited partners on their sustained
compliance with pertinent labor laws and regulations.

Various people-related programs designed to engage and motivate employees are being implemented in
order to retain and attract key talents. Globe University was formally organized to address the growing
competency and development needs of Globe. With the need to develop key talent imperatives, it is a
significant move towards achieving key improvements in workforce capabilities and performance.

Reputational Risk

Globe is recognized as one of the Philippines’ top companies providing innovative services and delivering
superior customer experience while maintaining a socially responsible business. The company is exposed
to reputational risks which may result from its actions or that of its competitors; indirectly due to the actions
of an employee; or consequently through actions of outsourced partners, suppliers or joint venture partners.

Damage to Globe’s reputation and erosion of brand equity could also be triggered by the inability to swiftly
and adequately handle negative social media sentiments on its products and services triggered by various
factors such unfavorable customer experience, among others.

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Regular process effectiveness and efficiency reviews on existing customer impacting processes are being
conducted to identify and address existing gaps, thus minimizing exposure to reputational risks arising from
problem areas. Front line staff are regularly trained to enable them to effectively handle customer cases.
On the other hand, close monitoring of customers’ online sentiments is being performed to quickly detect
customer issues being surfaced in social media and be able to manage them early on.

Cyber Risk

The cyber security landscape is rapidly evolving and users are heavily relying on digitized information and
sharing vast amounts of data across complex and inherently vulnerable networks. This exposes Globe to
various forms of cyber attacks which could result in disruption of business operations, damage to reputation,
legal and regulatory fines and customer claims.

New technologies and systems being installed in the name of advanced capabilities and processing
efficiencies may introduce new risks which could outpace the organization’s ability to properly identify,
assess and address such risks. Further, new business models that rely heavily on global digitization, use
of cloud, big data, mobile and social media exposes the organization to even more cyber-attacks.

Globe continues to strengthen and enhance its existing security detection, vulnerability and patch
management, configuration management, identity access management, event monitoring, data loss
prevention and network/end-user perimeter capabilities to ensure that cyber threats are effectively
managed. Some of the key security systems and platforms in place include: Network and Endpoint
Advanced Persistent Threat (“APT”) protection, Security Incident and Event Management, Identity Access
Management and Single Sign-On (“SSO”), Mobile Device Management, etc.

As part of the company’s mission to promote the intelligent and judicious use of the internet, the company
also educate the youth to better understand the impact of their online behavior so they can be responsible
digital citizens, thereby lessening cyber threats to Globe. In parallel, online security is promoted through
customer education drives.

Data Privacy Risk

In the course of regular business, Globe acquires personal information of its customers and retains the
same either electronically or via hard copies. Existing laws require that information, especially customer
information, must be adequately protected against unauthorized access and or/disclosure. The risk of data
leakage is high with the level of empowerment granted to in-house and outsourced employees handling
sales and after sales support transactions to enable the efficient discharge of their functions.

Employee awareness on data protection and loss prevention is reinforced through regular corporate
communication channels. Further, employees are made accountable for maintaining the confidentiality of
data handled, including disclosures and information shared in various social media platforms. Controls over
processes that require handling of customers’ personal information are being tightened, coupled with
enhancements in existing security capabilities to prevent compromise of customer data.

A Chief Information Security Officer and Data Protection Officer was appointed to strengthen the
management of risks relating to the confidentiality and integrity of customer information while ensuring
compliance with Data Privacy Act of 2012 or Republic Act 10173 (“DPA”). Our Chief Information Security
Officer (“CISO”)/Data Protection Officer reports to our Chief Technology and Information Officer (“CTIO”),
and acts as Chairman of the Information Security and Privacy Committee in Management as well as leads
our Information Security and Data Privacy Division (“ISDP”). ISDP is a fully-operationalized group that
focuses on Globe's data privacy and cybersecurity matters.

The CISO provides regular updates on information security and data privacy matters to the Board of
Directors of Globe, through the ARPT Committee to ensure that cyber risks and technology or digital threats
to the business and our customers are addressed and managed effectively.

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Business Disruption Risk

The quality and continued delivery of Globe’s services are highly dependent on Globe’s network and IT
infrastructure which are vulnerable to damages caused by extreme weather disturbances, natural
calamities, fire, acts of terrorism, intentional damage, malicious acts and other similar events which could
negatively impact the attainment of revenue targets and the company’s reputation.

Since 2012, Globe’s Business Continuity Management System, which governs our Business Continuity and
Disaster Recovery Planning, has been certified by BSI, Singapore - an internationally recognized
certification body. The Globe Business Continuity Management System is primarily responsible in ensuring
that programs are in place for Globe to continuously improve on: the readiness of our employees to manage
disastrous incidents, the ability of the organization to deliver critical products and services especially during
disasters, and the commitment to deliver on important legal and regulatory requirements.

Globe is continuously enhancing its incident and crisis management plans and capabilities and have
incorporated disaster risk reduction and response objectives in the company’s business continuity planning.
Part of the company’s Business Continuity Management Program initiatives include:
• Partnering with the Metropolitan Manila Development Authority and the Philippine Disaster
Recovery Foundation (“PDRF”), to create a network of support during disasters.

• Sponsored the development of hazard maps for 54 out of 81 Philippine provinces, which will be
used by Phivolcs to assist the provinces in their disaster management plans.

• Reinforced Ayala ASSIST, an app that enables every Ka-Globe and other Ayala employees to
easily seek assistance during disasters.

• Re-certification in Business Continuity (ISO 22301) on an enterprise-wide scale.

• Reinforcing the company’s business continuity policies and best practices through various
awareness drives and training programs.

Revenue Leakage Risk

The telecommunications industry is inherently vulnerable to revenue leakage, with the continuing
innovations in Telco Technologies, Network and IT systems and the multitude of its service/bundle/plan
offerings accompanying such advancements. The pace at which new offers are launched in the market
and the speed of technological innovations being adopted by Globe, coupled with the ongoing Network and
IT transformation programs heightens the need to identify and plug revenue leakages becomes an even
more important capability in maximizing revenues and returns.

Globe strengthens its Revenue Assurance capabilities through the identification and embedding of
appropriate revenue assurance controls into new products, services, and new systems as well as the
implementation of sound controls on existing products and services. The company continuously improves
its control effectiveness, efficiency, and coverage through periodic controls review exercises, controls
discovery, and review of critical revenue-impacting processes. The company has recently completed the
implementation of a Revenue Assurance tool that would increase efficiency in its operations through
automated execution of controls.

Fraud Risk

Globe runs the risk of falling victim to fraud perpetrated by unscrupulous persons or syndicates either to
avail of “free” services, to take advantage of device offers or defraud Globe’s customers. With the increased
complexity of technologies, network elements and IT infrastructure, new types of fraud that are more difficult
to detect or combat could also arise. This risk also involves irregularities in transactions or activities
executed by employees for personal gain.

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Globe remains committed in preventing and detecting fraud by institutionalizing processes and building
capabilities that enable the early detection, investigation, resolution and enforcement of sanctions and legal
options, close monitoring and timely reporting of various instances of fraudulent activities. We initiated
various programs to equip our customers with the right and sufficient information so they do not fall victim
to fraudsters. Moreover, we closely coordinate with law enforcement agencies to help protect our customers
from activities meant to defraud them.

Globe implements standards and practices that remind and deter employees, who through the course of
business transactions with various partners, from engaging in corrupt or unethical practices. Management
has zero tolerance for such acts and have corresponding severe penalties as provided in the company’s
Code of Conduct and Ethics. Globe employees, by virtue of his/her employment, are bound to uphold trust
given to them by not seeking to gain any undue personal or pecuniary advantage (other than the rightful
proceeds of employment) from dealings with or for and in behalf of Globe. Our employees maintain the
highest standards of honesty, integrity and professional conduct. Seeking undue financial and material
advantage from transactions with Globe is a breach of trust between the employee and Globe. Globe’s
Code of Conduct and Ethics promulgates policies governing conflict of interest, whistleblowers, unethical
and corrupt practices, among others.

n. Management of Risks

Realizing the need to protect the business from losses arising from failures in internal processes, people,
and systems or external events, which is an integral part of Globe’s RM responsibility, an Operational Risk
Management and Business Protection (“ORB”) department was established. ORB’s primary objective is to
provide end-to-end support for all activities under risk management, overseeing safety, environment,
infrastructure hazard management, insurance, as well as enterprise business continuity management. ORB
reports to the Head of Logistics and Administrative Services who directly reports to the CFO/CRO. The
department is mandated to do the following:

• Provide hazard identification and risk assessment for Globes operations, activities, events, and
infrastructure;
• Facilitate implementation of risk control and mitigation measures for safety and environmental
management, in collaboration with operational and business groups;
• Provide and facilitate risk transfer and business protection solutions through insurance or
contractor liability agreements;
• Establish an effective framework for business continuity management for the organization to
effectively respond to threats such as natural disasters, equipment failure, data breaches, and
in effect, protect its business interests.

Regulatory

The Globe Group is regulated by the NTC under the provisions of CA146, EO 59, EO 109, and Republic
Act No. 7925. Under these laws, Globe is required to do the following:

(a) To secure a CPCN/PA from the NTC for those services it offers which are deemed regulated
services, as well as for those rates which are still deemed regulated, under Republic Act No.
7925.

(b) To observe the regulations of the NTC on interconnection of public telecommunications

networks.

(c) To observe (and has complied with) the provisions of EO 109 and Republic Act No. 7925 which
impose an obligation to rollout 700,000 fixed lines as a condition to the grant of its provisional
authorities for the cellular and international gateway services.

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(d) Globe remains under the supervision of the NTC for other matters stated in CA 146 and
Republic Act No. 7925 and pays annual supervision fees and permit fees to the NTC.

On October 19, 2007, the NTC granted Globe a CPCN to operate and maintain an International Cable
Landing Station and submarine cable system in Nasugbu, Batangas.

On May 19, 2008, Globe announced that the NTC has approved the assignment by its wholly-owned
subsidiary, Innove, of its consumer prepaid subscriber contracts in favor of Globe. Globe would be
managing all migrated consumer mobile subscribers.

Public Telecommunications Policy Act

R.A. 7925 applies to all public telecommunications entities in the Philippines, which it defines as any person,
firm, partnership or corporation engaged in the provision of telecommunications services to the public for
compensation. The law also governs VAS providers, which it defines as an entity which, relying on the
transmission, switching and local distribution facilities of the local exchange and inter-exchange operators,
and overseas carriers, offers enhanced services beyond those ordinarily provided for by such carriers. The
NTC is designated as the principal administrator of the law.
According to R.A. 7925, provided that it does not put up its own network, a VAS provider need not secure
a franchise and shall be allowed to competitively offer its services and/or expertise, and lease or rent
telecommunications equipment and facilities necessary to provide such specialized services, in the
domestic and/or international market in accordance with network compatibility provided that prior approval
of the NTC is secured to ensure that such VAS offerings are not cross-subsidized from the proceeds of
their utility operations, other providers of VAS are not discriminated against in rates nor denied equitable
access to their facilities and separate books of accounts are maintained for the VAS. However, a VAS
provider is mandated to register with the NTC, which requires the submission of the following: application
form and documents on system configuration, mode of operation, method of changing rates, and lease
agreement with the PTE, among others.
This law is relevant to Globe given that it is a VAS provider by reason of its broadband business.
Department of Information and Communications Technology Act
R.A. 10844, signed into law last May 23, 2016, recognizes the vital role of information and communication
in nation-building. The DICT shall be the primary policy, planning, coordinating, implementing, and
administrative entity of the Executive Branch of the government that will plan, develop, and promote the
national Information and Communications System (“ICT”) development agenda. The law defines ICT as the
totality of electronic means to access, create, collect, store, process, receive, transmit, present and
disseminate information, while it defines the ICT Sector as those engaged in providing goods and services
primarily intended to fulfill or enable the function of information processing and communication by electronic
means.
The DICT has the power, among others, to: (a) implement national policies that will promote the
development and use of ICT with due consideration to the advantages of convergence and emerging
technologies; (b) prescribe rules for the establishment, operation and maintenance of ICT infrastructures in
unserved and underserved areas; and (c) to ensure and protect the rights and welfare of consumers and
business users to privacy, security and confidentiality in matters relating to ICT, in coordination with
agencies concerned, private sector and relevant international bodies.
The law abolishes the following agencies with their powers and functions, applicable funds and
appropriation, records, equipment, property, and personnel transferred to the DICT: (a) Information and
Communications Technology Office; (b) National Computer Center; (c) National Computer Institute; (d)
Telecommunications Office; (e) National Telecommunications Training Institute; and (f) all operating units
of the DOTr (formerly known as the DOTC) dealing with communications.

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The following agencies, on the other hand, are attached to the DICT and will continue to operate and
function in accordance with the charters, laws or orders creating them insofar as not inconsistent with
Republic Act No. 10844: (a) NTC; (b) NPC; and (c) Cybercrime Investigation and Coordination Center.
The policy decisions and recommendations of the DICT may have an impact Globe as a player in the ICT
sector mainly due to its software licenses and services business section.

WATER

Manila Water Company holds the right to provide water and used water services to the eastern side of
Metro Manila (Manila Concession or East Zone) under a Concession Agreement entered into between
Manila Water and the MWSS in August 1997. The original term of the concession was for a period of 25
years to expire in 2022. Manila Water’s concession was extended by another 15 years by MWSS and the
Philippine Government in 2009, thereby extending the term from May 2022 to May 2037.

Manila Water provides water treatment, water distribution, sewerage and sanitation services to more than
six million people in the East Zone, comprising a broad range of residential, semi-business, commercial
and industrial customers. The East Zone encompasses 23 cities and municipalities spanning a 1,400-
square kilometer area that includes Makati, Mandaluyong, Pasig, Pateros, San Juan, Taguig, Marikina,
most parts of Quezon City, portions of Manila, as well as the following towns of Rizal: Angono, Antipolo,
Baras, Binangonan, Cainta, Cardona, Jala-Jala, Morong, Pililia, Rodriguez, San Mateo, Tanay, Taytay,
and Teresa.

Under the terms of the Concession Agreement, Manila Water has the right to the use of land and
operational fixed assets, and the right, as agent and concessionaire of MWSS, to extract and treat raw
water, distribute and sell water, and collect, transport, treat and dispose used water, including reusable
industrial effluent discharged by the sewerage system in the East Zone. Manila Water is entitled to recover
over the concession period its operating, capital maintenance and investment expenditures, business
taxes, and concession fee payments, and to earn a rate of return on these expenditures for the remaining
term of the concession.

Aside from the Manila Concession, the Manila Water Group has a holding company for all its domestic
operating subsidiaries in MWPV. Currently under MWPV are Clark Water Corporation (“Clark Water”),
Laguna AAA Water Corporation (“Laguna Water”), Boracay Island Water Company (”BIWC”), Manila
Water Consortium, Inc. (MW Consortium), a subsidiary of MW Consortium – Cebu Manila Water
Development, Inc. (“Cebu Water”), Bulacan MWPV Development Corporation (“BMDC”), Filipinas Water,
subsidiaries of Filipinas Water – Obando Water Company, Inc. (“Obando Water”) and Bulakan Water
Company, Inc. (“Bulakan Water”), Davao del Norte Water Infrastructure Company, Inc. (“Davao Water”),
a subsidiary of Davao Water – Tagum Water Company, Inc. (“Tagum Water”), Zamboanga Water
Company, Inc. (“Zamboanga Water”), Manila Water International Solutions, Inc (“MWIS”), Aqua Centro
MWPV Corporation (“Aqua Centro MWPV”), EcoWater MWPV Corporation (“EcoWater”), and Leyte Water
Company, Inc. (“Leyte Water”). Also under MWPV is Estate Water, which is its division that operates and
manages the water systems of townships developed by Ayala Land. Another subsidiary of Manila Water
is Calasiao Water Company, Inc. (“Calasiao Water”), a water supply project for the Calasiao Water District.

The holding company for its international ventures is Manila Water Asia Pacific Pte. Ltd. (“MWAP”). Under
MWAP are two affiliated companies in Vietnam, namely Thu Duc Water B.O.O Corporation (“Thu Duc
Water”) and Kenh Dong Water Supply Joint Stock Company (“Kenh Dong Water”), both supplying treated
water to Saigon Water Corporation under a take-or-pay arrangement. Also under MWAP are Saigon Water
Infrastructure Corporation (“Saigon Water”), a holding company listed in the Ho Chi Minh City Stock
Exchange, Cu Chi Water Supply Sewerage Company, Ltd. (“Cu Chi Water”) and another company tasked
to pursue non-revenue water reduction projects in Vietnam called Asia Water Network Solutions Joint
Stock Company (“Asia Water”). Apart from its operations in Vietnam, MWAP has associates in Thailand
and Indonesia through Eastern Water Resources Development and Management Public Company Limited
(“East Water”), a fully integrated water supply and distribution company listed in the Stock Exchange of

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Thailand, and an industrial water supply operation in Indonesia through PT Sarana Tirta Ungaran,
respectively.

Manila Water Total Solutions Corporation (“MWTS”), a wholly-owned subsidiary, handles after-the-meter
products and services including pipe-laying, integrated used water services, and the sale of Healthy Family
Purified Water in five-gallon, 500-ml and 350-ml bottles in selected areas in Metro Manila.

Lastly, Manila Water Foundation, Inc. (“Manila Water Foundation”) is the corporate social responsibility
arm of the enterprise. It aims to be the enabler of change that will uplift the quality of life of the base of the
pyramid communities through the provision of sustainable water
and wastewater services.

The Concession

The following are some of the key terms of the Concession Agreement with the MWSS:

• Term and Service Area of Concession. The Concession Agreement took effect on August 1, 1997
(“Commencement Date”) and will expire on May 6, 2037 or on an early termination date as provided
therein. By virtue of the Concession Agreement, MWSS grants to the Company (as contractor to
perform certain functions and as agent for the exercise of certain rights and power under Republic
Act No. 6234) the sole right to manage, operate, repair, decommission, and refurbish all fixed and
movable assets (except certain retained assets) required to provide water delivery and sewerage
services in the East Zone.

• Ownership of Assets. While Manila Water has the right to manage, operate, repair, decommission
and refurbish specified MWSS facilities in the East Zone, legal title to these assets remains with
MWSS. The legal title to all fixed assets contributed to MWSS by the Company during the concession
remains with Manila Water until the expiration date (or the early termination date), at which time, all
rights, titles and interests in such assets will automatically vest in MWSS.

• Ownership of Manila Water. Under the Concession Agreement, MWSS granted concessions to
operate the system of waterworks and sewerage services referred to under Republic Act No. 6234 to
private-sector corporations at least 60% of the outstanding capital stock of which is owned and
controlled by Philippine nationals. For this purpose, Manila Water monitors its foreign ownership to
ensure that its outstanding voting capital is at least 60% owned by citizens of the Philippines or by
corporations that are themselves at least 60% owned by citizens of the Philippines.

• Sponsor Commitment. Unless waived in writing by the MWSS-Regulatory Office, Ayala, as local
sponsor, and United Utilities PLC, as international operator, are each required to own, directly or
through a subsidiary that is at least 51% owned or controlled, at least 20% of the outstanding capital
stock of Manila Water for the first five years (through December 31, 2002), and thereafter at least
10% each. At present, United Utilities PLC no longer hold any equity in Manila Water, whether direct
or indirect.

• Operations and Performance. Manila Water has the right to bill and collect for water and sewerage
services supplied in the East Zone. In return, Manila Water is responsible for the management,
operation, repair and refurbishment of MWSS facilities in the East Zone and must provide service in
accordance with specific operating and performance targets described in the Concession Agreement.

• Concession Fees. Manila Water is required to pay MWSS the following:

o Concession fees consisting of the peso equivalent of (a) 10% of the payments due under any
MWSS loan that was disbursed prior to the Commencement Date; (b) 10% of payments due
under any MWSS loan designated for the Umiray-Angat Transbasin Project (UATP) that was
not disbursed prior to the Commencement Date; (c) 10% of the local component costs and cost
overruns related to the UATP; (d) 100% of the payments due under any MWSS designated

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loans for existing projects in the East Zone that were not disbursed prior to the Commencement
Date and were awarded to third party bidders or elected by Manila Water for continuation; and
(e) 100% of the local component costs and cost overruns related to existing projects in the East
Zone; and

o Share in the annual operating budget of MWSS amounting to ₱396 million each year subject
to annual inflation adjustments.

MWSS is required to provide Manila Water with a schedule of concession fees payable during
any year by January 15 of that year and a written notice of amounts due no later than 14 days
prior to the scheduled payment date of principal, interest, fees and other amounts due.
Currently, MWSS gives monthly invoices to Manila Water for these fees.

• Appropriate Discount Rate. Manila Water is entitled to earn a rate of return equal to the Appropriate
Discount Rate on its expenditures prudently and efficiently incurred for the remaining term of the
concession. The Appropriate Discount Rate is the real (i.e., not inflation adjusted) weighted average
cost of capital after taxes as determined by the MWSS Regulatory Office based on conventionally
and internationally accepted methods, using estimates of the cost of debt in domestic and
international markets, the cost of equity for utility business in the Philippines and abroad with
adjustments to reflect country risk, exchange rate risk and any other project risk.

• Tariff Adjustments and Rate Regulation. Water tariff rates are adjusted according to mechanisms that
relate to inflation, extraordinary events, foreign currency differentials and Rate Rebasing exercises.

• Early Termination. MWSS has a right to terminate the concession under certain circumstances which
include insolvency of Manila Water or failure to perform an obligation under the Concession
Agreement, which, in the reasonable opinion of the MWSS-Regulatory Office, jeopardizes the
provision of essential water and sewerage supply services to all or any significant part of the East
Zone.

Manila Water also has the right to terminate the concession for the failure of MWSS to perform an
obligation under the Concession Agreement, which prevents Manila Water from carrying out its
responsibilities or upon occurrence of certain events that would impair the rights of Manila Water.

• Reversion. On the expiration of the Concession Agreement, all the rights, duties and powers of Manila
Water automatically revert to MWSS or its successors or assigns. MWSS has the option to rebid the
concession or renew the agreement with the express written consent of the government.

• Joint Venture. Under the Concession Agreement, Manila Water and the concessionaire of the West
Zone of Metro Manila, Maynilad Water Services, Inc. (“Maynilad”), were required to enter into a joint
venture or other arrangement that identifies the responsibilities and liabilities of each with regard to
the operation, maintenance, renewal and decommissioning of Common Purpose Facilities, as well as
an interconnection agreement which governs such matters as water supply transfers between the
East and West Zones and boundary definitions and identifies the responsibilities and liabilities of
parties with regard to the management, operation and maintenance of certain interconnection
facilities. Pursuant to this, the Concessionaires entered into the Common Purpose Facilities
Agreement and the Interconnection Agreement in July 1997.

The Regulatory Office of MWSS

The Concession Agreement also provided for the establishment of the MWSS Regulatory Office under
the jurisdiction of the MWSS Board of Trustees, to monitor the operations of the Concessionaires. The
MWSS-Regulatory Office is composed of five members with five-year term, and no member of the MWSS-
Regulatory Office may have any present or prior affiliation with MWSS, Manila Water, or Maynilad. The
MWSS-Regulatory Office is funded by MWSS through the Concession Fee payments of the
Concessionaires based on a fixed amount as agreed in the Concession Agreement.

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In the case of disagreement or disputes, the CA provides that major disputes between Manila Water and
the MWSS-Regulatory Office be referred to an appeals panel consisting of two (2) members appointed by
each of the MWSS-Regulatory Office and Manila Water and a third member appointed by the Chairman
of the International Chamber of Commerce. Under the Concession Agreement, both parties waive their
right to contest decisions of the appeals panel through the courts.

Key Performance Indicators and Business Efficiency Measures

The Concession Agreement initially set service targets relating to the delivery of services by the Company.
As part of the Rate Rebasing exercise that ended on December 31, 2002, Manila Water and MWSS
mutually agreed to amend these targets based on Manila Water’s business and capital investment plan
accepted by the MWSS-Regulatory Office. In addition, Manila Water and MWSS adopted a new
performance-based framework. This performance-based framework, designed to mimic the characteristics
of a competitive market and help the MWSS-Regulatory Office determine prudent and efficient
expenditures, utilizes Key Performance Indicators (“KPI”) and Business Efficiency Measures (“BEM”) to
monitor the implementation of Manila Water’s business plan and will be the basis for certain rewards and
penalties in every Rate Rebasing exercise.

Fourteen KPIs, representing critical performance levels for the range of activities Manila Water is
responsible for, relate to water service, sewerage and sanitation service and customer service. The BEMs
are intended to enable the MWSS-Regulatory Office to evaluate the efficiency of the management and
operation of the concessions and gauge progress toward the efficient fulfillment of the Concessionaire’s
business plans. There are seven (7) BEMs relating to income, operating expenses, capital expenditures
and NRW. The BEMs are evaluated for trends and annual forecasts.

Amendments to the Concession Agreement

The Concession Agreement was amended under Amendment No. 1 to the Concession Agreement
executed on October 26, 2001 (“Amendment No. 1”). Amendment No. 1 adjusted water tariffs to permit
adjustment for foreign exchange losses and reversal of such losses, which under the original Concession
Agreement were recovered only when the concessionaire petitioned for an Extraordinary Price Adjustment
(“EPA”).

The Concession Agreement was further amended under the Memorandum of Agreement and
Confirmation executed on October 23, 2009 wherein Manila Water and the MWSS agree to renew and
extend the Concession Agreement for an additional period of fifteen (15) years from the year 2022 or until
2037, under the same terms and conditions.

Organization

The Organizational structure of Manila Water has the objective of decentralizing the locus of operating
control to the Senior Leadership Team composed of the President, Chief Executive Officer and Chief
Sustainability Officer, the Chief Operating Officer for Manila Water Operations, the Chief Operating Officer
for New Business Operations, and the Chief Finance Officer, Treasurer, Compliance Officer and Group
Director for Corporate Finance and Strategy.

A. The Manila Water Operations

Manila Water Operations (“MWO”) is responsible for the East Zone Business Operations and the
Company’s Corporate Support Functions. It is headed by the Chief Operating Officer for Manila Water
Operations.

The East Zone Business Operations (“EZBO”) is responsible for ensuring that Manila Water meets the
demand of all the customers in the East Zone, managing the drivers for revenue growth, delivering

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customer service, and building and maintaining community and stakeholder relationships. It is composed
of the East Zone Business Area Operations, and East Zone Business
Support.

• The East Zone Business Area Operations consists of the six (6) Business Areas – Quezon City,
Mandaluyong-Makati, Marikina, Pasig, Rizal, and Taguig. The area of operations of this Division
covers the major business districts in Quezon City, Makati, Ortigas and Taguig, as well as the entire
province of Rizal. The Business Areas are directly responsible for the processing of application for
new water service connections, management of meter reading, billing and collection activities, and
facilitation of complaints resolution and other after sales services, which form part of the end-to-end
process of account management. They are also tasked to find specific business opportunities from
different market segments. Their key mandates, as such, include the management of customer
demand, differentiating touchpoints per customer type aligned with the specific needs of the
customers and key accounts, geared towards achieving company targets on billed volume, revenue
and customer centricity.

• The East Zone Business Support Division is composed of four (4) departments: Demand Forecasting
and Total Management System (“TMS”) Management, Billing and Collection, Customer Service and
Stakeholder Management, and Program and Policy Development.

(i) The Demand Forecasting and TMS Management Department is responsible for revenue
management, demand forecasting, provision of systems and analytical tools and performance
management of all EZBO employees.

(ii) The Billing and Collection Department ensures efficient meter reading to deliver quality customer
bills. It also provides collection support to the business areas through service provider
management and payment facilities sourcing.

(iii) The Customer Service and Stakeholder Management Department reviews and enhances
customer service processes and standards aimed to drive customer satisfaction. It regularly
monitors customer centricity metrics to ensure that all customers’ concerns are attended to
efficiently and effectively.

(iv) The Program and Policy Development Department handles policy development and compliance
as well as various engagement initiatives for the Group such as the EZBO rewards and recognition
programs.

• The Business Areas and HQ departments aim towards driving the growth of the business, providing
customer service at the grassroots, and building relationships with the community to ensure
achievement of regulatory targets in terms of delivery of quality service to Manila Water customers.

The Corporate Support Functions are responsible for providing support to the entire organization. It leads
in the development of enterprise-wide policies, plans, and programs. The following are the Corporate
Support Functions:

(a) The Corporate Operations Group (“COG”) operates and maintains all of Manila Water’s water and
used water facilities. It constantly seeks ways to further improve the efficiency and reliability in
managing all of Manila Water’s facilities by developing high quality operating standards, delivering
innovative technology solutions and support, exploring new technologies and promoting a culture
of a safe work environment while remaining compliant to environmental and regulatory standards.
The COG is composed of Water Supply Operations, Used Water Operations, Corporate Business
Resiliency, Operations Services, Technical Services and Concession Management System.

• From the La Mesa Dam, Water Supply Operations manages the water treatment facilities,
pumping stations, service reservoirs, and the primary and distribution lines to provide 24/7
water supply at a reliability level of, at least, 99.99% while maintaining 100% compliance in

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water quality as defined in the Philippine National Standards for Drinking Water. It is also
responsible for ensuring that water supply meets demand by means of accurate forecasting
from source to production, despite variability in consumer demand or environmental
pressures.

The Water Supply Operations, in cooperation with counterparts from Maynilad, manages the
Water Source or the Common Purpose Facilities, which includes headworks upstream of the
La Mesa Dam (Angat Dam, Ipo Dam and the Novaliches portals). Water Source ensures that
sufficient raw water allocation is maintained throughout the year.

• Used Water Operations manages the used water treatment facilities and lift stations to ensure
that treated used water discharge is consistently compliant to environmental standards and
is responsible for implementing the used water service expansion plan.

• The Corporate Business Resiliency (“CBR”) function is committed to developing a culture of

preparedness, resiliency and continual improvement towards a world-class water service
company, thus ensuring coordination, integration and alignment of national, local and
company emergency plans and protocols. CBR enables Manila Water to immediately
respond to emergencies, especially when there is a need to provide potable water to disaster-
stricken areas. Through CBR, Manila Water is able to extend help even beyond its concession
area by providing mobile water treatment assistance to various areas in the country.
Moreover, since Manila Water operates a regulated business and by the nature of its
business, it is exposed to threats that may disrupt major services, the Company adapted the
ISO 22301:2012 – Societal Security – Business Continuity Management System. Under this
system, Manila Water plans, establishes, implements, operates, monitors, reviews, maintains
and continually improves a documented management system to protect against, reduce the
likelihood of occurrence, prepare for, respond to, and recover from disruptive incidents when
they arise.

• Technical Services is composed of four (4) departments: the Laboratory Services, Systems
Analytics, Energy and Innovations, and Telemetry and Process Automation Departments.

(i) The Laboratory Services collects water samples daily from strategically located sampling
points all over the East Zone from water treatment facilities to the distribution and effluent
samples from all used water facilities. The samples are tested for physical, chemical and
microbiological parameters to ensure true worldclass standards. Aside from being
recognized by DOH and the DENR, the Laboratory is also ISO standards certified (ISO
17025, ISO 9001, ISO 14001, and OHSAS 18001). The department also actively
contributes to process optimization towards improved operational control and efficiency.

(ii) System Analytics Department facilitates operational data flow, consolidation, analytics
and general information architecture and provides relevant and timely notification,
reporting, and escalation of operational information through the Operations
Communications Center.

(iii) The Energy and Innovations Department monitors power consumption, recommends
power-efficiency measures, and develops and implements strategies for Manila Water
to avail of advantageous power rates in all its facilities. It also drives the enhancement
of an innovative culture and the delivery of new or higher gains from core innovations or
innovations related to water and used water operations towards better, more efficient
delivery of outputs and services.

(iv) The Telemetry and Process Automation Department is responsible for developing and
maintaining the operating facilities instrumentation, control and automation based on the
operating philosophy. It also oversees the accurate, reliable and secured integration of
vital operational data to a central repository with 24/7 remote access.

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• Under Operations Services are five (5) departments: The Operations Management,
Sustainability, Inventory Management, Maintenance Services and Fleet Management
Departments:

(i) The Operations Management Department strategizes a unified management system to

ensure the effectiveness and efficiency of group targets and programs. Operations
Management is accountable for the ISO certifications (Quality, Environment, Health and
Safety) and serves as a framework in order to produce and promote well-balanced
implementation of all policies and processes across the Corporate Operations Group
including specific requirements of international standards (ISO 9001, ISO 14001, and
OHSAS 18001). The department also ensures efficiency through continuous process
improvement as well as financial and operational performance management.

(ii) The Sustainability Department ensures that Manila Water’s implementation of projects
and operations of facilities are compliant with current environmental regulations and
aligned with Manila Water’s sustainability commitments. It incubates sustainability
programs such as resource efficiency, communications and advocacy initiatives that are
intended for institutionalization among the responsible business units. The department
keeps track of the material sustainability indicators of the enterprise and in coordination
with Investor Relations, is responsible for the preparation of Manila Water’s annual
Integrated Report.

(iii) The Inventory Management Department is responsible for the strategic supply/inventory
planning and inventory management to ensure the adequate and timely provision of
critical supplies and materials for Manila Water’s operations and project requirements.
The department has established policies and procedures to respond to the requirements
in a fast-paced environment aligned with the corporate goals and business needs with
due regard to good governance.

(iv) Maintenance Services is responsible for ensuring that assets of Manila Water are
working efficiently. This includes the monitoring, maintenance, repair, and/or
replacement of assets and components that sustain the efficient operation of all
operational, ancillary and office facilities. MSD efforts seek to enable Manila Water to
maintain efficient costs of Repair and Maintenance while maximizing the life expectancy
and intended functionality of assets.

(v) The Fleet Management is responsible for the dispatch and maintenance of Company
vehicles and equipment. It also provides vehicle assistance during incidents /
emergencies and special events of Manila Water.

• Concession Management System Department leads and drives the integration of MWO end
to end processes and alignment of cross-functional policies and procedures aligned to
business objectives. It also creates the standard for the development, management and
compliance to processes, in accordance with internal/local policies, rules and regulations,
and international standards.

(b) The Corporate Human Resources Group is organized into six (6) core functions: Talent
Management and Leadership Development, Manpower Planning and Organization Development,
Total Rewards Management, Employee Engagement, HR Project and Change Management, and
HR Business Partnering.

• The Talent Management and Leadership Development Department is responsible for training
and development, key talent identification and succession, performance management,
competency and knowledge management.

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• The Manpower Planning and Organization Development Department is responsible for

manpower planning, organization and job design, and staffing.

• The Total Rewards Management Department handles the design of rewards programs.

• The Employee Engagement Department handles employee programs (employee

engagement strategies and programs across the organization) and labor relations (employee
grievances, employee discipline and programs involving the labor union).

• HR Project and Change Management Department is responsible for talent and organizational
change management as well as the HR project management. The HR Business Partners are
responsible for providing business-focused HR solutions to stakeholders.

(c) The Corporate Project Management Group (“CPMG”) is tasked with the planning, design and
construction of all water, used water and network capital projects that are crucial for Manila Water
to achieve regulatory commitments as stipulated in the Concession Agreement and Rate
Rebasing plans. The careful delivery of projects, strict adherence to the target timelines, prudent
and efficient cost and highest standards of quality and safety, is the basis for the achievement of
corporate business objectives aligned with the sustainable expansion of services that improve
people's lives and support regional economic growth. CPMG is organized for an integrated,
collaborative approach to project execution. It is composed of seven (7) departments namely:
Project Management, Construction Management, Engineering, Project Management Office,
Project Stakeholder Engagement, Quality Assurance, and Safety Solutions.

• The Project Management Department is entrusted to manage the whole project-life cycle of
capital expenditure programs of Manila Water. The department ensures timely, cost-efficient
and quality delivery of all planned infrastructure projects.

• The Construction Management Department is tasked with managing the multi-billion project
portfolio of Manila Water. Construction Managers are accountable for keeping the project in
line with time, cost and quality, safety and environmental standards by leading a cross-
functional team that manages the numerous interconnected components of execution.

• The Engineering Department ensures the compliance of projects to established engineering

standards by reviewing design concepts and cost estimates; conducting preliminary and
detailed design, as necessary; spearheading the technical evaluation of technical proposals
during bidding; design submissions during execution; and developing high-quality and cost-
effective engineering standards that are used across the business. It is also at the forefront
of studying the latest construction technologies and methodologies in view of value-
engineering.

• The Project Management Office is responsible for (a) project control functions to support
construction projects, (b) implementation of integrated project management system and
facilitation of continuous improvement initiatives, (c) strengthening of project information and
analytics, and (d) building systems to ensure project construction documentation and control.

• The Project Stakeholder Engagement Department ensures that the projects have the support
of critical stakeholders such as local governments, national agencies and the public through
proactive project pre-selling and relationship building that ensure timely and smooth
resolution of any project concerns.

• The Quality Assurance Department is in charge of the development and implementation of

quality management procedures and system across CPMG through (a) process
documentation, including policy formulation and system rollout, (b) management of the

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Quality Execution Academy and, (c) review/analysis of quality execution metrics/statistics for
continuous improvement of Construction Managers.

• The Safety Solutions Department performs a vital role in ensuring that not only are Manila
Water employees empowered to work safely, but also ensures that vendors and contractors
are well-trained in keeping worksites safe for employees and the general public, especially
during construction activities. This utmost regard for a safety environment and mindset has
top management support and carried-out by its employees and contractors/vendors.

(d) The Strategic Asset Management Group was formed to help Manila Water achieve the optimal
and sustainable delivery of services and profitability through the efficient and effective
management and development of assets. The group is mandated to provide a comprehensive,
holistic and integrated master plan that will address capital investments both for water and used
water systems, the operation and maintenance of existing and new assets, and the rationalization
and disposal of surplus assets.

To deliver these services, the Strategic Asset Management Group is organized into six (6)
departments namely, Value Assurance, Portfolio Management, Strategic Asset Planning, Asset
Management Asset Investment and Management Support, and Water Sources and Environmental
Planning.

• The Value Assurance Department provides a holistic approach that will help ensure the
delivery of the programs/projects’ ultimate goals through value analysis and risk assessment
that facilitate faster decision-making and thus optimize capital expenditures/life cycle costs
and satisfy stakeholders.

• The Portfolio Management Department is tasked to deliver the overall corporate capital
expenditure portfolio according to the approved corporate master plan. The department
manages the overall portfolio performance, identifies the right mix of projects to maximize
overall benefits, and meets regulatory and business goals. The department provides
comprehensive analysis for portfolio impact assessment and investment, recommending
changes and adjustments required to meet the objectives. It ensures that project-related
issues are corrected in a timely manner.

• The Strategic Asset Planning Department is entrusted to strategically plan, develop and
calibrate the water and used water master plan, and capital and operational expenditure
programs for all the businesses of the entire enterprise through conducting concept studies
to determine the annual project list and providing technical justification for the approval of the
corporate master plan.

• The Asset Management Department is in charge of optimizing financial and operational

performance of assets at the least cost through risk-based, data driven strategies to deliver
Manila Water’s service obligations.

• The Asset Investment and Management Support Department provides assistance to the
whole group on policy development, process improvement and implementation of programs
to enhance project life cycle and asset management principles. It also provides
comprehensive analysis for capital investments to aid in the attainment of Manila Water’s
business and regulatory commitments.

• The Water Sources and Environmental Planning Department is responsible for the
development of new water resources and environmental master plan for all the businesses
of the entire enterprise.

(e) The Corporate Regulatory Affairs Group (“CRAG”) is mandated to (a) lead the planning and
development of the East Zone rate rebasing submission and Rate Rebasing Readiness Program,

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(b) engage different groups within the MWO in the aligned execution of the MWSS-approved East
Zone business plan, (c) advocate with MWSS and other key government/private/non-government
organizations to advance Manila Water’s policy interests, (d) provide political-regulatory
management support services to the entire organization, and (e) conceptualize, develop and
implement major Company political regulatory initiatives.

The said mandates are carried out through four (4) departments, namely: the Business Operations
Regulation (“BOR”) Department, the Financial Regulation Department, the Technical Regulation
Department and the Public Policy Department. The Group, particularly through the Group Head
and members of the Business Operations Regulation, Financial Regulation and the Technical
Regulation Departments, interface with the MWSS on matters relating to the Concession
Agreement. It includes submitting reports and disclosures relating to compliance, handling
negotiations with the MWSS relating to Manila Water’s service targets, and distilling information
from Manila Water’s other groups to produce and periodically update financial projections (the
bases for petitions submitted to the MWSS for quarterly, annual, and five-year tariff adjustments.
The Public Policy Department handles matters related to public policy (e.g. preparation of policy
position papers and attendance in various policy fora/dialogues, hearings) and relations with key
government and non-government offices.

(f) The Corporate Strategic Affairs Group is responsible for creating consistent corporate messaging
and harmonizing communication channels that are aligned with Manila Water’s objectives in order
to enhance its image and reputation and effectively connect with various customers and
stakeholders. The group is composed of two (2) departments: The Advocacy and Research
Department, and the Corporate Communications Department.

• The Advocacy and Research Department handles the “Lakbayan” or Water Trail program as
Manila Water’s information, education and communication program on water and used water
appreciation. It also handles environmental advocacy programs such as “Toka Toka” which
is the country’s first and only environmental movement focused on used water management.
It is also in charge of building and differentiating the Manila Water brand through strategic
communications research and development, and visual standards management.

• The Corporate Communications Department handles the execution of Manila Water’s

strategic as well as tactical and crisis communication programs through publicity, events and
other stakeholder services. The department handles all Manila Water publicity in the media
(i.e., TV, radio, print and below-the-line), as well as media planning, relations and
engagement. It is also responsible for ensuring a well-informed workforce through the
development and implementation of relevant internal communications. Lastly, it handles
Manila Water’s digital media platforms on social media and web.

B. The New Business Operations and New Business Development Group

The New Business Operations Group focuses on operating new subsidiaries and promoting organic
growth in existing service areas while the New Business Development Group focuses on expanding
services to unserved and underserved areas and market segments. Both groups leverage on existing
products and services to create value and strategically expand to new geographies in the Philippines and
in Southeast Asia, specifically in Vietnam, Indonesia, Myanmar, and Thailand.

Products and services are intended to be delivered through the Manila Water Group’s wholly owned
subsidiaries, MWPV, MWAP, and MWTS to ensure sustained growth beyond the East Zone Concession.

MWPV and MWAP are mandated to expand the business in the Philippines and in Southeast Asia,
respectively. These geographical expansions are anchored on the core competencies of Manila Water
developed and nurtured in the East Zone Concession and MWPV’s subsidiaries, Laguna Water, Clark
Water, BIWC, and Cebu Water, among others. In 2016, MWPV has started to develop its own capability
through the establishment of its operating division, Estate Water. Borne out of a strategic partnership with

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Ayala Land, Estate Water serves as MWPV’s vehicle to provide service to the non-municipal market
segments.

Outside the Philippines, the Manila Water Group has significantly gained traction in Vietnam, Indonesia,
and Thailand, through MWAP and its Singapore subsidiaries, Manila Water South Asia Holdings Pte. Ltd.,
Kenh Dong Water Holdings Pte. Ltd., Thu Duc Water Holdings Pte. Ltd., Manila South East Asia Holdings
Pte. Ltd., and Manila Water Thailand Holdings Pte. Ltd. (“MWTC”). The Manila Water Group remains the
largest foreign investor in the Vietnam Water Sector through its affiliates/associates, Kenh Dong Water,
Thu Duc Water, Saigon Water, Asia Water, and Cu Chi Water.

MWPV has expanded its footprint in the Philippines through the addition of eleven (11) new projects in its
portfolio. This includes a bulk water and septage management project with the City of Ilagan Water District
(Isabela) and new concession projects in San Jose City (Nueva Ecija), Tanauan City (Batangas), Calbayog
City (Samar), and Municipalities of Calinog and Lambunao (Iloilo). We have expanded our existing
businesses and secured Pagsanjan and Victoria in Laguna, Bulakan and Balagtas in Bulacan, and
Malasiqui, San Fabian, Manaoag, and Sta. Barbara in Pangasinan.

Outside the Philippines, our Thailand (Eastern Water Resources Development and Management PCL or
East Water) and Indonesia (PT Sarana Tirta Utama) investments started to contribute to the improved
performance of our businesses.

Lastly, MWTS handles after-the-meter products and environmental service offerings outside the
conventional water value chain, and is in the business of producing and marketing Manila Water’s
packaged water business in Metro Manila under the Healthy Family Purified Drinking Water brand.

C. The Corporate Finance and Strategy Group

The Corporate Finance and Strategy Group is headed by the Chief Finance Officer and Treasurer. The
Group is composed of four (4) divisions – Controllership, Accounting and Planning Division, Treasury and
Enterprise Risk Management Division, Finance and Governance for Manila Water Asia Pacific Division,
and Finance and Governance for Manila Water Philippine Ventures and Manila Water Total Solutions
Division – and two (2) departments, Corporate Planning and Investor Relations, and Tax Management.

• The Controllership, Accounting and Planning Division is composed of the Controllership and Analysis
Department, the Financial Accounting Department, the Concession Investment Accounting
Department, and the Financial Planning Department. The division provides controllership and
management reporting, financial and regulatory accounting, and financial planning services.

(i) The Controllership and Analysis Department supports top management’s decision-making
processes through the provision of timely financial information and analysis, coordinated budget
planning activities, and periodic review against plans of the Manila Water Operations and Manila
Water as a parent company. The department is also responsible for the setting and management
of financial related policies and performance management of the Corporate Finance and
Strategy Group as well as handling special projects involving process and systems
improvements.

(ii) The Financial Accounting Department maintains and safeguards the integrity of Manila Water’s
computerized accounting system, books of accounts and processes to ensure the preparation
of accurate and timely financial reports for the purpose of providing management, regulators and
other stakeholders with financial information reflective of Manila Water’s true financial
performance and condition. The department is ISO 9001:2015 certified and implements a Quality
Management System which assures the consistent application of relevant accounting standards,
policies, regulations and rules aimed at the continuous improvement of its processes.

(iii) The Concession Investment Accounting Department is a multi-disciplinary group playing a key
role in Manila Water’s regulatory compliance with MWSS. It is responsible for providing

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management and regulators with timely reports that are compliant with all applicable accounting
and regulatory standards. In line with Manila Water’s obligations as concessionaire of the East
Zone, it maintains records of the acquisition, status, and disposal/transfer of all fixed and
movable assets of Manila Water. The department provides appropriate safeguards on capital
disbursements of Manila Water and ensures that payments are carried out in accordance with
contractual requirements, and consistent with internal policies and tax requirements. It is also
responsible for the financial monitoring of capital projects as well as the secretariat function of
the Capital Investment Committee.

(iv) The Financial Planning Department is responsible for the overall budget preparation and
monitoring of the Manila Water Group. It provides financial analysis and reporting of the financial
and operating performance of the enterprise and its subsidiaries. The Financial Planning
Department is responsible for the preparation of the long-term financial plans of the Metro -
Manila East Zone concession and the consolidated Manila Water Group. The Department
monitors the performance of the various businesses of Manila Water and their contribution to the
enterprise. It also provides financial advisory support to business development, capital
investments, and other corporate initiatives. It handles the secretariat function of the New
Business Investment Committee.

• The Treasury and Enterprise Risk Management Division, headed by the Deputy Group Treasurer and
Chief Risk Officer, is composed of two (2) departments: Treasury Department, and Enterprise Risk
Management Department. The division is responsible for the effective management of Manila Water’s
cash resources and financing activities, and sustained implementation of enterprise risk and
insurance programs. The division also provides treasury and risk advisory services across the Manila
Water Enterprise.

(i) The Treasury Department is responsible for the effective management of Manila Water’s cash
resources, including collections and disbursements, through efficient liquidity planning and
maximization of cash investments. It is also responsible in the capital raising activities of the
Enterprise ensuring cost-efficient and timely closing of financing transactions. The Treasury
Department also manages Manila Water’s concession fee obligations with MWSS and ensures
compliance with loan reportorial requirements and covenants. For new businesses, the Treasury
Department provides strategic advisory in terms of financing strategies and treasury operations,
and support for subsidiaries’ banking requirements. In carrying out its functions, the Department
maintains a sustainable and mutually beneficial relationship with its lenders and banking
partners. It also maintains its ISO 9001:2015 Certification for Quality Management System
ensuring transparency of operations and adherence with its risk-based policies. It is headed by
the Treasury Department Head who directly reports to the Deputy Group Treasurer and Chief
Risk Officer.

(ii) The Enterprise Risk Management Department (“ERM”) is responsible for developing risk
management tools, methodologies, and processes and leads the implementation and
dissemination of ERM programs across the Manila Water Enterprise in coordination with the risk
owners, the CRO and ERM Champions/ Partners/ Risk Officers of the business units. It is also
responsible for managing the insurance programs of the Enterprise and for providing oversight
of the insurance programs of the subsidiaries with the objective of making the programs cost-
effective, risk-based and responsive to the Group’s needs. The integration of risk management
with insurance ensures the effective development and application of risk transfer strategies for
the Enterprise and its projects. The Insurance Management Section has successfully obtained
its ISO 9001:2015 certification for Quality Management System in 2018. The Quality
Management System certification is an affirmation of compliance to global best standards for
insurance management. The Department is headed by the Chief Risk Officer and reports
functionally to the Board Risk Oversight Committee and administratively to the Chief Finance
Officer and Treasurer.

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• The Finance and Governance for Manila Water Asia Pacific Pte. Ltd. is responsible for the statutory
reporting of the companies under the group as well as the management reporting and analysis of
performance of investee companies. The division also ensures compliance with the taxation and
financial reporting requirements of the regulatory agencies. Manila Water Asia Pacific Pte. Ltd.
handles controllership functions which includes development and implementation of financial policies
as well as the formulation of the budget and forward plans and monitoring the utilization of the budget.
The division also provides corporate finance support to new business development activities and
ensures the smooth and efficient operationalization of the finance and governance function in new
entities.

• The Finance and Governance for Manila Water Philippine Ventures and Manila Water Total Solutions
leads the finance and accounting operations of all local subsidiaries of Manila Water. The division
ensures the preparation of accurate and timely financial reports to aid in top management’s decision-
making process, as well as the implementation of effective financial systems and controls in all local
subsidiaries. The division also leads the coordinated budget planning activities, and periodic review
against plans of all local subsidiaries to ensure that over-all corporate goals are met. It is also
responsible for building the capability of the new businesses to be able to manage and perform all
finance-related operations such as, but not limited to, accounting, treasury, procurement, policy
development, risk management and tax management.

The Corporate Planning and Investor Relations Department is responsible for supporting the
Enterprise in crafting the organization’s strategic roadmap and driving the investor communication
strategy. It has two main functional units, namely, Corporate Planning and Investor Relations.

Corporate Planning supports top management in charting the strategic roadmap of the Enterprise,
and in aligning the execution of its various initiatives. This support is extended to the rest of the
organization through the development and provision of market and industry information; coupled with
the prioritization and alignment of strategic actions. Equally important, Corporate Planning aims to
provide support to the actual execution of Enterprise strategies, through the Enterprise Program
Management Office – which oversees execution inter-dependencies of Enterprise projects; and
correspondingly through implementation of an enterprise-wide Performance Management System.
Investor Relations supports top management in driving the organization’s investor communication
strategy through timely investor and market analysis, efficient coordination of Enterprise information
and effective key message development and delivery. For this purpose, IR conducts regular analysts’
briefings, meetings and roadshows with shareholders, fund managers and analysts to keep them
updated on the financial and operating performance of Manila Water, as well as other relevant
material information.

• The Tax Management Department provides strategic assistance to the different business and support
units of Manila Water on matters relating to all taxes and tax incentives applicable in Manila Water’s
operations and growth initiatives. The department also provides a focused analysis, interpretation,
and application of relevant tax laws, rules and regulations, and advocates for process and policy
improvements to ensure compliance with all reportorial requirements of the BIR, Board of Investments
(“BOI”), and pertinent local government units and government agencies.

D. Business and Technology Services

The Business and Technology Services Group is responsible for providing core support to Manila Water
enterprise initiatives towards greater efficiency and growth. It is accountable for the delivery of IT solutions,
infrastructure and information security, and for the provision of shared services including HR operations,
accounts payable, general ledger and procurement.

• The Business and Technology Services Group Governance Department is responsible for strategic
planning and performance management, transition and service delivery support, and business
relationship and stakeholder management functions. It also handles the oversight functions on
program management, risk and compliance management, and other IT processes.

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• The HR Operations Domain oversees payroll processing, benefits administration and the HR
integrated system. Its duties include the delivery of timely, accurate and complete compensation and
benefits, as well as up-to-date employee profile and information.

• The Supply Chain Domain provides sourcing, procurement, contract drafting, and vendor
management services. It is responsible for procuring services, materials and supplies with due
consideration to quality, efficiency and cost-effectiveness. It also employs strategic sourcing and
category management approach to adapt to changing market conditions and address the growing
needs of the business.

• The Finance Domain provides accounts payable and general ledger processing enabled by
technology to deliver a high quality of standard-based finance services. It supports the provision of
appropriate safeguards on disbursements ensuring that payments for goods and services are carried
out in accordance with the applicable internal policies and tax requirements. It also supports the
preparation of timely and accurate financial reports consistent with the application of relevant
standards and policies.

• The IT Service Management Domain oversees the day-to-day operations of IT services including the
availability, performance, and capacity of IT resources. It is responsible for the development of tactical
plans in the deployment of hardware, operating systems, and data networks, in order to meet
business-driven service levels and business continuity requirements.

• The Information Security Department is in charge of developing and enforcing the enterprise-wide IT
security strategies, policies, standards, procedures and awareness program, and ensuring
compliance with relevant information security standards. It also implements and maintains technical
and procedural controls to protect information flow across networks.

• The Infrastructure Planning and Delivery Department looks after the infrastructure planning and
design, infrastructure deployment, and data network connectivity, and carries out demand
management, project management and delivery of IT infrastructure projects.

• The Systems and Solutions Department is responsible for the development and maintenance of all
projects and systems supporting the business. It is in charge of identifying, designing, and delivering
technology solutions and applications that support the success of the business.

E. Legal

The Legal and Corporate Governance Department provides legal services, advice and support across the
entire organization. It proactively ensures that Manila Water is fully compliant with all the applicable laws,
rules and regulations, and defends and protects the Company’s interests in the courts, administrative
agencies and other tribunals. It is also responsible for the drafting and reviewing of contracts and other
legal documents to ensure that they are advantageous to Manila Water and do not infringe any law,
domestic or foreign, or any government rules and regulations. Its functions likewise include the provision
of guidance and assistance through the entire process of acquiring properties, maintenance of existing
rights-of way, and acquisition of rights-of-way required for the implementation of water and used water
projects. In matters of corporate governance, the Legal and Corporate Governance Department ensures
that Manila Water adheres to the compliance, reporting and disclosure requirements of the SEC and the
PSE for publicly listed companies, and to international standards of good corporate governance and
practices. The department continuously orients all employees and business partners regarding Manila
Water’s governance policies, particularly on matters relating to fair business dealings as well as the prompt
and adequate disclosure of material information. It also provides corporate secretarial services to the
Board of Directors and the Board Committees and assistance to the Office of the Corporate Secretary in
the preparation and conduct of the stockholders’ meeting and board meetings.

F. Internal Audit

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The Internal Audit Department provides independent and objective assurance and consulting services and
evaluates the effectiveness of the Enterprise’s risk management, control and governance processes. The
department reports functionally to the Audit Committee and administratively to the Corporate Secretary. It
supports the Audit Committee in the effective discharge of its oversight role and responsibility, and
provides the management and the Board of Directors, through the AC, with analyses, recommendations,
advice and information concerning the activities and processes reviewed. In 2017, the external auditing
firm Punongbayan & Araullo conducted an independent validation of the internal audit function’s Quality
Assessment Review and concurred that the internal audit activity “Generally Conforms” to the Standards.

Water Operations

The whole water supply chain generally involves the abstraction of water from water sources, treated
subsequently through the water treatment facilities, and conveyed and distributed to customers through
Manila Water’s network of pipelines, reservoirs, and pump stations. In 2017, the concession supplied an
average of 1,533 million liters per day (“mld”) of clean and potable water to its customers and billed a
corresponding volume of 488.39 million cubic meters. This is equivalent to a total of 1.031 million water
service connections or approximately 6.7 million served population.

Water Source

Under the Concession Agreement, MWSS is responsible for the supply of raw water to the Company’s
distribution system and is required to supply to Manila Water a maximum quantity of water, currently
pegged at 1,600 mld. In case MWSS fails to supply the required quantity, the Company is required to
distribute available water equitably.

Manila Water substantially relies on surface waters coming from the Angat River System. The principal
river, Angat River, originates from the Sierra Madre Mountains. It has three major tributaries namely the
Talaguio, Catmon and Matulid Rivers. The surface waters from these sources are collected and
impounded through the Angat Dam, conveyed subsequently through the Ipo Dam where water is diverted
through tunnels to Bicti and Aqueducts to La Mesa. To date, only a very small amount of Manila Water’s
water supply is still ground-sourced through deep wells, which are primarily for the benefit of customers in
the remotest towns of the Province of Rizal wherein conveyance from the existing treatment plants would
be impractical.

In March 2019, the La Mesa Reserve breached the critical level of 69 meters which prevented Manila
Water from getting its 150 mld per day from the said dam. This additional 150 mld is important to augment
the 1,600 mld contractual allocation Manila Water gets from the Angat system. Without this additional 150
mld of raw water from the La Mesa Reserve, Manila Water cannot fully serve peak demand at sufficient
pressure. Consequently, from 100 percent 24/7 service, Manila Water’s service degraded to almost 70
percent at its lowest point during this period.

In April 2019, the MWSS imposed a financial penalty to Manila Water amounting to ₱534 million for its
inability to meet its service obligations to provide 24/7 water supply to its consumers in accordance with
the concession agreement. This inability to provide 24/7 water supply to was primarily because Manila
Water’s allocated water supply from Angat Dam is no longer sufficient for the total demand of the East
Zone consumers. Said raw water allocation has remained unchanged at 1,600 mld since the Concession
began in 1997, back when the East Zone had a population of only 3 million people. Today, Manila Water
serves a population of close to 7 million people. For many years, Manila Water has strongly advocated for
the development of new water sources beyond Angat Dam, both to ensure sufficiency of water supply as
well as for resiliency in the face of calamities. However, the development of new water sources is, under
the Concession Agreement, ultimately the responsibility of MWSS.

Manila Water undertook its own initiatives to address prevailing challenges and restore water service to
customers. First, Manila Water voluntarily implemented a one-time Bill Waiver Program in March 2019 to
help alleviate the inconvenience of all customers and assist severely affected areas. Second, Manila Water

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energized the Cardona Plant which is producing well over its original committed capacity of 50 mld, with a
current production of 62 mld and an outlook of 100 mld in August. Third, is the recommissioning and
development of new deep wells with a total current yield of over 50 mld. These initiatives, along with a
more deliberate and proactive network management/optimization program, has restored water availability
to regulatory levels for 99% of Manila Water customers. This service level has been achieved even in the
face of a still significantly reduced raw water supply allocation.

Water Treatment

Raw water is stored at the La Mesa reservoir located immediately downstream of the Novaliches portal
interconnection before going to the three (3) major treatment plants - two (2) of which are in Balara located
seven (7) kilometers away from the reservoir and the third is nestled just at the northeast of La Mesa Dam.

The Balara treatment plants have a total design capacity of 1,600 mld and consist of two (2) separate
treatment systems: Balara Filter 1 which was commissioned in 1935 having a design capacity of 470 mld
and Balara Filter 2 which was commissioned in 1958 with another 1,130 mld.

The East La Mesa Treatment Plant, on the other hand, is located in Payatas, Quezon City. Relatively new
to the system, the facility began its operation in June 2012. It has a capacity of treating 150 mld of water.
It supplies water to far-flung expansion areas in the Rizal province, improving the supply balance of the
entire network.

The treatment process in these plants involves coagulation, flocculation, sedimentation, filtration and
chlorination. The facilities consume higher quantities of chemicals during the rainy season when the
turbidity of raw water increases, which consequentially leads to increased costs of treatment operations.

Water Distribution

After treatment, water is conveyed through Manila Water's network of pipelines, pumping stations and
reservoirs, and mini-boosters to bring potable water to its customers conveniently at set pressure standards.
As of June 2019, 66.67% of currently served areas have a 24/7 water supply with pressure of at least 7 psi,
largely due to significantly reduced raw water allocation from Angat Dam.

As of June 2019, Manila Water's network consisted of approximately more than 5,111.61 km of total
pipeline, comprising of primary, secondary and tertiary mains ranging in diameter from 50 to 2,200 mm.
The pipes are made of steel, cast iron, high-density polyethylene (hdpe), polyvinyl chloride (pvc) and other
materials.

Pumping stations also play a critical part in water distribution. As of June 2019, approximately 62% of the
treated water supplied by Manila Water is pumped to ensure pressure compliance especially for the highly
elevated areas. Currently, Manila Water operates nineteen (19) pumping stations with a combined
maximum pumping capacity of 3,000 mld and an average plant output of around 1270 mld. Most of the
major pumping stations have reservoirs with a combined capacity of almost 500 mld.

Manila Water operates nine (9) line boosters to reach the fringe areas, which are quite distant from the
treatment plants. Line boosters typically are small facilities aimed at augmenting water supply for areas
that are not sufficiently supplied during the regular pumping operations of the pump stations.

Non-Revenue Water (NRW)

NRW refers to the volume of water lost in Manila Water’s distribution system due to leakage, pilferage,
illegal connections and metering errors. As determined by the MWSS-Regulatory Office, NRW is
calculated as the percentage of water lost against the net volume of water supplied by Manila Water.

Over the years, Manila Water has delivered remarkable strides in managing its NRW. The concession
started with a high system loss of 63% in 1997. In 2010, its NRW level is reduced to and maintained at

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just 11%. Yearend figure for 2018 was recorded at 11.42%. Continuous improvements of water supply
management coupled with massive pipe replacement projects were done to maintain and improve the
reduction of Manila Water’s system losses.

Water Quality

Raw water quality from Angat, Bicti, Ipo and La Mesa is regularly tested by the laboratory on a quarterly
basis to assess any changes to raw water quality over time. This source monitoring provides early warning
of potential raw water quality problems in terms of Microbiological and Physico-chemical (Inorganic and
Organic constituents). The results are all satisfactory and through time still falls under the classification of
Class A of DAO 34. Aside from source monitoring, routine monitoring of raw water at the treatment plant
inlet is conducted on a weekly basis for operational control to effectively and efficiently manage treatment
process operation. These routine monitoring include Microbiological and selected Physico-chemical
parameters for over 7000 tests annually.

Since 1998, Manila Water’s water quality has consistently surpassed the Philippine National Standards
for Drinking Water (“PNSDW”) set by the DOH and based on World Health Organization water quality
guidelines. To ensure that water supplied at the tap is safe to drink, stringent water quality monitoring is
also continuously implemented at the treatment plants and throughout the distribution system. From the
results of analysis conducted, water quality has always been maintained at 100% compliance based on
the Microbiological, Physical and Chemical standards at the customers taps. In 2017, Manila Water
conducted over 100,000 tests for Microbiological and Physico-chemical quality at the treatment plant
outlet, facilities and reservoirs annually.

Continuous monitoring of water quality indicators throughout the network is also conducted at the
customers taps by which more than 50,000 tests annually are tested from samples collected at the 886
pre-identified sampling points located at various influence area. Regulatory sampling points are
designated at strategic locations across the distribution system - where sampling is conducted daily by
Manila Water. The MWSS-Regulatory Office, LGUs and DOH likewise collect random samples from these
designated sampling points and have them tested by third party laboratories and designated government
laboratories. Manila Waters water samples scored an average water quality compliance of 100%,
surpassing the threshold of 95% set in the PNSDW. In 1997, when the concession began, only 87% of
water samples complied with these quality standards. Manila Water’s rating is based on a series of tests
conducted regularly at these points within the East Zone.

The samples collected are tested at Manila Water’s own Laboratory, which is accredited by the DOH and
a recognized EMB-DENR testing laboratory. The Laboratory has also gained its recognition as an ISO/IEC
17025:2005 accredited laboratory, granted by the Philippine Accreditation Office, DTI. These recognition
and accreditations subject the laboratory to regular surveillance audits. Consistently, the Laboratory has
gained excellent and satisfactory ratings on most proficiency testing programs it has participated through
local and international proficiency testing program providers. In 2010, the Laboratory also gained IMS
certifications for ISO 9001:2008, ISO 14001:2004 and OSHAS 18001:2007. These recognitions have
gained the confidence of the MWSS-Regulatory Office, the DOH and DENR in the tests results that are
regularly provided to them.

Sewerage Operations

Manila Water is responsible for the provision of sewerage and sanitation services through the operation
of new and existing sewerage systems and a program of regular maintenance of household septic tanks
in the East Zone.

Sewerage and Sanitation System

Since 1997, Manila Water has significantly improved and expanded the limited used water infrastructure
originally operated and maintained by the MWSS. Sewerage services are provided in areas where

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treatment facilities are available. Sewered areas currently include Quezon City and Makati. Parts of Manila,
Taguig, Cainta, Pasig and Mandaluyong are also connected to sewer networks.

Manila Water had few facilities for sewerage services in 1997. The Sewage Treatment Plant (“STP”) in
Magallanes Village was then the largest treatment facility in the country with a 40 MLD capacity. The STP
in Magallanes provides sewerage services to the Makati central business district and some residential
villages. The Karangalan Bio-module inKarangalan Village was serving approximately 100 households but
also produced substandard effluent quality before 1997. In addition to these facilities, an Imhoff tank in
Phil-Am Village and thirty-one communal septic tanks (“CSTs”) in Quezon City were also turned-over by
the MWSS to Manila Water in 1997. These facilities were then serving approximately 19,000 households
only. Prior to privatization, these facilities had poor treatment efficiency and did not comply to meet effluent
quality standards. Manila Water upgraded these facilities to meet the effluent standards set by the DENR.

In 2001, Manila Water constructed two (2) pilot package plants to determine if they were feasible in terms
of social, financial, and environmental aspects. These are located in Valle Verde Homes, Pasig, one of
which serves approximately 100 households and another serves some 400 households of the housing
project in Makati together with approximately 4,000 students and employees in Rizal Elementary School.

With the success of the two (2) pilot STPs, Manila Water implemented the Manila Second Sewerage
Project (“MSSP”) funded by World Bank. Under the MSSP, twenty-six (26) STPs were constructed. Sixteen
(16) of these STPs were formerly CSTs and the rest are on-site STPs for medium and high rise housing
establishments and for the University of the Philippines campus. Takeover and upgrade of the STP in
Diego Silang, Taguig was also part of the MSSP.

As part of its commitment to expand this service, Manila Water constructed and subsequently operated in
2008 under the Manila Third Sewerage Project (“MTSP”) two (2) Septage Treatment Plans aimed at
managing septic tank materials siphoned from the East Concession customers. A total of 77 desludging
trucks are available daily for deployment to ensure the desludging service is rendered to the entire East
Zone population over the next five (5) years. Since 1997, Manila Water has already provided desludging
service to more than 2,000,000 households.

The MTSP is a follow-up to the MSSP and has the ultimate objective of improving sewerage and sanitation
conditions in the East Zone. It was developed as a means of achieving Manila Water’s sewerage and
sanitation service targets. The remaining components of the MTSP include the construction of sewer
networks and treatment plants in several locations in the East Zone including upgrading of existing
communal septic tanks with secondary treatment levels. There were six (6) sewage and septage treatment
plants that were constructed under MTSP. It was in this project that combined sewer and drainage system
was implemented. Out of the six (6) facilities, four (4) employed this approach.

In 2015, two (2) new used water facilities became operational, and these are the Marikina North STP and
Liwasan ng Kagitingan at Kalikasan STP which have a combined capacity of 175 mld and by far, the
biggest STPs of Manila Water. Another remarkable feature of the two (2) STPs is that both have the same
treatment technology known as the Sequencing Batch Reactor whereas the thirty-eight (38) facilities that
were constructed under MSSP, MTSP and the takeover projects all employ the Conventional Activated
Sludge treatment. As of end of 2016, the Company operates forty (40) used water facilities including the
Marikina North and Liwasan ng Kagitingan at Kalikasan STPs, with a total capacity of 310 mld, compared
to 40MLD in 1997. Customers who are not connected to the sewer network are provided with septic tank
maintenance services through the “Sanitasyon Para Sa Barangay” program. Through cooperation with the
barangays, the program aims to desludge all septic tanks in a barangay without charge over a specified,
set schedule.

For 2018, Manila Water has provided the service to 209,037 households which is equivalent to 112,836
septic tanks emptied. For the years covering 2007-2017, the total households provided with the desludging
service were 2,243,323 equivalent to 701,630 septic tanks desludged. Furthermore, the average availment
rate of the program has significantly increased through a more intensive Information, Education and
Communication (“IEC”) program per barangay to educate customers of the East Zone about the

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importance of a properly maintained septic tanks. The technical assistance component focus on
information and education campaigns on proper liquid waste disposal and environment preservation and
the preparation of follow-up programs on sewerage and sanitation, with emphasis on low-cost sanitation
systems.

For the year 2019, as of June, Manila Water has provided the service to 70,461 households which is
equivalent to 39,611 septic tanks emptied. For the years covering 2007-2018, the total households
provided with the desludging service were 2,452,360, equivalent to 814,466 septic tanks desludged.
Furthermore, the average availment rate of the program has significantly increased through a more
intensive IEC program per barangay to educate customers of the East Zone about the importance of a
properly maintained septic tanks. The technical assistance component focus on information and education
campaigns on proper liquid waste disposal and environment preservation and the preparation of follow-up
programs on sewerage and sanitation, with emphasis on low-cost sanitation systems.

New Business and Investments

The Manila Water Group further brings its expertise in water and used water services outside the East
Zone Concession through partnerships with private companies, local water districts and local government
units of major cities and municipalities in the Philippines, and emerging cities in Southeast Asia. Manila
Water offers VAS across the water value chain from source development to used water and sanitation
services anchored on Public-Private Partnership (“PPP”) and Business-to-Business models.

Manila Water Group also execute several contracts related to the water business such as Performance-
Based Contracts for NRW reduction, Bulk Water Supply arrangements, Property Management and
Operation (“Estate Water”) models, Lease Agreements, and Operations and Maintenance Contracts.
Furthermore, Merger and Acquisition is extensively and aggressively used to support growth especially in
the Southeast Asian Region. Towards this end, the Manila Water Group has signed joint venture
agreements and/or investment agreements with local and international partners in the last few years.

Laguna Water’s Concession Agreement with the Provincial Government of Laguna Laguna AAAWater
Corporation (“Laguna Water”) is a JV between the Provincial Government of Laguna (“PGL”) and MWPV
with shareholdings of 30% and 70%, respectively.

On April 09, 2002, Laguna Water and PGL have entered into a Concession Agreement which grants
Laguna Water (as contractor and as agent for the exercise of certain rights in Laguna) the sole and
exclusive rights and discretion during the concession period to manage, occupy, operate, repair, maintain,
decommission, and refurbish the identified facilities required to provide water services to specific areas for
an operational period of twenty-five (25) years which commenced on October 20, 2004.

In December 2013, Laguna Water signed an Asset Purchase Agreement with the Laguna Technopark,
Inc. (“LTI”) for the acquisition of the water reticulation system of LTI in Laguna Technopark, a premier
industrial park located in Sta. Rosa and Binan, Laguna, which houses the region’s largest and more
successful light to medium non-polluting industries.

On June 30, 2015, Laguna Water and the PGL signed an amendment to the concession agreement which
expands the concession area to cover all cities and municipalities in the province of Laguna, as well as
the service obligation to include the provision of wastewater services and the establishment of an
integrated sewage and septage system in the province.

In connection with the amendment to the concession agreement, the Sangguniang Bayan of the
Municipality of Calauan, Laguna approved the resolution allowing Laguna Water to provide water and
wastewater services to the municipality of Calauan. The provision of services by Laguna Water in the
municipality of Calauan is being implemented in phases, with full coverage of the area targeted by the first
quarter of 2020. Furthermore, the concession period’s commencement date was amended to have
commenced on September 30, 2010 and shall end on September 30, 2035.

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On August 23, 2017, the Sangguniang Bayan of Victoria, Laguna has approved the inclusion of its
municipality within the service area of Laguna Water.

On July 12, 2018, Laguna Water received the Notice of Award from PAGWAD for the implementation of
the contractual JV project for the design, improvement, upgrade, rehabilitation, and expansion of water
supply and sanitation facilities including the financing and construction of such facilities and infrastructure
in the service area of the PAGWAD, and the management, operation, and maintenance of such water
supply and sanitation facilities and the provision of the services necessary or incidental thereto in the
PAGWAD’s service area.

On December 11, 2018, Laguna Water entered into four (4) Asset Purchase Agreements (“APAs”) with
Extraordinary Development Corporate Group’s (“EDCG”) subsidiaries to acquire the subsidiaries’ assets
related to or used in its water service provision operations in Biñan, Laguna. The APAs are with the
following EDCG subsidiaries, namely, Earth Aspire Corporation, Earth Prosper Corporation, Earth and
Style Corporation and Extraordinary Development Corp. BIWC is a JV between Manila Water and TIEZA,
formerly Philippine Tourism Authority (“PTA”) with shareholdings of 80% and 20%, respectively.

On December 17, 2009, BIWC entered into a concession agreement with TIEZA. The concession
agreement grants BIWC the sole right to manage, operate, repair, decommission, and refurbish all fixed
and movable assets (except certain retained assets) required to provide water delivery and sewerage
services to the entire Boracay Island for a period of twenty-five (25) years commencing on January 1, 2010
until December 31, 2035. Clark Water’s Concession Agreement with Clark Development Corporation

Clark Water is the water and used water concessionaire of Clark Development Corporation (“CDC”) in the
Clark Freeport Zone in Angeles, Pampanga. By virtue of an amendment agreement executed on August
15, 2014, the 25-year concession agreement with CDC was extended by another fifteen (15) years until
October 1, 2040. In November 2011, Manila Water acquired 100% ownership of Clark Water through a
Sale and Purchase Agreement with Veolia Water Philippines, Inc. and Philippine Water Holdings, Inc.
On March 21, 2012, Manila Water Consortium, Inc. (formerly, Northern Waterworks and Rivers of Cebu,
Inc.) (“MW Consortium”), a consortium of Manila Water (51%), MetroPac Water Investments Corporation
(39%) and Vicsal Development Corporation (10%), signed a Joint Investment Agreement (“JIA”) with the
Provincial Government of Cebu for the formation of a joint venture company.

Under the JIA, the parties agreed to develop and operate a bulk water supply system that will supply 35
million liters of water per day to target areas in the province of Cebu with the joint venture company serving
as a bulk water supplier. The term of the agreement is thirty (30) years starting March 2012 and renewable
for another twenty-five (25) years. MW Consortium and the Provincial Government of Cebu incorporated
Cebu Water with an ownership of 51% and 49%, respectively, pursuant to the JIA.

On December 13, 2013, Cebu Water signed a 20-year Bulk Water Supply Contract with the Metropolitan
Cebu Water District for the supply of 18 million liters per day of bulk water for the first year and 35 million
liters per day of bulk water for years two (2) to twenty (20).

On December 19, 2014, Manila Water received a notice from Zamboanga City Water District (“ZCWD”)
awarding the project for NRW reduction in Zamboanga City. On January 30, 2015, 27 Manila Water and
ZCWD signed and executed a JVA in relation to the NRW reduction project in Zamboanga City. On April
10, 2015, Manila Water and ZCWD incorporated Zamboanga Water with an ownership of 70% and 30%,
respectively, to implement the NRW project.

On June 2, 2015, Zamboanga Water entered into an NRW Service Agreement with ZCWD. Under the
NRW Service Agreement, ZCWD grants Zamboanga Water the right to implement Network Restructuring
and NRW Reduction Programs for ZCWD’s water distribution system. On July 2, 2018, through a Deed of
Absolute Sale of Shares, Manila Water sold to MWPV, its wholly owned subsidiary, its shares in
Zamboanga Water.

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Bulk Water Supply Agreements between Davao Water and Tagum City Water District

On July 28, 2015, Tagum Water District (“TCWD”) awarded the Tagum City Bulk Water Supply Project to
Davao Water , a consortium of Manila Water and iWater, Inc.

On October 15, 2015, Davao Water has signed and executed a JVA with TCWD. The JVA governs the
relationship of Davao Water and TCWD as joint venture partners in the Tagum Bulk Water Project.
Pursuant to the JVA, Davao Water and the TCWD caused the incorporation of a joint venture company,
namely, Tagum Water, which shall implement the Tagum Bulk Water Project for fifteen (15) years from
the Operations Start Date as defined in the JVA. The Davao Water owns 90.00% while TCWD owns
10.00% of Tagum Water’s outstanding capital stock. Tagum Water was registered with the SEC on
December 15, 2015 and its primary purpose is to develop, construct, operate and maintain the bulk water
supply facilities, including the development of raw surface water sources, water treatment, delivery and
sale of treated bulk water exclusively to TCWD.

On February 26, 2016, Tagum Water and TCWD signed and executed a Bulk Water Sales and Purchase
Agreement for the supply of bulk water to TCWD for a period of fifteen (15) years from the Operations start
date.

On May 23, 2018, through a Deed of Absolute Sale of Shares, Manila Water sold to MWPV its shares in
Davao Water.

Estate Water, Aqua Centro and EcoWater

On January 15, 2016, MWPV entered into a MOA with ALI and its subsidiaries (collectively, the ALI Group),
whereby MWPV shall exclusively provide water and used water services and facilities to all property
development projects of the ALI Group. This Memorandum of Agreement (“MOA”) is implemented through
Estate Water, a division of MWPV.

On December 8, 2016, MWPV entered into MOAs with each of SM Prime Holdings Inc.’s and the latter’s
affiliates and subsidiaries, SM Development Corporation and SM Residences Corp. (collectively, the “SM
Group”). Pursuant to the MOA, MWPV will provide the water and/or used water services and facilities to
the property development projects of the SM Group identified in each of the MOA.

On October 5, 2017, Aqua Centro MWPV Corporation (“Aqua Centro”) was incorporated to handle property
development projects, other than those within the ALI Group, by engaging in the development,
improvement, maintenance, and expansion of water, sewerage, wastewater, and drainage facilities, and
provide services necessary or incidental thereto. December 28, 2017, MWPV entered into a Novation
Agreement with the SM Group and Aqua Centro to transfer its rights, duties and obligations to provide
water and/or used water services and facilities to the property development projects of the SM Group to
Aqua Centro, effective from the inception of the MOA. As of December 31, 2018 and 2017, Aqua Centro
has six (6) and four (4) signed MOAs with the SM Group, respectively. MWPV has one (1) signed MOA
with SM Group as of December 31, 2018 and 2017.

On December 18, 2017, MWPV signed a twenty-five (25) year lease agreement with PEZA. Pursuant to
the agreement, MWPV will lease, operate, and manage the water and used water facilities of PEZA in the
Cavite Special Economic Zone (“CEZ”) for the provision of water and used water services to the locators
therein. MWPV shall apply its expertise in the industrial zones operations and shall provide capital
expenditures for the duration of the agreement.

On July 27, 2018, MWPV incorporated EcoWater which will eventually handle the Lease Agreement for
the Operations and Management of the Water and Used Water Facilities of PEZA in the Cavite Special
Economic Zone.

On December 11, 2018, Aqua Centro entered into seven (7) APAs with EDCG’s subsidiaries to acquire
the subsidiaries’ assets related to the provision of water service in ten (10) subdivisions in Imus, General

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Trias, and Naic in the province of Cavite. These subsidiaries are Earth Aspire Corporation, First Advance
Development Corporation, Ambition Land Inc., Prosperity Builders Resources Inc., Tahanang Yaman
Homes Corporation, Extraordinary Development Corp., and Earth + Style Corporation. As of December
31, 2018, Aqua Centro has already started operations in six (6) out of the ten (10) subdivisions. Aqua
Centro shall operate in the remaining subdivisions once all the conditions precedent under the APAs have
been fulfilled.

On January 4, 2017, MWPV entered into an APA with Asian Land Strategies Corporation to acquire and
operate the latter’s assets used in the water business operations in Asian Land Strategies Corporation
developments in the province of Bulacan. The intention of MWPV was to assign the rights under the APA
to its wholly owned subsidiary upon its incorporation.

On April 11, 2017, BMDC was incorporated to design, construct, rehabilitate, maintain, operate, finance,
expand, and manage water supply system and sanitation facilities. BMDC is the ultimate entity that will
own and operate the assets acquired from Asian Land.

On July 31, 2017, MWPV assigned all its rights and obligations on the APA to BMDC, a wholly owned
subsidiary of MWPV, under a Deed of Assignment. On the same day, the Deed of Absolute Sale was also
executed between Asian Land and BMDC.

On July 26, 2017, BMDC entered into an APA with Solar Resources, Inc. to acquire and operate the latter’s
assets used in the water business operations in Solar Resources Inc. developments in the province of
Bulacan. On the same day, Solar Resources executed a Deed of Absolute Sale to sell and transfer its
properties pertaining to water facilities and its operations in the Las Palmas Subdivisions Phases 1 to 7 to
BMDC.

On December 14, 2017, BMDC and Borland Development Corporation executed the APA, Deed of
Assignment, and Deed of Absolute Sale between the parties for the sale, assignment, transfer, and
conveyance of Borland Development Corporation’s assets pertaining to water facilities and its operation
in San Vicente Homes subdivision in Bulacan.

Calasiao Water’s Concession Agreement with CWD

On December 9, 2016, the Manila Water received a Notice of Award from CWD for the implementation of
the joint venture project for the design, construction, rehabilitation, maintenance, operation, financing,
expansion and management of the water supply system of CWD in Calasiao, Pangasinan.

On June 19, 2017, Manila Water signed a JVA with CWD which will govern the relationship of the two in
undertaking the joint venture project. Under the JVA, Manila Water and CWD shall cause the incorporation
of a joint venture company where Manila Water and CWD shall own 90% and 10%, respectively, of the
outstanding capital stock. On August 2, 2017, the SEC approved the incorporation of Calasiao Water
Company, Inc.

On October 23, 2017, Calasiao Water and CWD signed and executed a concession agreement that grants
Calasiao Water, the sole right to develop, manage, operate, maintain, repair, decommission, and refurbish
all fixed and movable assets (except certain retained assets) required to provide water delivery in the
entire Municipality of Calasiao for a period of 25 years commencing on December 29, 2017.

Filipinas Water and its Partnerships

On January 24, 2017, the consortium of Manila Water and MWPV received the Notice of Award from
Obando Water District (“OWD”) for the implementation of the joint venture project for the design,
construction, rehabilitation, maintenance, operation, financing, expansion, and management of the water
supply system and sanitation facilities of OWD. February 2, 2017, OWCHC (now Filipinas Water) was
registered with the SEC. Filipinas Water is the consortium between Manila Water and MWPV with an

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equity share of 49% and 51%, respectively. The primary purpose of Filipinas Water is to engage in the
business of a holding company without acting as stockbroker or dealer in securities.

On July 26, 2017, Filipinas Water signed and executed a JVA with OWD for the implementation of the
project. Subsequently, on October 10, 2017, Obando Water was incorporated. Obando Water is 90% and
10% owned by Filipinas Water and OWD, respectively. The project includes a Concession Agreement
which was executed on October 12, 2017 for the design, construction, rehabilitation, maintenance,
operation, financing, expansion, and management of the water supply system and sanitation facilities of
OWD in Obando, Bulacan for a period of 25 years from the commencement date.

On January 26, 2018, the consortium of Manila Water and MWPV received the Notice of Award from the
CIWD for the implementation of a joint venture project for the development, financing, operation, and
management of a raw water source, provision of bulk water supply with system expansion, and the
development of septage management in the City of Ilagan, Isabela.

On April 26, 2018, the consortium of Manila Water and MWPV received the Notice of Award from Bulakan
Water District for the joint venture project for the development, financing, design, engineering,
construction, rehabilitation, upgrade, testing, commissioning, operation, management, and maintenance
of water facilities and the provision of water and sanitation services in the Municipality of Bulakan.

On August 16, 2018, Filipinas Water and the Bulakan Water District entered into a JVA for the
implementation of the project. On October 16, 2018, the joint venture company was incorporated and was
registered with SEC under the name of Bulakan Water. Bulakan Water is owned by Filipinas Water and
Bulakan Water District having an equity share of 90% and 10%, respectively. On November 16, 2018,
Filipinas Water entered into a Joint Venture Agreement with CIWD for the implementation of the project.
Upon completion of conditions precedent in the JVA, a JV Company will consequently enter into a Bulk
Water Sales and Purchase Agreement and Septage Management Agreement with CIWD for the
implementation of the Ilagan Project for 25 years from the commencement date.

MWPV JVA with Tubig Pilipinas Group, Inc.

On December 11, 2017, the Municipality of Malasiqui granted a franchise to MWPV and Tubig Pilipinas
Group, Inc. for the implementation of a joint venture project to establish, construct, operate, manage,
repair, and maintain water supply and wastewater system and facilities in the municipality of Malasiqui,
Pangasinan. The franchise has a term of 25 years from the commencement date. On February 20, 2018,
the board of directors of MWPV approved the creation of a special purpose vehicle (SPV) for this project.

On November 16, 2018, MWPV has signed and executed a JVA with TPGI. Under the agreement, MWPV
and TPGI shall incorporate a joint venture company, with 50% and 50% ownership, respectively, which
shall implement the project.

On December 21, 2018, the consortium of MWPV and TPGI received a Notice of Award from San Jose
City Water District for the implementation of the joint venture project for the design, construction,
improvement, upgrade, rehabilitation, maintenance, operation, financing, expansion, and management of
the water supply system and the provision of water and sanitation services of San Jose City Water District
in San Jose City, Nueva Ecija.

Upon the completion of the conditions precedent specified in the notice of award, the consortium partners
and the water district would enter into a JVA that will grant them as contractor to perform certain functions
and as agent for the exercise of its right and powers, the sole right to develop, manage, operate, maintain,
repair, refurbish and improve, expand and as appropriate, decommission, the facilities in the service area,
including the right to bill and collect tariff for water and sanitation services supplied in the service area of
San Jose City Water District.

Notice to Proceed from the Municipality of Sta. Barbara, Pangasinan On June 14, 2018, MWPV received
a Notice to Proceed from the municipality of Sta. Barbara, Pangasinan following the enactment of the

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municipality’s ordinance granting a franchise to MWPV for the provision of water supply and the
improvement, operation, maintenance, management, financing, and expansion of water supply facilities,
and the provision of septage management in Sta. Barbara. The franchise shall be for a term of 25 years
and is expected to be operational by 2019.

Notice to Proceed from the Municipality of San Fabian, Pangasinan

On October 15, 2018, MWPV received a Notice to Proceed from the municipality of San Fabian,
Pangasinan following the enactment of the municipality’s ordinance granting a franchise to MWPV to
establish, construct, operate, manage, repair, and maintain water supply system and facilities, and the
provision of septage management in the municipality of San Fabian, Pangasinan.

The franchise shall be for a term of 25 years and is expected to be operational by

2019.

Notice of Award from Leyte Metropolitan Water District (“LMWD”)

On December 6, 2017, the Manila Water received the Notice of Award from LMWD for the implementation
of the joint venture project (the Leyte Project) for the design, construction, rehabilitation, maintenance,
operation, financing, expansion, and management of the water supply and sanitation facilities and services
of LMWD in the Province of Leyte.

The conditions precedent specified in the Notice of Award include the incorporation of a SPV which will
implement the Leyte Project under a contractual joint venture with LMWD.

Upon completion of the conditions precedent specified in the Notice of Award, the SPV and LMWD shall
enter into a JVA that will grant the SPV, as contractor, to perform certain functions and as agent for the
exercise of, the sole and exclusive right to manage, operate, maintain, repair, refurbish and improve,
expand and as appropriate, decommission, the facilities of LMWD in its Service Area, including the right
to bill and collect tariff for the provision of water supply and sanitation services in the service area of
LMWD.

LMWD’s service area covers the City of Tacloban and seven other municipalities namely Palo, Tanauan,
Dagami, Tolosa, Pastrana, TabonTabon, and Santa Fe.

Notice of Award from Balagtas Water District

On April 25, 2018, a consortium of Manila Water and MWPV received the Notice of Award from Balagtas
Water District for the implementation of a joint venture project for the design, construction, rehabilitation,
maintenance, operation, financing, expansion and management of the water supply system and sanitation
facilities of Balagtas Water District in the municipality of Balagtas, Bulacan.

Notice of Award from Tanauan Water District

On October 12, 2018, the Consortium of Manila Water and MWPV received the Notice of Award from
Tanauan Water District for the joint venture project for the design, construction, rehabilitation,
maintenance, operation, financing, expansion, and management of the water supply and sanitation
facilities and services in the service area of Tanauan Water District in the City of Tanauan.

On February 4, 2019, the Consortium and the Tanuaan Water District entered into a JVA for the
implementation of the Project.

Notice of Award from Lambunao Water District

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On November 27, 2018, the Manila Water received a Notice of Award from Lambunao Water District for a
joint venture for the design, construction, rehabilitation, maintenance, operation, financing, expansion, and
management of the water supply system of Lambunao Water District in the Municipality of Lambunao,
Iloilo.

Upon completion of conditions precedent specified in the notice, Manila Water and Lambunao Water
District shall enter into a JVA, the implementation of the joint venture activity of which shall be undertaken
by Aqua Centro.

Notice of Award from Calinog Water District

On November 27, 2018, Manila Water received a Notice of Award from Calinog Water District for a joint
venture for the design, construction, rehabilitation, maintenance, operation, financing, expansion, and
management of the water supply system of Calinog Water District in the Municipality of Calinog, Iloilo.

Upon completion of conditions precedent specified in the notice, the Manila Water and Calinog Water
District shall enter into a JVA, the implementation of the joint venture activity of which shall be undertaken
by Aqua Centro.

Notice of Award from Calbayog City Water District

On December 27, 2018, Manila Water received the Notice of Award from Calbayog City Water District for
the implementation of the joint venture project for the design, construction, rehabilitation, maintenance,
operation, financing, expansion, and management of the water and wastewater systems of Calbayog City
Water District in the Calbayog City, as well as other areas which may eventually form part of the service
coverage of the Calbayog City Water District in the Province of Samar.

Upon completion of the conditions precedent specified in the notice, the Manila Water shall enter into a
JVA with the Calbayog City Water District for the implementation of the joint venture project over a 25 year
contract period.

International New Business and Investments

International new business investments of the Manila Water Group are generally undertaken through its
wholly-owned Singapore subsidiary, MWAP, and its direct subsidiaries, Manila Water South Asia Holdings
Pte. Ltd. (“MWSAH”), Thu Duc Water Holdings Pte. Ltd., Kenh Dong Water Holdings Pte. Ltd., Manila

South East Asia Water Holdings Pte. Ltd, and Manila Water Thailand Holdings Pte. Ltd. (MWTC).

In December 2011, Thu Duc Water Holdings Pte. Ltd. purchased a 49% share ownership in Thu Duc
Water which owns the second largest water treatment plant in Ho Chi Minh City. Thu Duc Water has a
bulk water supply contract with Saigon Water Corporation for a minimum consumption of 300 mld on a
take-or-pay arrangement.

In July 2012, KDWH completed the acquisition of a 47.35% stake in Kenh Dong Water, a Vietnamese
company established in 2003 to build, own, and operate major water infrastructure facilities in Ho Chi Minh
City.

In October 2013, MWSAH completed the acquisition of 31.47% stake in Saigon Water Infrastructure
Corporation, a listed company in Vietnam. In 2017, MWSAH infused an additional equity of 103B VND,
and increased its shareholding percentage to 38%.

In 2015, MWSAH also entered into a Capital Transfer Agreement with Saigon Water Infrastructure
Corporation and Vietnam-Oman Investment Company to develop and operate the water network in Cu
Chi, a district in Ho Chi Minh City. The project will be undertaken with Cu Chi Water, a Vietnam limited
company. Through this agreement, MWSAH holds 24.5% share in the charter capital of Cu Chi Water.

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On November 6, 2015, MWAP signed an MOU with PDAM Tirtawening Bandung City for a non-revenue
water reduction demonstration project in Bandung City, Indonesia. PDAM Bandung is a water utility
company owned and controlled by the Regional Government of Bandung City in West Java, Indonesia.

On June 21, 2017, MWSAH subscribed to an additional 6.15 million primary shares of Saigon Water at a
subscription price of VND16,900.00 per share for a total amount of P=229.16 million (VND103.87 billion).
As a result of this additional subscription, MWSAH now holds 37.99% of the outstanding capital stock of
Saigon Water.

On February 19, 2018, the Manila Water signed a SPA with EGCO to acquire EGCO’s 18.72% equity in
Eastern Water Resources Development and Management Public Company Limited (East Water). East
Water is a publicly listed company whose shares are traded in the Stock Exchange of Thailand. It is
engaged in the provision of raw water and tap water since 1992 in the eastern seaboard of Thailand.

On March 5, 2018, MWTC entered into a one-year term facility agreement with Mizuho Bank, Ltd.,
Bangkok Branch (Mizuho Bangkok), whereby Mizuho Bangkok extended credit to MWTC for THB5.30
billion to finance MWTC’s acquisition of shares in East Water

On March 14, 2018, MWTC acquired 311,443,190 ordinary shares in East Water representing 18.72%
equity of East Water

On March 6, 2018, PT Manila Water Indonesia (PTMWI), a wholly-owned subsidiary of M anila South East
Asia Water Holdings Pte. Ltd. signed a SPA with PT Triguna Rapindo Mandiri to acquire 4,478 shares of
PT Sarana Tirta Ungaran which allowed PTMWI to own twenty percent (20%) of the outstanding capital
stock of PT Sarana Tirta Ungaran. 34 PT Sarana Tirta Ungaran is a bulk water supply company servicing
PDAM Kabupaten Semarang and industrial customers in Bawen, located in Ungaran area of Semarang
Regency, Central Java Province, with a capacity of 21.5 million liters per day.

Environmental Compliance

Manila Water’s water and used water facilities must comply with Philippine environmental standards set
by the DENR on water quality, air quality, hazardous and solid wastes, and environmental impacts. In
keeping with the Company’s commitment to sustainable development, all projects are assessed for their
environmental impact and where applicable, must obtain an ECC from the DENR prior to construction or
expansion and the conditions complied with, along with all other existing environmental regulations. During
and subsequent to construction, ambient conditions and facility-specific emissions (e.g. air, water,
hazardous wastes, treatment by-products) from water and used water facilities are routinely sampled and
tested against DENR environmental quality standards using international sampling, testing and reporting
procedures.

Manila Water has made efforts to meet and exceed all statutory and regulatory standards. Manila Water
employs the appropriate environmental management systems and communicates to its employees,
business partners and customers the need to take environmental responsibility seriously. Manila Water
uses controlled work practices and preventive measures to minimize risk to the water supply, public health
and the environment. Manila Water’s regular maintenance procedures involve regular disinfection of
service reservoirs and mains and replacement of corroded pipes. Implementation and effectiveness of
established operations and maintenance procedures is being monitored and checked for continual
improvement through the Operations Management System. Monitoring of environmental compliance for
operating facilities and on-going projects is being carried out proactively using risk-based assessment
checklist in order to internally address compliance risks before it resulted into legal non-compliances.
Manila Water’s water and used water treatment processes meet the current standards of the PNSDW,
DOH, DENR and Laguna Lake Development Authority (LLDA). Manila Water continues to undertake
improvements in the way it manages both treated water and used water as well as treatment of by-products
such as backwash water, sludge and biosolids. Manila Water has contingency plans in the event of
unforeseen failures in the water and used water treatment or chemical leakage and accidental discharge

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of septage and sewage. Manila Water’s Customer Care Center is trained to ensure that environmental
incidents are tracked, monitored and resolved.

A policy on climate change was formulated to define Manila Water’s commitment to the National
Framework Strategy for Climate Change. While Manila Water is undertaking climate change mitigating
measures such as greenhouse gas accounting and reporting along with initiatives to optimize consumption
of fuel and electricity to reduce its carbon footprint, there is a current emphasis towards climate change
adaptation such as intensifying watershed rehabilitation work, resiliency and adaptation assessment of
water sources and assets, improving the climate-resiliency of existing and future water and used water
facilities, strengthening risk reduction and management systems with a business continuity plan, and
development of new water sources.

Sustainable Development Projects

Sustainability for Manila Water is the full alignment of its business goals with its socio-environmental
objectives. A renewed focus on sustainability issues that are materially affecting the organization from a
more strategic perspective characterized the year 2018 in terms of embedding and advancing
sustainability in Manila Water.

The Sustainable Development Department of Manila Water was transferred to the Operations Group,
incorporating it into the Environment Department and Operations Management that has been re-named
the Operations Management and Sustainability Department. There is now an expanded mandate to
reinforce the embedded sustainability principles (i.e., Society, Economy and Environment) into Manila
Water’s day to day operations and continue developing Sustainability Champions in all of Manila Water’s
internal and external stakeholders through a programmatic approach of raising employee awareness,
communicating its sustainability initiatives to various audiences, encouraging active involvement from all
stakeholders and embedding sustainability in Manila Water’s planning, core and support processes.
Headed by the Operations Management and Sustainability Department, the Climate Change Council was
able to identify gaps and areas for improvement to streamline and optimize Manila Water’s efforts to
address the impacts of climate change, whether through mitigation initiatives or adaptation efforts. Aside
from safeguarding Manila Water’s critical infrastructures, the Climate Change Council will oversee the
implementation of Manila Water’s commitments in promulgating its Climate Change Policy. The Climate
Change Policy of Manila Water was just recently revised to be able to cater to the fast-changing needs of
Manila Water. The policy focused on, resiliency and adaptation, disaster risk reduction and management,
rehabilitation and enhancement of water source and watersheds, climate change mitigation programs,
awareness programs, and partnerships. Climate Change Committees on Water Source Development and
Management, Resiliency of Assets, Disaster Risk Reduction and Management and Climate Change
Mitigation were created and enabled to focus on each of the commitments of the policy.

In addition to the aforementioned management initiatives, Manila Water continued to focus on five (5)
sustainability pillars:

a. Developing Employees

Manila Water seeks to embed sustainability in the daily activities of its employees through employee
engagement and knowledge transfer programs on top of the training and competency development
initiatives of Manila Water. The objective is to develop more Sustainability Champions to enhance
organizational capabilities in managing its resources, adapting to a changing environment and addressing
social and environmental risks and impacts. After a year of introduction, the Manila Water University which
responses to the needs of a continuously growing organization, was able to launch and complete a
competency assessment portfolio. The Manila Water University affords talents with the opportunity to take
charge of their individual career development, communicate career aspirations, seek support through
coaching, feedback and meaningful job assignments, and eventually drive career growth within the
Company. It is also Manila Water’s institutionalized approach to learning, development and competency
building that would strengthen and develop competencies that are important to its business. The Manila
Water University has online resources on various topics ranging from Asset Management, Finance,

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Regulatory and Public Policy, among others. There are also trainings and seminars on leadership and
functional competencies where employees can register online. Manila Water University focuses on both
Center for Leadership Excellence and Center for Technical Excellence. A Technical Cadetship Program
was developed under the Center for Technical Excellence, a revival of the proven Cadetship Program but
with a more focused and specialized developmental learning.

Aside from training and development, Manila Water complements core and functional competencies with
various employee engagement initiatives that seek to instill and cultivate the value of sustainability in the
daily activities of its employees. With the Human Resources Group at the forefront of Manila Water’s
human development programs through its training and employee engagement initiatives, a number of
activities facilitated by various departments (e.g., Safety Solutions, Sustainability, Innovations, Energy)
have all contributed to the employee development efforts of Manila Water. Several trainings and seminars
on environmental and energy-related topics such as Cleaner Production Assessment, Energy Audit,
Hazardous Waste Management, Eco-driving, Pollution Control Officer (“PCO”) Basic Training, Continuing
education for PCOs, and Climate Change were conducted. Likewise, there were a number of workshops
that were also conducted on Safety such as Chemical Safety, Electrical Safety, Fire Safety, Defensive
Driving, Confined Space and First Aid. To spur creativity and innovation, Brown Bag meetings were
facilitated and conducted as well.

Manila Water recognizes the need for work-life balance of its employees. Employee engagement activities
focusing on employee volunteerism, themed programs and sports. Bawat Patak Tumatatak (BPT), Manila
Water’s employee volunteerism program focuses on education, environment, and emergency disaster
response.

b. Helping Build Communities

Manila Water believes that in the course of helping build communities, it is not enough to simply provide
access to water and used water services for all. The resiliency of the services being provided is also of
primary importance, considering that the Philippines is prone to natural and manmade disasters.

Manila Water has adopted strategies in order to minimize the adverse impacts of natural and manmade
threats on the continuity of Manila Water’s operations. The Climate Change Policy of Manila Water has
been revised to focus on aligning with the country’s strategy of prioritizing climate resilience work rather
than carbon emissions reduction. The key manifestations of the climate change adaptation commitments
of Manila Water include the mainstreaming of vulnerability assessment in the planning for new water and
used water assets, retrofitting assets to be disaster-resilient, having a business continuity plan for its
operations, taking a pro-active stance in the management and development of water sources and
engaging key stakeholders in addressing risks beyond the control of Manila Water.

Manila Water’s flagship program Tubig Para sa Barangay or Water for Low-Income Communities,
continued to benefit the urban poor through the round-the-clock provision of potable water with
immeasurable impacts on community life. The program has allowed residents from marginalized
communities to avail of Manila Water’s services at considerably lower connection fees and less stringent
requirements. As of December 2018, more than 1.8 million people from urban poor communities have
been served by the program with 211,681 water service connections. With the total number of water
service connections in the East Zone reaching 1,056,701 at the end of 2018, roughly 20% of Manila
Water’s customers is under the Tubig Para sa Barangay program.

Complementing the Tubig Para sa Barangay program which also led to considerable improvements in the
quality of community life is Manila Water’s Lingap program, which seeks to improve water supply and
sanitation facilities in public service institutions such as schools, hospitals, city jails, markets and
orphanages, further empowering these institutions to more effectively carry out their respective roles in
society. Through Lingap programs, Manila Water has rehabilitated the water reticulation system and
installed wash facilities and drinking fountains of public service institutions. As of December 2018, an
estimated 1.5 million were people served through the program.

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Aside from the aforementioned social initiatives, Manila Water has strengthened its focus on enhancing
operational reliability by strengthening its ability to respond to disasters and other emergency situations.
Moreover, Manila Water exhibited its genuine concern for communities by readily providing relief
operations in response to major disasters in the country. The Corporate Business Resiliency Department
has been very active in disaster response actions by leading Manila Water’s Mobile Treatment Plant teams
to disaster-stricken areas such as in Tacloban, Bohol, Cebu. The Corporate Business Resiliency
Department is also responsible for conducting company-wide earthquake drills. The objective of the drill
is to be able to simulate Manila Water’s incident management system, evaluate earthquake response
protocols as well as business continuity plans, and familiarize employees with their individual roles and
responsibilities. In this drill, the East Zone service area was divided into four “quadrants” based on Metro
Manila Earthquake Impact Reduction Study, which assumes key lifelines of the metro to be unavailable in
the event of a major earthquake.

As one of the pioneering members of the PDRF, Manila Water’s active involvement in PDRF has further
leveraged its impact as a provider of lifeline services in times of disaster and the subsequent yet more
daunting tasks of rebuilding communities. Last year, Manila Water started talks and dialogues with other
lifeline companies in Metro Manila (from the power, telecommunications, transportation among other
industries) to discuss interoperability during disasters.

c. Protecting the Environment

To enable Manila Water to fulfill its service obligations more effectively and to sustain operational
efficiency, Manila Water’s environmental protection advocacies and programs are geared towards
ensuring water security, managing its environmental compliance risks, strengthening its used water
program and enhancing operational efficiency.

Watershed management continued to be one of the imperatives for Manila Water, especially now that the
El Nino phenomenon would from time to time threaten to put Metro Manila’s water supply in an imminent
water crisis. Since 2006, Manila Water helps in the protection, rehabilitation and enhancement of critical
watersheds. Manila Water provides funding support for the protection of 6,600 hectares Ipo Watershed
and rehabilitation of the 2,659 hectares La Mesa Watershed Reservation. Under the joint administration
and supervision of MWSS and DENR, Ipo Watershed is patrolled by around 170 Bantay Gubat of mostly
Dumagats, the indigenous people living in the watershed.

The La Mesa Watershed Reservation Multi-sectoral Management Council and its Technical Working
Group composed of MWSS, DENR, Quezon City LGU, Manila Water, Maynilad and ABS-CBN Lingkod
Kapamilya Foundation’s Bantay Kalikasan oversee the management of the La Mesa Watershed
Reservation. In accordance with the Approved 25- Year La Mesa Integrated Watershed Management
Plan, Manila Water continues the enrichment of open canopy forests in La Mesa with a target of 50,000
native seedlings in 2019.

Manila Water continued its partnership with Fostering People’s Education, Empowerment and Enterprise
(FPE3) on its tree nurturing at the Upper Marikina Watershed. 160,000 native seedlings will be planted in
2019 to add to the 313,063 native trees that were planted in 2010 to 2014 at the Upper Marikina
Watershed.

On the environmental compliance side, Manila Water has dramatically enhanced its proactive approach
in addressing environmental compliance risks through the Facility Self-Assessment Report (FSAR) and
risk-weighted compliance audit and monitoring system, further enabling process owners and front liners
to actively own compliance at their level.

In terms of its used water treatment operations, Manila Water was able to treat 21.42 mcm of used water
from Jan to June 2019 and in the process removed approximately 2,718 tons of Biological Oxygen
Demand (BOD), further alleviating the pollution load in Metro Manila’s waterways. As of June 2019, there
were 144, 406 sewer connections in the East Zone and 39,611 septic tanks were dislodged from January
to June 2019.

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Manila Water continues to implement the Lakbayan Program or the Water Trail Tour to raise awareness
on the importance of water, used water and the environment. This program involves an educational tour
of the Water Trail to show the participants the process that the raw water undergoes from the source to
treatment and prior to distribution to customers, and how the consumers’ used water is collected and
treated. Participants are given a tour of the water and wastewater treatment facilities of Manila Water. The
Program aims to promote stakeholder awareness on the need to conserve water and to care for water
sources. Lakbayan Program tours have been participated in by participants from Non-Governmental
Agencies (NGA), Local Government Units (LGU), academe, media, corporates, Non-Governmental
Organizations, and similar entities.

Moreover, Manila Water demonstrates proper used water management through Toka Toka advocacy,
aimed at reviving Metro Manila’s heavily-polluted rivers and tributaries. This particular campaign
encourages consumers and partner organizations to practice proper waste disposal, ensure proper sewer
line connections, have their septic tanks desludged every five (5) years and support Manila Water’s other
community-based projects. Since 2012, thirty-four (34) Toka Toka partners from LGUs, NGAs and private
institutions have pledged their own commitments for the environment.

Manila Water has been harnessing renewable energy with its solar panels in FTI Septage Treatment
Facility, Magallanes Sewage Treatment Facility and Delos Santos Pumping Station. The three solar
facilities have combined 177,222 kWh power generated in 2018. Manila Water has a pilot waste-to-energy
project with sludge as feed to generate electricity at the FTI Septage Treatment Plant.

d. Safeguarding Health and Safety

Manila Water recognizes its responsibility to safeguard health and safety not only of its employees and
contractors but also to the general public. It continues to put a high premium on ensuring water quality and
ensuring the health and safety of its supply chain. To provide all personnel with a safe and healthy work
environment, Manila Water established Safety Management System Standards that is aligned with an
internationally-recognized safety management system, BSI OSHAS 18001 – Health and Safety. This
safety management system requires a commitment to safety of the public and its visitors, but Manila Water
also recognizes the risks and mitigation controls unique to its operations. This incorporates quality,
environment, occupational safety and health into a single framework so called Operational Management
Systems.

To guide employees in achieving a safe work environment for Manila Water’ personnel and vendors,
Manila Water defines a rigorous set of operational controls to manage the known hazards and risks of its
operations. Full implementation of these controls will ensure that the Company is providing workplaces
that meet the requirement to Safety standards. Manila Water extends these safety programs to its vendors
through the conduct of monthly Safety Officer’s Network Meeting and Contractor’s Safety Forum for
sharing of best practices amongst contractors.

In addition, Manila Water has established an internal audit process to help ensure that it is effectively
implementing its operational controls and management routines. Manila Water has also engaged
recognized external audit firms to assess the compliance status of its operations with applicable laws and
regulations and occupational safety and health requirements. The quality of water that Manila Water
supplies has always been 100% compliant with the Philippine National Standards for Drinking Water, and
there has been no major water contamination since Manila Water began its operations in 1997. To
maintain this record, the Company collects water samples from raw, untreated water to treatment plants
and directly from the faucets of at least 843 customers each month. Water quality is stringently monitored
and water samples are tested in a world-class laboratory that is recognized by the Philippine Department
of Environment and National Resources, certified with and against ISO 9001 (quality management), ISO
14001:2008 (environmental management), OHSAS 18000 (Occupational Health and Safety), and
accredited by the Philippine Department of Health (DOH) and ISO/IEC 17025:2005 (competence for
testing and calibration laboratories). A Water Safety Plan was completed in 2009 and is continuously being
reviewed as may be necessary. The plan is a multibarrier approach to ensure that contamination is

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minimized and/or eliminated at each stage. It involves the application of an extensive risk assessment and
risk management approach that encompasses all steps in water supply system from the sources,
production, storage and conveyance to consumers to ensure safety of drinking water supply.

e. Contributing to Local and National Economies

To promote inclusive growth, Manila Water’s policy on purchases from small- and medium-scale
enterprises (SMEs) or cooperatives states that they are guaranteed at least 20% of total contract awards.
To date, of the 240 contractors in Manila Water’s Supply Chain, about 40% or around 95 of them are small
enterprises (60% or about 145 are big). Some of these contractors were in fact part of the 153 cooperatives
under the Kabuhayan Para sa Barangay program of Manila Water Foundation.

The Suki Vendor program has promoted inclusive growth and contributed significantly to local economies.
The program aims to develop long term partnerships with Manila Water’s regular pipe laying contractors
by nurturing these contractors and providing them technical assistance until such time that they have built
their own capabilities and have grown into bigger companies as well.

Manila Water infused a total of ₱8.045 billion of CAPEX investments to the economy through the
expansion of its water and used water services in 2018.

Employees
As of June 30, 2019, MWCI had 2,258 employees. Approximately 27% were non-management employees
and 73% held management positions.

The following table presents the number of employees as of June 30, 2019:

Year Former MWSS Direct Hires Subsidiaries Total

2019 427 930 901 2,258

The following table presents the number of employees by function as of June 30, 2019:

Non-
Group Management Total
Management
Office of the President 3 0 3
Corporate Finance & Governance 73 6 79
Office of the MWO COO 1 0 1
Corporate Operations 402 149 551
Strategic Asset Management 47 1 48
Corporate Human Resources 24 2 26
East Zone Business Operations 275 46 321
Business & Technology Services 78 12 90
Corporate Project Management 148 35 183
Corporate Regulatory Affairs 12 1 13
Corporate Strategic Affairs 17 5 22
Legal 11 1 12
Internal Audit 7 0 7
Manila Water Foundation 1 0 1

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Subsidiaries 560 341 901

1659 599 2,258

Before privatization, the MWSS had 8.4 employees per 1,000 service connections. Manila Water has
improved this ratio to 1.4 employees per 1,000 service connections as of December 31, 2017. This was
accomplished through improvements in productivity achieved through, among other initiatives, value
enhancement programs, improvements in work processes, employee coaching and mentoring,
transformation of employees into knowledge workers, and various training programs. Manila Water’s
organizational structure has been streamlined, and has empowered employees through decentralized
teams with responsibility for managing territories. In addition, Manila Water formed multi-functional working
teams which are composed of members of the management team tasked with addressing corporate issues
such as quality and risk, and crisis management.

As of June 30, 2019, 171 or 12% of the employees of Manila Water are members of the Manila Water
Employees Union (“MWEU”). In 2013, Manila Water and the MWEU concluded negotiations on a new
CBA. MWEU has the option under the law to renegotiate the non-representation provisions of the CBA by
the third quarter of 2021. The management of Manila Water maintains a strong partnership with union
leadership and its members and there has never been any strike since 2006. The CBA also provides for
a mechanism for the settlement of grievances.

Manila Water has a two-pronged strategy in talent development – strengthening leadership capabilities,
and building and strengthening technical expertise to maintain its leadership in the water industry and
contribute to national development. Programs were implemented in partnership with the line managers
with the aim of ensuring an agile, enabled, mobile and highly engaged workforce that will support the
corporate growth strategy.

On the Talent Management and Leadership development front, several initiatives were undertaken to
ensure a strategic and holistic approach to talent development.

Cadetship Training Program: The Cadetship Training Program is a 6-month program that provides
qualified fresh graduates the opportunities for specialized training and work experience that aim for
excellence in business and technical skills. The end in mind is to ensure that the cadets will have strong
understanding of business operations, water and used water processes, as well as project management.
Their functional competencies are honed through a 4-month immersion in their actual job assignment
where they are paired with a mentor who will teach them the ropes of the business. Mentors are provided
with competency learning checklist to ensure that every cadet is evaluated the same way and regular
checkpoints happen monthly. A revalida with the Mancom serves as the culminating learning check for the
cadets before they are fully deployed to their line functions.

Territory Management and Business Zone Leadership School: These are competency-based development
programs that ensure a steady supply of competent talents in the East Zone Business Operations who
can assume the Territory Manager and Business Zone Manager roles as needed by the business.

Complementing the efforts on leadership development, the same level of focus is given to technical roles
where talents occupying highly technical positions are likewise given technical
development.

Technical Development Program: This is a robust curriculum that ensures the enabling of our technical
operations talents for strengthened compliance to safety and environmental sustainability standards as
well as institutionalize practical operating procedures to meet our 24/7 water availability commitment to
our customers.

Succession Management: Manila Water has strengthened its succession management process to further
strengthen the senior management pool of the organization. Talents are assessed, received deliberate
development interventions such as Individual Development Plan, stretched assignments and coaching to

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accelerate their development. Talent Reviews are conducted semi-annually with line managers across the
organization to identify and develop talents to assume current and emerging roles. This process has been
integrated with the New Business Operations, in the aim that they may become a talent source for the
Group.

Manila Water ensures that its reward system is market competitive, performance-based, aligned with
business strategies and results, and within regulatory parameters. In 2005, Manila Water extended an
equal cash incentive to each employee covered by the reward system. In succeeding years, Manila Water
further improved the system by taking care of the gaps in the distribution system and aligning the reward
system with the yearend goals of Manila Water, which are anchored on the KPI/ BEM targets. In 2013 and
2016, Manila Water updated its guaranteed pay structure to ensure alignment with industry practices. Also
in 2013, Manila Water enhanced its variable pay program to increase the alignment of bonus scheme with
business results. Manila Water continues to monitor pay competitiveness and reward talents according to
their achievements and contributions to the business objectives.

In 2014, Manila Water implemented the Talent Mobility Program which is a talent management and reward
platform that allows the seamless transition of talents from one Manila Water business unit to another. The
program ensures a reasonable, engaging, and competitive secondment process to Manila Water
businesses covering pre-deployment, actual deployment, and repatriation benefits and support for
secondees.

In 2001, pursuant to the Concession Agreement, Manila Water adopted the ESOP. The ESOP was
instituted to allow employees to participate directly in the growth of Manila Water and enhance the
employees’ commitment toward its long-term profitability. In 2005, Manila Water adopted an ESOWN Plan
as part of its incentives and rewards system.

Also in 2005, Manila Water's Board of Directors approved the establishment of an enhanced retirement
and welfare plan. The plan is being administered by a Retirement and Welfare Plan Committee, which
also has the authority to make decisions on the investment parameters to be used by the trustee bank.

Over and above these benefit and reward schemes, Manila Water gives recognition for employees who
best exemplify Manila Water’s culture of excellence through the Chairman’s Circle (C2) Awards for senior
managers, the President’s Pride due to Performance (₱3) honors for middle managers and the Huwarang
Manggagawa (Model Employee) Awards for the rank-and-file employees. Eight (8) of Manila Water’s
model employee awardees have also been awarded ‘The Outstanding Workers of the Republic’ (TOWER)
Award by the Rotary Club of Manila from 1999 to 2009, by far the most number of awards won by any
single company over that period.

The exemplary performance of its employees has earned for Manila Water several awards and
recognitions. Over the past seventeen years, Manila Water has been the recipient of numerous awards.
A landmark recognition was earned Manila Water when it was cited the 2006 Employer of the Year by the
People Management Association of the Philippines. Another prestigious award earned by Manila Water
was the Asian Human Capital Award given by the Singaporean government in 2012. The 2006 Employer
of the Year honors were bestowed upon Manila Water for providing a remarkable example of how a group
of much-maligned government workers was transformed into a thoroughly efficient organization that is
now a leader in its industry. The Asian Human Capital Award, is one of the biggest recognition earned by
Manila Water as an employer and is an award that is so difficult to obtain due the stringent standards of
its giver, the Singaporean Ministry of Manpower. However, the comprehensive selection process did not
prevent Manila Water from becoming the first-ever Filipino company to capture the elite honors when the
Singaporean government deemed Manila Water worthy of the award for harnessing its people in
transforming from a languishing water service provider into a world-class water and used water company,
citing not only its accomplishments but also the way it turned around its business using its human resource.

In 2014, Manila Water bagged the following awards and recognitions: One of 20 Global Growth Companies
(GGC) in East Asia – World Economic Forum (May 2014); No. 2 in the 2014 Sustainability Ranking –
Channel NewsAsia (November 2014); Asia’s Icon on Corporate Governance – Corporate Governance

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Asia (November 2014); 1st in Innovation in Water, Wastewater and Stormwater Network Modelling and
Analysis for the Marikina North STP Project - Bentley Systems, Inc.’s Be Inspired Awards (November
2014); PSE Bell Award for Corporate Governance, Hall of Fame – Philippine Stock Exchange (November
2014); Asia Geospatial Excellence Award – Asia Geospatial Forum (November 2014); Philippine Esri Best
Overall Map Award for ‘The Business Risk Exposure Assessment of Manila Water Network

Asset Project Map’ – Philippine Esri User Conference and 2nd Philippine Esri Education GIS Conference
(September 2014); First Don Emilio Abello Energy Efficiency Award for the San Juan Pumping Station –
Department of Energy (October 2014); IABC Quill Awards, Awards of Excellence and Awards of Merit for
various business communication programs – International Association of Business Communicators (IABC)
Philippines (2014). In April 2014, the Laguna Lake Development Authority cited the following employees
as Outstanding Pollution Control Officers – Blue Ratee for the 7 Sewage Treatment Plants of Manila Water:
Sharon B. Cerbito - North Septage Treatment Plant (San Mateo); Jimaima M. Hoque - Sikatuna STP;
Jocelyn M. General (PCO), Johannes Paulus O. Costales (Plant Manager) - Fisheries STP; John Von
Wernher C. Dela Cruz - Pagasa STP, Heroes’ Hill STP; Ninya Kristina L. Cabico - Belarmino Stp, Palosapis
STP; and Jeremaine V. Esguerra - East Ave STP. In August 2014, the Department of Health also gave
the Typhoon Yolanda ‘Unsung Heroes’ Plaque of Recognition for Manila Water’s Mobile Treatment Plant
Operations.

In 2014, Manila Water was given the ISO 50001 Certification for Energy Management System (April 2014).
Manila Water was the first Philippine company to receive this certification. As of 2015, Manila Water has
the following ISO Certifications: ISO 50001: 2011 Energy Management System (ENMS) for five (5) water
supply and five (5) used water facilities; ISO 9001:2008 Quality Management System, ISO 14001:2004
Environmental Management System, and OHSAS 18001:2007 Occupational Health and Safety
Management System (QEHSMS) for nine (9) water supply and six (6) used water facilities, and two (2)
support departments (Laboratory and Maintenance Services); and ISO/IEC 17025:2005 for Manila Water’s
Laboratory Management System.

In 2015, the awards and recognitions received by Manila Water include the following: Awards and Citations
for Corporate Governance and Management (2015 One of ASEAN Top 50 Publicly Listed Companies,
ASEAN Corporate Governance Conference and Awards; 2015 9th INGFINEX CFO of the Year for Mr.
Luis Juan B. Oreta); Awards and Citations for Corporate Social Responsibility and Sustainability (2015
Change the World List (Ranked No. 29 out of 51), Fortune; 2015 One of Top Corporate Social
Responsibility (CSR) Advocates in Asia, Asia Corporate Excellence and Sustainability (ACES) Awards;
2015 Winner, Sustainability Strategy and Resource Efficiency Category, ASEAN Corporate Sustainability
Summit and Awards (ACSSA); 2015 Runner-up, Supply Chain Sustainability Category, ASEAN Corporate
Sustainability Summit and Awards (ACSSA); Awards and Citations for Operations and Technical
Management (2015 Asia Geospatial Excellence Award for the Critical Activity Review and Geographic
Information System (GIS) Integration, Asia Geospatial Forum; 2015 Special Award for Performance in
Energy Efficiency and Conservation for Siruna Pumping Station, Don Emilio Abello Energy Efficiency
Awards, Department of Energy; 2015 Award of Recognition for ASEAN Energy Awards Competition for
Balara Pumping Station, Don Emilio Abello Energy Efficiency Awards, Department of Energy; 2015
Outstanding Award for Performance in Energy Efficiency and Conservation for San Juan Pumping Station,
Don Emilio Abello Energy Efficiency Awards, Department of Energy; 2015 Outstanding Energy Manager
Award (Mr. Rolando Mosqueda, San Juan Pumping Station), Don Emilio Abello Energy Efficiency Awards,
Department of Energy; 2015 Special Award for Performance in Energy Efficiency and Conservation for
Kingsville Pumping Station), Don Emilio Abello Energy Efficiency Awards, Department of Energy); Awards
and Citations for Communications (2015 Gold Anvil Award and Silver Anvil Awards, 50th Anvil Awards,
Public Relations Society of the Philippines (PRSP); 2015 Awards of Excellence and Awards of Merit, Quill
Awards, International Association of Business Communicators (IABC) Philippines); Others (Subsidiaries)
(2015 Case Study Category Winner of the Public-Private Partnerships (PPP) Short Stories Competition
for Laguna Water’s Alternative PPP Model: The Laguna Water Story, World Bank Group and the Public-
Private Infrastructure Advisory Facility (PPIAF).

In 2016, the awards and citations received by Manila Water include the following: Awards and Citations
for Corporate Governance and Management (2016 PSE Bell Award for Corporate Governance, Philippine

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Stock Exchange; 2016 Governance Awardee, Investors’ Forum, Institute of Corporate Directors (ICD) in
partnership with Fund Managers Association of the Philippines, Philippine Investment Funds Association,
Trust Officers Association of the Philippines and PJS Corporate Support Inc.; 2016 Risk Management
Professional of the Year Award for Ms. Ma. Victoria P. Sugapong, Ayala Risk Awards; 2016 Delivering
Value through Risk Management Award for “The Big One: The East Zone Earthquake Impact and Risk
Reduction (EZEIRR) Study,” Ayala Risk Awards); Awards and Citations for Operations and Technical
Management (2017 Computerworld Premier 100 Technology Leader for Mr. Rodell A. Garcia; 2016
Certified National Expert for Pumping System Optimization for Mr. William Alcantara Don Emilio Abello
Energy Efficiency Awards, Department of Energy; 2016 Citation Award for Kingsville Pumping Station Don
Emilio Abello Energy Efficiency Awards, Department of Energy; 2016 Special Award for Siruna Pumping
Station, Don Emilio Abello Energy Efficiency Awards, Department of Energy; 2016 Special Award for San
Juan Pumping Station, Don Emilio Abello Energy Efficiency Awards, Department of Energy; 2016
Chairman’s Prize for Healthy Family Purified Water, Ayala Innovation Excellence Awards; 2016 Innovation
Excellence Award for the Demand-Based Network Management (DBNM) System, Ayala Innovation
Excellence Awards; 2016 CIO 100 (US) Awardee for the Enterprise Asset Management – Asset
Management Information System (EAM-AMIS) Project, CIO 100 Awards, CIO Asia; 2016 CIO 100 Index
(Asia) for the Enterprise Asset Management - Asset Management Information System (EAMAMIS) Project,
15th Annual CIO Asia Awards, CIO Asia; 2016 People’s Choice Award and Best Overall Map for
Cartographic Design and Analytic Presentation, ESRI Philippines GIS User Conference Map Gallery
Competition); Awards and Citations for Corporate Social Responsibility and Sustainability (2016 One of
Top 3 Most Sustainable Corporations, Channel NewsAsia Sustainability Ranking; 2016 Unilever Global
Development Award for “Tubig Para Sa Barangay”, Annual Responsible Business Awards, Business in
the Community (BITC) Network of the United Kingdom; Awards and Citations for Communications (2016
Top Award in Communication Management for Boracay Water’s “Lingap Para Sa Katutubo,” Philippine
Quill Awards, International Association of Business Communicators (IABC) Philippines; 2016 Special
Award for Excellence in PR for Social Good for “Toka Toka: The First and Only Used Water Advocacy in
the Philippines,” Anvil Awards, Public Relations Society of the Philippines (PRSP); 2016 Gold Anvil Awards
and Silver Anvil Awards, Anvil Awards, Public Relations Society of the Philippines (PRSP); 2016 Quill
Awards of Excellence and Awards of Merit, Philippine Quill Awards, International Association of Business
Communicators (IABC) Philippines)

In 2017, Manila Water was awarded with the following: 52nd Anvil Awards (Public Relations Society of the
Phils.): Gold Anvil Award - Manila Water's 2016 Corporate Video; Gold Anvil Award - Clark Water's Ahon
Pinoy Program in Sitio Monicayo; Silver Anvil Award - Boracay Water's Amot Amot (Toka Toka) Sa
Malimpyong Boracay; Silver Anvil Award - Laguna Water's Inauguration of the Laguna Wellfield; Silver
Anvil Award - The Laguna Water Story Video; Silver Anvil Award - The Month-Long and Nationwide
Celebration of the 2016 Global Handwashing Day; Rodell Garcia, Named one of 2017 Computerworld
Premier 100 Technology Leaders; 'Kampeon ng Katubigan' Award, 2017 World Water Day Awards
(organized by Maynilad and the National Water Resources Board); No. 1 Best Managed Utilities Company
in Asia, 17th Annual Asia's Best Companies, Finance Asia; 15th Philippine Quill Awards (International
Association of Business Communicators): Quill Award of Excellence – Si Rungis at Si Linis: Ang Kwento
ng Dalawang Patak ng Tubig; Quill Award of Excellence – Manila Water's 2016 Corporate Video; Quill
Award of Merit – Gawad Iwas-Lunas Risk Management Excellence Awards, Best Corporate Investor
Relations (by Country) Award, 7th Asian Excellence Awards, Corporate Governance Asia; Luis Juan
Oreta, Asia's Best CFO (Investor Relations) Award, 7th Asian Excellence Awards, Corporate Governance
Asia; Outstanding Blood Services Partner of the Year Award, Blood Donors Recognition Ceremony,
Philippine Red Cross; Ferdinand Dela Cruz, 2017 Most Distinguished Alumnus Award, University of the
Philippines Alumni Engineers (UPAE); Clark Water, One of Top Community Care Companies in Asia, Asia
Corporate Excellence and Sustainability (ACES) Awards; Award of Excellence for 10 Million Safe Man-
Hours, Safety Organization of the Philippines Inc. (SOPI); 2017 Don Emilio Abello Energy Efficiency
Awards (Department of Energy): Special Award - Balara Pumping Station, Special Award - San Juan
Pumping Station, Outstanding Award - Lucban Pumping Station, and Outstanding Energy Manager Award
- John Paul Galman.

For 2018, Manila Water was awarded with the following: The Asset Platinum Award (Excellence in
Environmental, Social and Governance Practices), Top 50 ASEAN Publicly Listed Companies (PLC)

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during the 2nd ASEAN Corporate Governance (CG) Awards, 2017 Top 10 PLC, Top 5 PLC – Industrial
Sector – by the Institute of Corporate Directors for the ASEAN CG Scorecard, ASEAN Energy Awards –
First Runner-up for Energy Management – Building and Industries, Small and Medium Industry Category
for “Project Lights-Out” at N. Domingo Pumping Station, Award of Excellence for 12.7 Million Safe Man-
Hours without Lost-Time Accident Safety Organization of the Philippines Inc., Chairman’s Prize for
Emergency Reservoirs at the Ayala Innovation Excellence Awards, Enterprise Risk Programme of the
Year Award during the StrategicRISK Asia-Pacific Risk Management Awards, Gold Anvil Awards – Public
Relations Society of the Philippines for the 2016 Integrated Annual and Sustainability Report (PR Tools –
Publications), The Marikina North Sewerage System Project Story (PR Tools – Multimedia/ Audio-Visual
Presentation), Silver Anvil Awards, Public Relations Society of the Philippines for Kasangga Day: Manila
Water’s Customer Appreciation Program (PR Program – Consumers/ Communities), Manila Water’s 20th
Anniversary Corporate Video and Mural (PR Tool – Multimedia/ Audio-Visual Presentation), Clark Water’s
Sitio Haduan Water Project (PR Program – Indigenous People) Boracay Water’s Lingap Eskwela (PR
Program – Communities/Schools) Laguna Water TSEK ng Bayan!: Tamang Sanitasyon Equals Kalinisan,
Kalusugan at Kaunlaran ng Bayan (PR Program – Consumers/Communities), Quill Award of Excellence
by the International Association of Business Communicators Philippines for the 2016 Integrated Annual
and Sustainability Report (Communication Skills – Publications), and Quill Award of Merit by the
International Association of Business Communicators Philippines for Manila Water’s 20th Anniversary
Corporate Video (Communication Skills – Audio-Visual Category).

Related Party Transactions

To further instill Manila Water’s policies on related party transactions, the Board adopted the Policy on
Related Party Transactions (the “RPT Policy”). The RPT Policy confirms that Manila Water and its
subsidiaries shall enter into any related party transactions solely in the ordinary course of business, on
ordinary commercial terms, and on the basis of arm’s length arrangements, which shall be subject to
appropriate corporate approvals and actions of Manila Water or the related parties, as the case may be.

Any related party transactions entered into by Manila Water or its affiliates shall be in accordance with
applicable law, rules and regulations, and the RPT Policy. Related party transactions entered into by
Manila Water with one or more of its directors or officers are voidable at the option of the Company, unless
the transaction is deemed fair and reasonable under the circumstances and at arm’s length, and the
procedure for the procurement and approval for similar transactions was strictly complied with.

The RPT Policy provides for the process of approving related party transactions, as well as the implications
for violations. In addition, the RPT Policy prohibits related party transactions involving loans and/or
financial assistance to a director and loans and/ or financial assistance to members of the Management,
except when allowed pursuant to an established Company benefit or plan. Under the RPT Policy, the
approval of the RPT Committee is required for material related party transactions.

In order to achieve its corporate objectives, Manila Water acknowledges the need for the active
management of the risks inherent in its business which should involve the entire enterprise. For this
reason, Manila Water has established an ERM Program which aims to use a globally accepted approach
in managing imminent and emerging risks in its internal and external operating environments. Under the
ERM Program, Manila Water shall appropriately respond to risks and manage them in order to increase
shareholder value and enhance its competitive advantage.

Manila Water, through its Enterprise Risk Management Department (ERIM Department), seeks to
integrate risk awareness and responsibility into each level of management activities, and into all strategic
planning and decision-making processes within Manila Water and its subsidiaries to support the
achievement of strategies and objectives.

In its report to the Manila Water Board of Directors adopted in its meeting held on February 22, 2019, the
Manila Water Audit Committee confirmed that:

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• The Committee reviewed and approved the quarterly unaudited consolidated financial statements and
the annual Audited Consolidated Financial Statements of Manila Water and its subsidiaries, including
Management’s Discussion and Analysis of Financial Condition and Results of Operations as of and for the
year ended December 31, 2018, with Manila Water’s Management, internal auditors, and SGV & Co.
These activities were conducted in the following context:

• Management has the primary responsibility for the financial statements and the reporting process.
• SGV & Co. is responsible for expressing an opinion on the conformity of Manila Water’s audited
consolidated financial statements with the PFRS.

• The Committee reviewed and approved the Management representation letter before submission to
Manila Water’s independent external auditors.

• The Committee recommended to the Board of Directors the re-appointment of SGV & Co. as independent
external auditors for 2018 based on its review of SGV & Co.’s performance and qualifications, including
consideration of Management’s recommendation.

• The Committee reviewed and approved all audit and audit-related services provided by SGV & Co. to
Manila Water and the related fees for such services.

• The Committee discussed and approved the overall scope and the respective audit plans of Manila
Water’s internal auditors and of SGV & Co., the results of their audits and their assessment of Manila
Water’s internal controls, and the overall quality of the financial reporting process.

• The Committee discussed the reports of the internal auditors and ensured that Management is taking
appropriate actions in a timely manner, including addressing internal control and compliance issues. All
the activities performed by Internal Audit were conducted in conformance with the International Standards
for the Professional Practice of Internal Auditing.

• The Committee, through the audits conducted by SGV & Co. and Internal Audit, has reviewed
Management’s system of internal controls and the Committee found the internal control system to be
adequate and effective.

• The Committee discussed with Management the adequacy and effectiveness of the Enterprise Risk
Management process, including significant risk exposures, the related risk-mitigation efforts and initiatives,
and the status of the mitigation plans. The review was undertaken in the context that Management is
primarily responsible for the risk management process.

• The Committee reviewed and confirmed that the existing Audit and Internal Audit Charters are sufficient
to accomplish the Committee’s and Internal Audit’s objectives. The Audit Committee Charter is in
compliance with the SEC Memo Circular No. 04 (2012).

• The Committee conducted a self-assessment of its performance to confirm that the Committee continues
to meet the expectations of the Board, Management and shareholders.

Risk Factors

TOP ENTERPRISE RISKS MITIGATION STRATEGIES

POLITICAL AND REGULATORY/COMPLIANCE Programs have been implemented to ensure
Failure to manage regulatory and socio-political control of regulatory, socio-political and
uncertainties that may adversely affect the compliance risks at both operational and strategic
organization; Failure to meet regulatory levels. Enhanced stakeholder relationship
requirements management has been given key priority, with
obligations resulting to penalties, fines etc. regular coordination and strategic direction setting
undertaken with groups involved in stakeholder
engagement at the corporate and enterprise levels.

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There were organizational and process changes to

improve the regulatory compliance of the
organization. The document management system
has been enhanced to improve readiness in
regulatory review and audit.
RATE REBASING The Business Plan was approved on September
Failure to manage the rate rebasing process 27, 2018 with a partial award of tariff to be
leading to unfavorable ruling by regulators, implemented in the years of 2018, 2019, 2020,
negative investor perception, loss in value and 2021 and 2022. Regular coordination meetings
unrealistic rate rebasing commitments. with the MWSS Regulatory and Corporate Offices
were conducted involving discussions on medium-
term water sources, corporate income taxes and
other issues relative to the concession. Key
concession guidelines have been developed to
ensure that rate rebasing audits in the future will be
facilitated in accordance with the concession
agreement.
WATER SUPPLY Activities are being done to further increase
Failure to ensure adequacy, security, quality and adequacy, security, quality, reliability and efficiency
reliability of water supply. of the current water supply system such as the
development of medium-term water sources,
rehabilitation of deep wells, weekly monitoring and
investigation of NRW contributors, weekly
monitoring of dam water levels, preventive and
corrective maintenance of dam facilities,
aqueducts and water treatment facilities.
BUSINESS CONTINUITY A project team has been established and a
Failure to ensure recovery and continuity of consultant has been engaged to enhance the
business operations through a comprehensive organization’s business continuity management
business continuity management plan. system. There were organizational changes to
improve the resiliency of the organization. Drills are
regularly conducted following contingency
standards, procedures and processes which
increased readiness and awareness of employees
on emergency protocols. Emergency response
plans are continuously reviewed and enhanced
resulting in continuous operations of facilities even
during natural calamities such as floods and
incidents such as power interruptions.
CAPEX EXECUTION Monitoring of project milestones is being done to
Failure to meet CAPEX targets on time, within the ensure timely completion of projects. An Enterprise
approved cost, and according to quality. Portfolio and Project Management System is
implemented to improve project visibility. Manila
Water conducts a rigorous review and approval
process for project approval, variation orders and
time extensions. Project management is risk-based
such that review and reporting frequency, and
escalation levels depend on the project’s risk level.
In addition, process improvements were
implemented to eliminate repetitive tendering and
approval activities.

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NEW BUSINESS OPERATIONS The Enterprise Functional Council was created to

Failure to operate new businesses properly as a enable the Enterprise Group Directors, with no line
result of poor integration, planning, and execution. relationship to the subsidiaries, to enforce
functional standards across the business units.
The Enterprise Functional Council provides a
venue for subject matter experts to share best
practices. A Subsidiary Operations Group Director
was appointed to oversee all operating
subsidiaries.
NEW BUSINESS DEVELOPMENT A Regional Business Development structure is in
Failure to launch significant new businesses to place to provide more focus to business expansion
meet current and future business objectives. opportunities. A comprehensive project
development process and framework has been
instituted, determining specific parameters,
opportunities, and initiatives required that not only
increase return on effort, but also improve the
overall hit rate of project closure. The specific intent
is to deliberately establish a pipeline of projects
with significant size, economies of scale, and clear
synergy with existing and established business
units. Project viability is evaluated through a multi-
stage approval process, assessing resource
allocation and risk, which is subsequently
considered in the determination of the cost of
capital and appropriate development costs.
PLANNING AND EXECUTION An Enterprise Portfolio Management Office is in
Failure to plan and execute major initiatives in a place to provide the necessary governance
systematic and well-coordinated manner leading to structure and support to facilitate timely and
non-achievement of business and financial effective execution of enterprise plans. The
objectives. Enterprise Portfolio Management Office facilitates
the alignment of objectives, resources, structures
and systems across the various project
portfolios/change initiatives.
PORTFOLIO MANAGEMENT A Portfolio Review Committee was established to
Failure to manage the risks associated with objectively assess the financial and operating
managing a portfolio. performance of current business units. Policies
regarding investment and divestment of resources
are in place, ensuring proper resource allocation
across the enterprise.
TALENT MANAGEMENT A robust succession plan is in place to ensure a
Failure to address the talent requirements of the strong pipeline for critical roles. A Human Capital
organization to achieve current and future Management System, a unified platform for all
business= objectives. human resource services, was implemented. In
addition, on time enhancements were made to
rewards programs to maintain market
competitiveness while being mindful of regulatory
thresholds of the business.

Regulatory

Manila Water is subject to various laws and regulations and, apart from the MWSS, one of the primary
government regulators of its business is the National Water Resources Board that is tasked to regulate
and control the utilization, exploitation, development, conservation and protection of all water resources.
Manila Water’s operations are subject to various environmental laws and regulations, which include,
among others, Republic Act No. 9275 or the “Philippine Clean Water Act of 2004,” Republic Act No. 9003
known as the “Ecological Solid Waste Management Act of 2000,” Republic Act No. 8749, the Philippine

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Clean Air Act of 1999”, Republic Act No. 6969 (“R.A. 6969”) or the “Toxic Substances and Hazardous and
Nuclear Wastes Control Act of 1990” and Presidential Decree No. 856 otherwise known as the Philippine
Sanitation Code”, and Republic Act 9165 or the Dangerous Drug Act..

Certain of Manila Water’s operations are also regulated by the LLDA through Republic Act No. 4850 and
various LLDA Board Resolutions and Memorandum Circulars, including but not limited to Resolution No.
25, Series of 1996 (Environmental User Fee System in the Laguna de Bay Region), and Resolution No.
33, Series of 1996 (Approving the Rules and Regulations Implementing the Environmental User Fee
System in the Laguna de Bay Region), which require entities to secure a discharge permit from the LLDA.

Please refer to “Regulatory Framework” on page [•] of this Prospectus.

Other Matters

The Group has not been involved in any bankruptcy, receivership or similar proceeding as of December
31, 2018. Further, except as discussed above, the Group has not been involved in any material
reclassification, consolidation or purchase or sale of a significant amount of assets not in the ordinary
course of business. The Group is not dependent on a single customer or a few customers, the loss of any
or more of which would have a material adverse effect on the Group.

INDUSTRIAL TECHNOLOGIES

AC Industrial Technology Holdings, Inc. (alternately referred to as “AC Industrials”, or “the Company” in the
entire discussion of AC Industrials.), was established in 2016, and is Ayala’s holding company for its
investments in industrial technologies. AC Industrials invests in and manages an integrated and synergistic
portfolio of businesses engaged in global manufacturing solutions, emerging technologies, and vehicle
assembly, distribution, and retail.

Prior to this, the Company was called Ayala Automotive Holdings Company, which originally housed the
automotive businesses of the Ayala group. Since its formation, AC Industrials has addedIMI and other new
businesses active in mobility and smart energy to its fold.

AC Motors

AC Motors is a group of companies that are directly owned by AC Industrials and active across the vehicle
value chain. AC Motors is one of the largest vehicle businesses in the Philippines with operations in vehicle
assembly and manufacturing, vehicle distribution and vehicle retail. From a single-brand automotive
business, it has since grown its portfolio to offer a total of six (6) vehicle brands.

AC Motors started its operations in 1990 when Ayala decided to invest in and retail Honda vehicles. Through
AC Motors, AC Industrials owns the largest Honda and Isuzu dealership networks in the country in terms
of vehicle sales. AC Motors owns and manages eleven Honda dealerships through Honda Cars Makati,
Inc. (“HCMI”) and ten Isuzu dealerships through Isuzu Automotive Dealership, Inc. (“IADI”). In addition, AC
Industrials has a 12.5% stake in Honda Cars Philippines, Inc. (“HCPI”) and a 15% share in Isuzu Philippines
Corporation (“IPC”). HCPI is a joint venture with Honda Motors Co. Ltd. and Rizal Commercial Banking
Corporation (“RCBC”) while IPC a joint venture with Isuzu Motors, Ltd., Mitsubishi Corporation and RCBC.

In 2013, AC Motors marked its foray into automotive distribution when it was appointed as the distributor of
Volkswagen vehicles in the Philippines. Volkswagen is currently sold across the country through eight
dealerships. In 2018, AC Motors expanded its distribution arm when it acquired the national distributorships
of Kia and Maxus. The Volkswagen and Maxus businesses are housed under Automobile Central
Enterprise, Inc. (“ACEI”). AC Motors also actively retails its vehicles through Iconic Dealership, Inc. (“IDI”),
which as of June 30, 2019, owns and operates four Volkswagen dealerships, one Kia dealership and one
Maxus dealership.

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AC Motors invested in its first two-wheel vehicle brand in 2016 when it formed a strategic partnership with
KTM AG, one of Europe’s leading motorcycle companies. AC Motors, through Adventure Cycle Philippines
(“ACPI”), is the official distributor of KTM motorcycles in the Philippines. In addition, ACPI holds a 66%
share in KTM Motorcycle Manufacturing, Inc. (“KAMMI”), a joint venture with KTM AG that assembles and
manufactures KTM motorcycles in the Philippines. ACPI serves 32 KTM dedicated dealerships throughout
the Philippines, and through KAMMI, supplies motorcycles for both the local and export markets.

The Kia distributorship business operates for the time being under ACPI, while KP Motors Corporation, a
65% joint venture with Columbian Autocar Corporation, the brand’s previous Philippine distributor, is
operationalized. Operationalization of KP Motors is expected to be complete by the second quarter of 2020.

As of June 30, 2019, the year-to-date growth of the Philippine automotive market was 3%. This represents
a modest but emerging recovery from the 15% drop posted by the industry in 2018. The weakness in 2018
was caused by the implementation of a new excise tax regime, which softened demand during the year,
but accelerated purchases in 2017 in anticipation of the new excise taxes. Prior to this, the automotive
sector had grown by a compounded annual growth rate of 17% from 2009 to 2016.

AC Motors continues to weather internal and external challenges, which include flattish industry growth and
intensifying competition. As of June 30, 2019, AC Motors offered six vehicle brands and held a 4% market
share based on the unit sales of the Honda and Isuzu dealerships it manages and the total unit sales of the
brands it distributes. AC Motors directly owns and operates a total of 27 automotive dealerships and one
KTM dealership.

Enabling Technologies Group

In 2017, AC Industrials started assembling its portfolio of enabling technologies when it acquired a 94.9% 4
stake in Misslbeck Technologies. Misslbeck, based in Ingolstadt, Germany, was renamed MT Technologies
post transaction closing. It is a tooling, cubing, and serial production business that primarily produces tools,
provides modelling services, and manufactures parts for German automotive original equipment
manufacturers (“OEMs”). These capabilities were further strengthened when MT Technologies acquired a
75.1% share in C-Con GmbH, a group of three companies based in Germany that provides development,
design, manufacturing and process design services to automotive and aerospace OEMs. C-Con also offers
a unique proprietary process for carbon fiber reinforced polymer production.

AC Industrials also entered the smart energy space after acquiring a 98%5 stake in Merlin Solar
Technologies in February 2018. Based in San Jose, California, Merlin holds proprietary grid technology that
enables specialty solar panels for unique and demanding applications primarily in transport, marine, roofing
and mobile. Merlin Solar Technologies manufactures in the Philippines, U.S. and Thailand.

Integrated Micro-Electronics, Inc. (IMI)

Established in 1980, Integrated Micro-Electronics, Inc. (alternately referred to as IMI in the entire discussion
of Integrated Micro-Electronics, Inc.) has grown into a global company offering core manufacturing
capabilities as well as higher value competencies in design, engineering, prototyping and supply chain
management. IMI is a vertically integrated EMS provider to leading global original equipment manufacturers
(“OEMs”) across industries including computing, communications, consumer, automotive, industrial and
medical electronics segments, as well as emerging industries like renewable energy. IMI also provides
power semiconductor assembly and test services.

Business Development

IMI, a stock corporation organized and registered under the laws of the Republic of the Philippines on
August 8, 1980, has four wholly-owned subsidiaries, namely: IMI International (Singapore) Pte. Ltd. (“IMI

4 Now 92.45% post purchase of minority stakes by senior management.

5 Currently at 99.11% post cash infusions from AC Industrials

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Singapore”), IMI USA, Inc. (“IMI USA”), IMI Japan, Inc. (“IMI Japan”) and PSi Technologies, Inc. (“Psi”)
(collectively referred to as the “IMI group”). IMI is 52.03% owned by ACITHI.

The registered office address of IMI is North Science Avenue, Laguna Technopark- Special Economic Zone
(LT-SEZ), Bo. Biñan, Biñan, Laguna.

IMI was listed by way of introduction in the PSE on January 21, 2010. It has completed its follow-on offering
and listing of 215,000,000 common shares on December 5, 2014. On March 2, 2018, IMI completed a stock
rights offer and listing of 350,000,000 common shares to all eligible stockholders.

IMI is registered with the PEZA as an exporter of printed circuit board assemblies (“PCBA”), flip chip
assemblies, electronic sub-assemblies, box build products and enclosure systems. It also provides the
following solutions: product design and development, test and systems development, automation,
advanced manufacturing engineering, and power module assembly, among others. It serves diversified
markets that include those in the automotive, industrial, medical, storage device, and consumer electronics
industries, and non-electronic products (including among others, automobiles, motorcycles, solar panels)
or parts, components or materials of non-electronic products.

IMI Singapore is a strategic management, investment and holding entity that owns operating subsidiaries
of the IMI group and was incorporated and domiciled in Singapore. Its wholly-owned subsidiary, Speedy-
Tech Electronics Ltd. (“STEL”), was incorporated and domiciled also in Singapore.

STEL, on its own, has subsidiaries located in Hong Kong and China. STEL and its subsidiaries (collectively
referred to as the STEL Group) are principally engaged in the provision of electronic manufacturing services
(“EMS”) and power electronics solutions to OEMs in the automotive, consumer electronics,
telecommunications, industrial equipment, and medical device sectors, among others.

In 2009, IMI Singapore established its Philippine Regional Operating Headquarters (IMI International
ROHQ or IMI ROHQ). It serves as an administrative, communications and coordinating center for the
affiliates and subsidiaries of IMI.

In 2011, IMI, through its indirect subsidiary, Cooperatief IMI Europe U.A. (Cooperatief) acquired Integrated
Micro-Electronics Bulgaria EOOD (formerly EPIQ Electronic Assembly EOOD) (IMI BG), Integrated Micro-
Electronics Czech Republic s.r.o. (formerly EPIQ CZ s.r.o.) (IMI CZ) and Integrated Micro-Electronics
Mexico, S.A.P.I. de C.V. (formerly EPIQ MX, S.A.P.I. de C.V.), Integrated Micro-electronics Manufactura
S.A.P.I. de C.V. (formerly YAMAVER, S.A. DE C.V) (collectively referred to as the IMI EU/MX Subsidiaries).
IMI EU/MX Subsidiaries design and produce PCBA, engage in plastic injection, embedded toolshop, supply
assembled and tested systems and subsystems which include drive and control elements for automotive
equipment, household appliances, and industrial equipment, among others. IMI EU/MX Subsidiaries also
provide engineering, test and system development and logistics management services.

In 2016, Cooperatief acquired a 76.01% ownership interest in VIA Optronics GmbH (VIA), a German-based
company with operations in Germany and China, and sales offices in the USA and Taiwan. VIA is a leading
provider for optical bonding, a key technology to lower reflections thus enabling sunlight readability and
increasing robustness, which is mandatory to allow thinner and lighter portable display solutions. The
acquisition allows the IMI group to strengthen its partnerships with customers by offering complementary
automotive camera and display monitor solutions for advanced driver assistance systems. The IMI group,
together with VIA, enables the scale to introduce patented technology into automotive camera monitor
systems for increased safety.

In 2018, VIA agreed to form a new joint venture company with a Japanese entity through the acquisition of
65% ownership interest. The new joint venture company, VTS serves the market for copper-based metal
mesh touch sensors in Japan.

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In 2016, Cooperatief acquired a property in the Republic of Serbia to strengthen its global footprint and
support the growing market for automotive components in the European region. The manufacturing plant
was completed and inaugurated in September 2018.

In 2017, IMI, through its indirect subsidiary Integrated Micro-electronics UK Limited (“IMI UK”), acquired an
80% stake in Surface Technology International Enterprises Limited, an EMS company based in the United
Kingdom. Surface Technology International Enterprises Limited has factories in the UK and Cebu,
Philippines. Surface Technology International Enterprises Limited provides electronics design and
manufacturing solutions in both PCBA and full box-build manufacturing for high-reliability industries. The
acquisition of Surface Technology International Enterprises Limited strengthens the IMI group’s industrial
and automotive manufacturing competencies, broaden its customer base, and also provides access to the
UK market. Further, the partnership allows the IMI group’s entry into the aerospace, security and defense
sectors.

IMI USA acts as direct support to the IMI group’s customers by providing program management, customer
service, engineering development and prototype manufacturing services to customers, especially for
processes using direct die attach to various electronics substrates. It specializes in prototyping low to
medium PCBA and sub-assembly and is at the forefront of technology with regard to precision assembly
capabilities including, but not limited to, surface mount technology (“SMT”), chip on flex, chip on board and
flip chip on flex. IMI USA is also engaged in advanced manufacturing process development,
engineering development, prototype manufacturing and small precision assemblies.

IMI Japan was registered and is domiciled in Japan to serve as IMI’s product development and sales
support center. IMI Japan was established to attract more Japanese OEMs to outsource their product
development to IMI.

PSi is a power semiconductor assembly and test services company serving niche markets in the global
power semiconductor market. PSi provides comprehensive package design, assembly and test services
for power semiconductors used in various electronic devices.

Business of the Company

Product Capabilities:

IMI has experience in working with some of the world’s leading companies in the following products:

Automotive Electronics:

▪ Safety
o Electronic Power Steering
o Communication Power
o Electronic Stability Program (ESP)
o Body Control Module (BCM)
o Headlight
o Backlight
o Switch and Fan Controller
o HVAC control panel

▪ Advanced Driver Assistance Systems

o Front Vision
o Surround View
o Rear View Camera
o Mirror Replacement Systems
o advanced driver-assistance systems (“ADAS”) ECUs

▪ Sensors

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o Tire Pressure Sensor

o Temperature and Humidity Sensor
o Rotor Position Sensor (RPS)
o Gasoline System sensor
o Transmission sensor
o Speed sensor
o Connector sensor
o Engine sensor

▪ Others
o Anti-fogging system
o Wiper
o Gear box shift
o Window lifter
o Head rest

Industrial Electronics

▪ Security
o Electronic Door Access System
o Biometrics
o Asset tracking
o Radiation detector
o Security alarm

Automation
▪ System Integration (Robotics)
▪ Automated Meter Readers

Power Management and Smart Grid

▪ Modules for Renewable Energy Generation, Transmission and Conversion

▪ Solar Panel
▪ Solar Inverters
▪ EV Charging Systems
▪ Power module
▪ Building and lighting control
▪ Thermostat
▪ Charger for agricultural machine
▪ Energy management
▪ Timer
▪ Monitoring and control system

Controls and Sensors

▪ Printer Control
▪ Power Amplifier
▪ DC-DC Power Converter
▪ Engine Controllers
▪ Mirror Controls
▪ Industrial system and switch
▪ Anti-pitch sensors
▪ Luminaire Controller

Others

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▪ LED lighting
▪ Aircon damper
▪ Accelerometer
▪ UPS
▪ Industrial power
▪ Power supply
▪ Industrial tooling

Medical Electronics

Diagnostics

▪ Static detectors for fix and mobile RAD exams

▪ Auto Body Contouring Imaging Equipment
▪ Defibrillator Component
▪ Biomedical and Laboratory Equipment
▪ Centrifuge Control
▪ Fitness Equipment Control

Others

▪ Dental Imaging System

▪ Hearing Aids

Communications Electronics

Telecom Equipment and Devices

▪ Cellular alarm communicators for LTE networks

▪ Back Panel
▪ Fiber to “X” (FFTx) systems
▪ Booster Amplifier
▪ GPON (Gigabit Passive Optical Network) Systems
▪ Base Station Power Supply
▪ Digital Station Control
▪ Power Transistors for amplifiers in cellular base stations
▪ Power Conversion ICs in adapters and chargers for cell phones and cordless phones
▪ DC Port and USB Port Protection for cell phones and satellite radio peripherals
▪ RF Signal Analyzer
▪ RF Meter

Consumer Electronics

White goods

▪ Gas Ignitor and Re-Ignitor

▪ Air-Conditioning (HVAC) Controller
▪ Refrigerator and Cooker Hood Control
▪ Power Management & Home Appliance
▪ Household Metering Device
▪ Electric Drive Control for Home Appliances
▪ Programmable Timer
▪ Pressure Cookers
▪ Washing Machine controllers
▪ Coffee Machines

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Personal devices and lighting

▪ Ultrasonic Toothbrush
▪ Projector Lamp Drivers
▪ Bluetooth Headset
▪ Main Power Supply for Flat-panel TV
▪ Power Supply for Game Consoles and Entertainment Electronics
▪ High Voltage Power Conversion ICs in Adapters and Chargers for Personal Electronics

Power Semiconductor

▪ Low˗Medium Power Packages

▪ Medium˗High Power Packages
▪ Small Signal Packages

Optical Bonding and Display Solutions (VIA)

▪ Sunlight readable interactive or non-interactive LCD systems

▪ Custom cover lens and custom mechanical design
▪ Touchpanel assemblies
▪ LCD-Touch Assemblies
▪ Display Head Assemblies and Hinge-Up Monitors
▪ Optical bonding services

Precision Machining

▪ Conventional machines
▪ CNC Turning with Milling function
▪ CNC Vertical Machining center (3 axis, 5 axis)
▪ Coordinate Measuring Machine (CMM)
▪ Hydraulic Press Brake and Hydraulic Shear

Aviation

▪ Fuel Computers
▪ Brake by Wire
▪ Entertainment Controls
▪ Satellite Communications
▪ Inflight internet systems
▪ Lighting Retro-fit
▪ Safety equipment
▪ Captor Radar
▪ Navigation and Communications Systems
▪ Cockpit Displays

Except as otherwise disclosed as above, there are no other publicly-announced new products or services
during the year.

Principal Products and Services

Design and Development (D&D) Group

IMI recently certified a high voltage nsulated gate bipolar transistor (“IGBT”) for production, a base-plated
power module on a 62X152 mm plastic case operating up to 1.7-kilo volts. A smaller version at 62X107 mm
has been in production for quite some time. IMI also began the production of other packages operating at

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medium voltage with metal oxide semiconductor field effect transistor and IGBT silicon in a similar plastic
case last year, but with a direct bonded copper substrate as heatsink. These power modules are designed
for both automotive and industrial applications.

Also in full swing in 2018 was the development of transfer molded plastic packages operating with low
power metal oxide semiconductor field effect transistor for automotive applications and will be ready for
production by the second half of 2019. Another highlight is the early design and development phase of a
hybrid version of a Pin-Fin baseplate and heatsink housing a full silicon carbide power module for electric
vehicles.

IMI’s D&D group also continues to lead in strengthening its capabilities in Internet-of-Things (“IoT”). In 2018,
IMI has included the implementation of Low Power Wide Area Network (“LPWAN”) technologies such as
LoRa, a long-range wireless communication protocol and Narrowband-IoT in the development of IoT
devices, and gateway components to further supplement previous capabilities on more mature connectivity
options for long range (cellular) and short range (i.e., Bluetooth, Zigbee), and general embedded systems
such as hardware and software components.

Test and Systems Development

In 2018, IMI’s Test and Systems Development group rolled out over 60 new innovative customized test
solutions for its automotive and industrial EMS customers. Each tester was customized to achieve high
efficiency in backend manufacturing and to guarantee high quality and reliability in products, which IMI
manufactures for its OEMs and Tier 1 customers.

IMI also introduced its second-generation custom testers for IGBT power modules for static, dynamic and
isolation tests. The testers offer flexibility to test different power module models with the same system. A
complete new suite of reliability testers was developed for power modules for automotive applications which
include power cycling, passive thermal cycling tests, and high temperature reversed-bias tests, among
others.

Analytical Testing and Calibration Laboratory

In 2018, IMI’s Analytical Testing and Calibration Laboratory continued to develop new capabilities and
zeroed in on the test requirements compliance to AECQ 101/IEC17025/LV324/VW80000/ ISO16750 of
electric vehicles. It acquired vibration tester that allows us to test the mechanical reliability of electric
vehicles. IMI takes pride in its much-improved complete test capabilities and expertise in handling
contamination issues using the Ion Chromatography with Critical Cleanliness Control C3 system.

Advanced Manufacturing Engineering

As automotive and medical products get smaller, IMI USA continues to provide value to product
miniaturization. IMI’s global Advanced Manufacturing Engineering focused on several industrial
microelectromechanical systems-based inertial measurement unit modules, commercial laser display
modules, and automotive camera modules, including the IMI minicube camera platform. Advanced
Manufacturing Engineering also developed a fully automated assembly line that manufactures a complex
electro-mechanical assembly for automotive safety and security electronic control at IMI Jiaxing as well as
in IMI Mexico. High-power modules for automotive and industrial applications, from design and
development, and NPI to mass production are growing briskly. Advanced Manufacturing Engineering also
collaborates with D&D on a low-cost automotive camera using Himax and flip chip technologies, and also
works with D&D Europe on the power module, which are used primarily in power management platforms
for partial to full vehicle electrification.

Automation

IMI’s global Automation Back End group continued to develop in-house build capability for standalone
systems. The IMI group supports IMI operations across all sites with a total of seven complex

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automation lines completed as of 2018. Eighty percent of the IMI group’s automation projects focused on
automotive product assemblies including processes such as final assembly, subassemblies, functional
test, and packaging.

Camera Vision Technology (CVT)

IMI continually work with both Automotive Tier 1 and Tier 2 in areas where high levels of innovation happen
such as mirror replacement, driver monitoring, and autonomous driving. VIA Optronics, IMI’s subsidiary in
Germany that manufactures advanced display solutions, began to oversee the camera vision technology
services to support the various ADAS application requirements in automotive. Equipped with ten years of
camera and extreme vision technology development experience, the IMI group develops platform designs
that can be customized to reduce total development time.

In the second half of 2018, IMI started building sample cameras for the 360 degrees viewing system
intended for an automotive OEM. The viewing system contains four cameras mounted on a vehicle and
connected to one central ECU capable of providing both a bird’s-eye view and 3D surround view for both
safety and comfort.

In addition, IMI launched a custom automated six-axis focus and alignment system that uses mirrors to
adjust the focusing distance. This innovation is ideal for focusing ADAS cameras intended for hauling trucks
with extended focus distance requirements.

Segment Information

Management monitors operating results per geographical area for the purpose of making decisions about
resource allocation and performance assessment. It evaluates the segment performance based on gross
revenue, interest income and expense and net income before and after tax of its major manufacturing sites.
Philippine operation is further subdivided into IMI and PSi. IMI BG, IMI CZ and IMI Serbia are combined
under Europe based on the industry segment and customers served, VIA and Surface Technology
International Enterprises Limited are combined under Germany/UK representing newly-acquired
subsidiaries, IMI USA, IMI Japan, IMI UK and IMI Singapore/ROHQ are combined being the holding and
support facilities for strategic management, research and development, engineering development and sales
and marketing.

Prior period information is consistent with the current year basis of segmentation.

Intersegment revenue is generally recorded at values that approximate third-party selling prices.

Revenue Contribution by Industry Segment (in US$)

1H2019 2018 2017 2016
Automotive $305,332,496 $541,859,546 $446,460,645 $377,639,245
Industrial 146,542,040 334,634,178 221,670,425 177,267,436
Consumer 67,300,540 176,176,123 188,760,154 71,038,949
Telecommunication 49,261,264 134,078,546 121,639,521 131,304,615
Aerospace/defense 25,880,303 56,827,484 24,973,446 –
Medical 7,094,717 12,954,240 19,303,996 21,280,959
Multiple market/others 34,286,265 92,870,328 67,780,002 64,435,220
$635,697,625 $1,349,400,445 $1,090,588,189 $842,966,424

Revenue Contribution by Customer Nationality (in US$)

1H2019 2018 2017 2016

Europe $310,491,554 $670,603,567 $519,149,422 $458,851,700
America 20,570,116 292,610,530 240,888,727 204,853,252

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Japan 120,786,120 45,241,436 42,842,182 40,861,642

Rest of Asia/Others 183,849,835 340,944,912 287,707,858 138,399,830
$635,697,625 $1,349,400,445 $1,090,588,189 $842,966,424

Foreign Subsidiaries’ Contribution

2019 2018 2017 2016
Net Net Net Net
Revenue Revenue Revenue Revenue
Income Income Income Income
Foreign Subsidiaries:
China/SG 20% -53% 25% 36% 25% 9% 31% -12%
Europe/Mexico 40% 73% 31% 14% 33% 76% 39% 93%
Germany/UK 20% -16% 23% 21% 18% 15% 2% -1%
(VIA/STI)
TOTAL 80% 4% 79% 71% 76% 101% 72% 80%

*Attributable to equity holders of IMI

Revenues are attributed to countries on the basis of the customer’s location. Certain customers that are
independent of each other but within the same group account for 10.55%, 12.58% and 14.97% of the IMI
group’s total revenue in 2018, 2017 and 2016, respectively.

Sales and Distribution

IMI’s global presence allows it to provide solutions to OEMs catering to regional and international markets.
Given IMI’s presence worldwide, it is able to provide its customers access to a number of services and
resources through its manufacturing facilities, engineering and design centers, and sales networks in Asia
(China, Singapore, Taiwan, Japan, and the Philippines), North America (U.S. and Mexico), and Europe
(Bulgaria, Czech Republic, France, and Germany). IMI Japan was registered and is domiciled in Japan to
serve as IMI’s front-end design and product development and sales support center. IMI Japan was
established to attract more Japanese OEMs to outsource the product development and manufacturing to
IMI.

In 2018, IMI continued to pursue opportunities in segments with the highest potential for growth and
customer impact. IMI’s core business pipeline expanded by US$320 million in new project awards, 72
percent of which are for automotive applications. By location, new program wins derived from Philippines
and China accounted for 61 percent while 39 percent were awarded to Europe and Mexico. Meanwhile,
Surface Technology International Enterprises Limited Enterprises continued to strengthen its industrial and
mil-aero capabilities with £25.6 million (US$33.2 million) major projects closed as of 2018. IMI also expects
VIA’s revenue growth to achieve a balanced portfolio across market verticals supported by its new contracts
for multiple automotive and industrial applications.

While IMI’s expanding global sales and distribution activities present a myriad of growth opportunities, they
also tend to increase the company’s exposure to potential legal and other proceedings arising out of its
operations, which may include intellectual property disputes as well as product quality and liability claims
(Please refer to the discussions below on the relevant risk factors). Such exposures may, in turn, directly
or indirectly affect IMI’s ability to realize its target revenues and operating margins from the design,
manufacturing, and engineering services it provides.

Mergers and Acquisition

In 2018, VIA agreed to form a new joint venture company with a Japanese entity through the acquisition of
65% ownership interest. The new joint venture company, VTS, serves the market for copper-based metal
mesh touch sensors in Japan. This will strengthen our portfolio of differentiated and value-added sensor

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technology for touch panels, touch-display modules, display head assemblies, and interactive display
systems across multiple markets and segments.

As part of our strategic initiatives, IMI acquired an 80% stake in Surface Technology International
Enterprises Limited, in 2017, a private limited company based in the United Kingdom thatprovides
electronics design and manufacturing solutions in both printed circuit board assembly and full box-build
manufacturing for high-reliability industries. IMI currently has two factories in the United Kingdom in Hook
and Poynton as well as one in Cebu, Philippines and operates a design center in London. The acquisition
will enable IMI to expand into the aerospace and defense markets while strengthening the industrial
segment in manufacturing as well as in technology development and engineering.

Competition

IMI is now a global technology solutions company with 21 manufacturing facilities with presence in more
than 10 countries, spanning through the continents of Asia, Americas, and Europe. IMI has technology
expertise and offerings in the whole breadth of EMS, power semiconductor assembly tests and services
and vehicle assembly.

IMI currently ranks 17th in the list of top 50 EMS providers in the world by the Manufacturing Market Insider
(March 2019 edition), based on 2018 revenues. In the automotive market, it is now the 5th largest EMS
provider in the world per New Venture Research.

For almost 40 years, IMI has developed its competence and value through cutting-edge engineering,
design, innovation, and collaboration with partners. From being largely product-centric, IMI is now moving
towards a technology-solutions approach by addressing efficiency, cost, quality, and productivity, while
closely working with customers in research and development.

IMI continues to leverage on its geographical footprint in providing services closer to our target markets.
This in turn strengthens its ability to mitigate risks over market volatilities and geo-political trends in the
global environment. IMI competes worldwide with focus on Europe, North America and Asia.

IMI specializes in highly reliable and quality electronic solutions for long product life cycle segments such
as automotive, industrial electronics and more recently, the aerospace market.

In the automotive segment, IMI designs and manufacture next-generation automotive camera systems,
displays, ADAS controllers, sensors, steering modules, and telematics. IMI also aims to accommodate more
Internet-of-Things (IoT) opportunities in the pipeline that will enhance its current capabilities. It is involved
in this sphere specifically in the areas of security, asset tracking, next generation displays, wireless
monitoring, smart meters, and communication systems in aerospace and defense. IMI also continues to
thrive in the production of various electronic systems that manage and control power in automotive and
industrial markets.

IMI’s performance is affected by its ability to compete and by the competition it faces from other global EMS
companies. While it is unlikely for EMS companies to pursue identical business activities, the industry
remains competitive. Competitive factors that influence the market for IMI’s products and services include:
product quality, pricing and timely delivery.

IMI is further dependent on its customers’ ability to compete and succeed in their respective markets for
the products that IMI manufactures.

There are two methods of competition: a) price competitiveness; and b) robustness of total solution (service,
price, quality, special capabilities or technology). IMI competes with EMS companies original design
manufacturer (ODM) manufacturers all over the world. Some of its fierce EMS provider competitors include
Flex, Plexus and Kimball.

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Flextronics is a Singapore-headquartered company with annual revenues of US$25.4 billion in 2018; its
cost structure is very competitive and it is vertically integrated as well. Flextronics poses competition to IMI
in the automotive and industrial segment.

Plexus, a U.S.-based EMS, recorded US$2.9 billion revenues in 2018. Plexus is a key EMS player in
industrial, medical and communication sectors, wherein IMI also plays in these markets. Kimball Electronics
has a manufacturing facility located in Jasper, Indian with revenues of US$1.1 billion in 2018. Kimball is a
competitor of IMI in the automotive, industrial and medical market.

Principal Suppliers

IMI’s suppliers are situated globally and are managed by the Global Procurement organization. IMI’s top
10 suppliers in 2018 comprise about 23% of global purchases. Purchases from suppliers generally
comprise of electronic components processed by our facilities. IMI strives to manage the quality of the
products supplied to ensure strict adherence to quality standards and only purchase from suppliers whose
product meet all applicable health and safety standards.

Transactions with Related Parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other
party or exercise significant influence over the other party in making financial and operating decisions.
Parties are also considered to be related if they are subject to common control or common significant
influence which include affiliates. Related parties may be individuals or corporate entities.

The IMI group, in its regular conduct of business, has entered into transactions with subsidiaries, affiliate,
and other related parties principally consisting of advances, loans and reimbursement of expenses. Sales
and purchases of goods and services as well as other income and expenses to and from related parties
are made at normal commercial prices and terms.

Terms and Conditions of Transactions with Related Parties

Outstanding balances at year-end are unsecured and settlement occurs in cash. On December 19, 2018,
IMI executed a letter assuming responsibility for all present and future contractual obligations of IMI China,
IMI Bulgaria, IMI Serbia, and IMI Mexico toward one of IMI’s customers. For the years ended December
31, 2018, 2017 and 2016, the IMI group has not recorded any impairment on receivables relating to amounts
owed by related parties. Impairment assessment is undertaken each financial year through examining the
financial position of the related parties and the markets in which the related parties operate.

Intellectual Property

The table below summarizes the intellectual properties registered with the Patent and Trademark Offices
in the United States, Europe and Asia:

▪ Auto camera – Minicube filed in December 2013

▪ In addition to certain patents, know-how and expertise is critical
▪ IMI is able to leverage its extensive experience in unique applications to other relevant products.

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Government Regulations and Approvals

IMI complies with all existing government regulations applicable to IMI and secures all government
approvals for its registered activities. Currently, there are no known probable governmental regulations that
may significantly affect the business of IMI.

IMI is subject to various national and local environmental laws and regulations in the areas where it
operates, including those governing the use, storage, discharge, and disposal of hazardous substances in
the ordinary course of its manufacturing processes. Among these are the Philippine Clean Water Act of
2004, the Ecological Solid Waste Management Act of 2000, the Philippine Clean Air Act of 1999, the Toxic
Substances and Hazardous and Nuclear Wastes Control Act of 1990 and the Philippine Sanitation Code.
See “Regulatory Framework” on page [•] of this Prospectus. If more stringent compliance or cleanup
standards under environmental laws or regulations are imposed, or the results of future testing and
analyses at IMI’s manufacturing plants indicate that it is responsible for the release of hazardous

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substances, IMI may be exposed to liability. Further, additional environmental matters may arise in the
future at sites where no problem is currently known or at sites that IMI may acquire in the future.

IMI closely coordinates with various government agencies and customers to comply with existing
regulations and continuously looks for ways to improve its environmental and safety standards.

Below is the detailed enumeration of its permits and licenses together with its pertinent details:

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IMI paid nominal fees required for the submission of applications for the above-mentioned environmental
laws.

Research and Development Activities

The D&D Team has significantly enhanced competencies in electronic and mechanical design, and
software development while also actively engaging in the development of platforms for the next generation
projects. Last year ushered a major shift to platform-based test solutions specifically for customers whose
products are manufactured in multiple factories. In the platform-based approach, a function tester was
configured for another product with a similar application or design. The test allowed high re-use of
technology—hardware and software and therefore enabling a more rapid tester development. Original
equipment manufacturers of automotive electronics and mechatronics products (window lifters, power
tailgate systems, etc.) which are assembled and tested in China, Mexico and Bulgaria benefited in this
strategy.

The global trends on ADAS continue to move our way. IMI’s existing camera production reached more than
six million units in 2018, exceeding volume and sales targets for the year. Interest in the areas of ADAS,
mirror replacement and driver monitoring have also brought in new opportunities from both new and existing
customers.

With these developments and opportunities, IMI continued to deliver new innovations to support the
manufacturing of high-performance automotive cameras. An IMI proprietary tester design for stray light test
measurement was introduced last year to screen out glare and flare in ADAS cameras. A technical paper
on this project won top recognition in the Philippine electronics trade show in 2018. IMI continually worked
with both Automotive Tier 1 and Tier 2 in areas where high levels of innovation happen such as mirror
replacement, driver monitoring, and autonomous driving. VIA Optronics, a subsidiary in Germany that
manufactures advanced display solutions, began to oversee the camera vision technology services to
support the various ADAS application requirements in automotive. Equipped with ten years of camera and
extreme vision technology development experience, the IMI group develops platform designs that can be
customized to reduce total development time. IMI spent the following for research and development
activities in the last three years:

% to Revenues

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• 1H2019 $2,838,536 0.45

• 2018 $6,287,175 0.47
• 2017 $3,506,223 0.32
• 2016 $3,601,736 0.43

Human Resources

IMI has a total workforce of 17,148 employees as of December 31, 2018, shown in the following table:

2017 2018 2019 Plan

Managers 490 473 480
Supervisors 1,950 1,622 1,559
Rank-and-File 3,108 3,064 4,423
Technicians/Operators 11,200 11,989 12,109
TOTAL 16,748 17,148 18,571

The relationship between management and employees has always been of solidarity and collaboration from
the beginning of its operations up to the present. IMI believes that open communication and direct
engagement between management and employees are the most effective ways to resolve workplace
issues.

IMI has existing supplemental benefits for its employees such as transportation and meal subsidy, group
hospitalization insurance coverage and non-contributory retirement plan. IMI has or will have no
supplemental benefits or incentive arrangements with its employees other than those mentioned above.

For further information on IMI, please refer to its 2018 Financial Reports and SEC17A which are available
in its website www.global-imi.com.

Risk Factors

AC Industrials’ businesses, financial condition and results of operation could be materially and adversely
affected by risks relating to the Company the Philippines and other foreign markets it operates in.

In early 2016, Ayala established AC Industrials, which houses the group’s investments in industrial
technologies. Through AC Industrials, Ayala is engaged in global manufacturing, emerging technologies,
and vehicle assembly, distribution and retail.

IMI represents the global manufacturing arm of AC Industrials. IMI is primarily a vertically integrated EMS
provider that offers design, engineering, manufacturing and other support services. IMI serves OEM that
participate in diverse industries, which include computing, communications, consumer, automotive,
industrial and medical electronics.

Through AC Motors, a group of companies under AC Industrials, Ayala actively participates in the Philippine
4-wheel and 2-wheel vehicle markets. AC Motors operates a network of Honda and Isuzu dealerships as
well as holds equity investments in HCPI and IPC. In addition, AC Motors also owns and manages the
Philippine distribution of Volkswagen, Kia and Maxus. AC Motors supports these businesses by also
managing its own dealerships that offer these brands. In the 2-wheel space, AC Motors assembles and
exports KTM bikes through a partnership with KTM AG and is the Philippine distributor of KTM bikes. AC
Motors depends largely on the market demand of its 4-wheel and 2-wheel vehicles.

AC Industrials’ investments in emerging technologies are focused on MT Technologies and Merlin Solar
Technologies. MT Technologies produces tools, provides modelling services and manufactures parts for

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German OEMs. Merlin Solar Technologies offers specialty solar solutions for unique and demanding
applications.

AC Motors

AC Motors’ Volkswagen, Kia and Maxus businesses are relatively new participants in the
automotive industry and has limited track records operating in that industry.

As a relatively new participants in the automotive industry, AC Motors’ faces many challenges, including:
(a) developing a positive reputation in the automotive industry; (b) attracting and retaining customers
and managers in the automotive industry; (c) successfully competing with other brands offering similar
products in the same markets, some of which may be larger in size, have a longer operating history and
have greater expertise and financial resources; and (d) interacting and developing a relatively new
relationship with the relevant regulatory bodies. In addition, AC Motors’ Volkswagen, Kia and Maxus
groups may incur substantial expenditures in bidding for, acquiring and developing its business. There
is no assurance that AC Motors will be a successful participant in the automotive industry, or that it will
not suffer significant losses that could have a material adverse effect on its business, financial condition
and results of operations.

AC Motors’ businesses may be affected by tax legislations.

In January 2018, the TRAIN Law was implemented. This new law raised the excise taxes for vehicles,
and as a result, increased the prices for most vehicles in the market. The higher prices have already
caused the Philippine automotive sales to fall in 2018. AC Motors has already been impacted by this and
there is a risk that the Philippine automotive industry may remain weak because of the recent excise
taxes and further possible changes in tax laws.

AC Motors’ KTM group is a relatively new participant in the motorcycle industry and has a limited
track record operating in that industry.

As a new entrant in the adjacent motorcycle market, AC Motors has limited direct experience in the
sector. There are, correspondingly, startup risks and operational uncertainties as the management team
continues to execute business plans. AC Motors therefore relies heavily on its lengthy automotive
experience to mitigate any challenges it may face in this expansion effort, some of which are: (a) premium
positioning vs. volume/mainstream motorcycle brands; (b) sustaining production with only local sales for
the initial year of production; and (c) informal industry structure of motorcycle market vs. experience in
the more structured auto industry.

AC Motors’ Honda and Isuzu businesses are highly reliant on the strategies and product offerings
of HCPI and IPC, respectively.

With significant shares in both Honda and Isuzu sales in the Philippines, AC Motors’ dealers seek to
influence their respective importers’ product offers and strategic decisions. However, ultimately directions
set by the importers may not fully align with AC Motors’ dealers’ interests.

New Businesses

AC Industrials’ recent acquisitions may require some time before contributing to the overall
performance of AC Industrials.

AC Industrials recently completed key acquisitions in line with its strategic goals of deepening its
participation in the automotive value chain, via acquiring selected pieces of key technology, and
strengthening its global manufacturing capabilities. VIA Optronics GmbH (“VIA”), VTS-Touchsensor Co.,
Ltd., Surface Technology International Enterprises Limited, MT Technologies, Merlin Solar Technologies
and the C-Con Group are all currently in various stages of integration with AC Industrials. These

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businesses are based in foreign countries with significant geographic and cultural differences. In addition,
they are all relatively early in their development as operating businesses of AC Industrials and will require
further guidance, resources and other forms of support from Ayala to fully realize their value. Because
of these hurdles and uncertainties, there is no assurance that the projected financial, operating and
strategic benefits of these acquisitions will be realized.

Integrated Micro-Electronics, Inc.

IMI’s operating results may significantly fluctuate from period to period.

There is a risk that IMI’s operating results may fluctuate significantly due to various factors including but not
limited to changes in demand for its products and services, customers’ sales outlook, purchasing patterns,
and inventory adjustments, changes in the types of services provided to customers, variations in the,
volume of products, adjustments in the processes and manner of delivery of services, as well as alterations
to product specifications on account of complexity of product maturity, the extent to which IMI can provide
vertically integrated services for a product. The result is also affected by IMI’s effectiveness in managing its
manufacturing processes, controlling costs, and integrating any potential future acquisitions, IMI’s ability to
make optimal use of its available manufacturing capacity, changes in the cost and availability of labor, raw
materials, and components, which affect its margins and its ability to meet delivery schedules, and the
ability to manage the timing of its component purchases so that components are available when needed
for production while avoiding the risks of accumulating inventory in excess of immediate production needs.
Fluctuations in operating results may also be experienced by IMI on account of the advent of new
technology and customer qualification of technology employed in the production, and the occurrence of any
changes in local conditions or occurrence of events that may affect production volumes and costs of
production, such as, but not limited to labor conditions, political instability, changes in law and regulation,
economic disruptions or changes in economic policies affecting flow of capital, entry of competition,
substantial rate hikes of utilities required for production. IMI may also experience possible business
disruptions as a result of natural events such as fire and explosion due to presence and use of flammable
materials in the operations, or force majeure.

The factors identified above and other risks discussed in this section affect IMI’s operating results from time
to time.

Some of these factors are beyond IMI’s control. IMI may not be able to effectively sustain its growth due to
restraining factors concerning corporate competencies, competition, global economies, and market and
customer requirements. To meet the needs of its customers, IMI has expanded its operations in recent
years and, in conjunction with the execution of its strategic plans, IMI expects to continue expanding in
terms of geographical reach, customers served, products, and services. To manage its growth, IMI must
continue to enhance its managerial, technical, operational, and other resources.

IMI’s ongoing operations and future growth may also require funding either through internal or external
sources. There can also be no assurance that any future expansion plans will not adversely affect IMI’s
existing operations since execution of said plans may involve challenges. For instance, IMI may be required
to be confronted with such issues as shortages of production equipment and raw materials or components,
capacity constraints, difficulties in ramping up production at new facilities or upgrading or expanding existing
facilities, and training an increasing number of personnel to manage and operate those facilities.
Compounding these issues are other restraining factors such as more aggressive efforts of competition in
expanding business, volatility in global economies and market and customer requirements. All these
challenges could make it difficult for IMI to implement any expansion plans successfully and in a timely
manner.

In response to a very dynamic operating environment and intense industry competition, IMI focuses on
high-growth/high-margin specialized product niches, diversifies its markets and products, engages in higher
value add services, improves its cost structure, and pursues strategies to grow existing accounts.

IMI is highly dependent on an industry that is characterized by rapid technological changes.

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The demand for IMI’s solutions is derived from the demand of end customers particularly for end-use
applications in the computing, communications, consumer, automotive, industrial and medical electronics
industries. These industries have historically been characterized by rapid technological change, evolving
industry standards, and changing customer needs. There can be no assurance that IMI will be successful
in responding to these industry demands. New services or technologies may also render IMI’s existing
services or technologies less competitive. If IMI does not promptly make measures to respond to
technological developments and industry standard changes, the eventual integration of new technology or
industry standards or the eventual upgrading of its facilities and production capabilities may require
substantial time, effort, and capital investment.

IMI is focusing on longer life cycle industries such as automotive, industrial and telecommunication
infrastructure to reduce the volatility of model and design changes. IMI also keeps itself abreast of trends
and technology development the electronics industry and is continuously conducting studies to enhance its
technologies, capabilities and value proposition to its customers. It defines and executes technology road
maps that are aligned with market and customer requirements.

The industry where IMI operates in does not serve, generally, firm or long-term volume purchase
commitments.

Save for specific engagements peculiar to certain products and services required, IMI’s customers do not
generally contract for firm and long-term volume purchase. Customers may place lower-than-expected
orders, cancel existing or future orders or change production quantities. There are no guaranteed or fixed
volume orders that are committed on a monthly or periodic basis.

In addition, IMI makes significant investment decisions, including determining the levels of business that it
will seek and accept capacity expansion, personnel needs, and other resource requirements. These key
decisions are ultimately based on estimates of customer long-term requirements. The rapid changes in
demand for its products reduce its ability to estimate accurately long-term future customer requirements.
Thus, there is the risk that resource investments are not optimized at a certain period.

In order to manage the effects of these uncertainties, customers are required to place firm orders within the
manufacturing lead time to ensure delivery. IMI does not solely rely on the forecast provided by the clients.
By focusing on the longer cycle industry segments, the volatility that comes with rapid model changes is
reduced and IMI is able to have a more accurate production planning and inventory management process.

Buy-back agreements are also negotiated by IMI in the event there are excess inventory when customer
products reach their end-of-life To the extent possible, IMI’s contract include volume break pricing, and
materials buy-back conditions to taper the impact of sudden cancellations, reductions, and delays in
customer requirements.

IMI may encounter difficulties in connection with its global expansion.

IMI’s globalization strategy has transformed it from a Philippines-centric company into a global network with
manufacturing and engineering facilities as well as sales offices in Asia, Europe, and North America. This
global expansion may expose IMI to potential difficulties that include diversion of management’s attention
from the normal operations of IMI’s business, potential loss of key employees and customers of the acquired
companies, physical, legal, cultural, and social impediments in managing and integrating operations in
geographically dispersed locations, lack of experience operating in the geographic market of the acquired
business, reduction in cash balance and increases in expenses and working capital requirements, which
may reduce return on invested capital, potential increases in debt, which may increase operating costs as
a result of higher interest payments, and complexities in integrating acquired businesses into existing
operations, which may prevent it from achieving, or may reduce the anticipated synergy.

IMI’s acquisitions of new companies or creation of new units, whether onshore or offshore, may also have
an immediate financial impact to IMI due to the dilution of the percentage of ownership of current

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stockholders if the acquisition requires any payment in the form of equity of IMI, the periodic impairment of
goodwill and other intangible assets, and liabilities, litigations, and/or unanticipated contingent liabilities
assumed from the acquired companies.

If IMI is not able to successfully manage these potential difficulties, any such acquisitions may not result in
material revenue enhancement or other anticipated benefits or even adversely affect its financial and/or
operating condition.

To limit its exposure, IMI performs a thorough assessment of the upside and downside of any merger or
acquisition. Supported by a team which focuses on business development, finance, legal, and engineering
units, the vision, long-term strategy, compatibility with the culture, customer relationship, technology, and
financial stability of IMI to be acquired is carefully examined thorough due diligence to ensure exposures
are mitigated through proper warranties. In addition, IMI looks at acquisitions that are immediately accretive
to the P&L of IMI. The decision is then reviewed and endorsed by the Finance Committee and approved
by the Board. IMI carefully plans any merger or acquisition for a substantial period prior to closing date.
Prior to closing of transactions, IMI forms an integration team and formulates detailed execution plans to
integrate the key functions of the acquired entity into IMI.

IMI may not be able to mitigate the effects of declining prices of goods over the life cycles of its
products or as a result of changes in its mix of new and mature products, mix of turnkey and
consignment business arrangements, and lower prices offered by competition.

The price of IMI’s products tends to decline over the later years of the product life cycle, reflecting decreased
costs of input components, improved efficiency, decreased demand, and increased competition as more
manufacturers are able to produce similar or alternative products. The gross margin for manufacturing
services is highest when a product is first developed but as products mature, average selling prices of a
product drop due to various market forces resulting in gross margin erosion. IMI may be constrained to
reduce the price of its service for more mature products in order to remain competitive against other
manufacturing services providers. This is most apparent in the automotive segment, where the reduction
has historically been observed to occur between the first two to three years. IMI’s gross margin may further
decline to be competitive with the lower prices offered by competition or to absorb excess capacity, liquidate
excess inventories, or restructure or attempt to gain market share.

IMI is moving towards a higher proportion of contracting under a turnkey production (with IMI providing
labor, materials and overhead support), as compared to those under a consignment model, indicating a
possible deterioration in its margins. IMI will also need to deploy larger amounts of working capital for
turnkey engagements.

To mitigate the effects of price declines in IMI’s existing products and to sustain margins, IMI continues to
improve its production efficiency by increasing yields, increasing throughputs through LEAN and six sigma
manufacturing process. In addition, IMI continues to leverage on its purchase base and supplier programs
to avail of discounts and reduced costs in component prices. It also utilizes its global procurement network
and supply chain capabilities to reduce logistics costs for components including inventory levels. IMI also
intensifies its effort to contract with customers with higher-margin products most of which involve higher
engineering value add and more complex box build or system integration requirements.

IMI operates in a highly competitive industry.

Some of IMI’s competitors in the industry may have greater design, engineering, manufacturing, financial
capabilities, or superior resources than IMI. Customers evaluate EMS and ODMs based on, among other
things, global manufacturing capabilities, speed, quality, engineering services, flexibility, and costs. In
outsourcing, OEMs seek to reduce cost. In addition, major OEMs typically outsource the same type of
products to at least two or three outsourcing partners in order to diversify their supply risks. The competitive
nature of the industry may result in substantial price competition. IMI faces increasing challenges from
competitors who are able to put in place a competitive cost structure by consolidating with or acquiring
other competitors, relocating to lower cost areas, strengthening supply chain partnerships, or enhancing

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solutions through vertical integration, among others. IMI’s customers may opt to transact with IMI’s
competitors instead of IMI or if IMI fails to develop and provide the technology and skills required by its
customers at a rate comparable to its competitors. There can be no assurance that IMI will be able to
competitively develop the higher value add solutions necessary to retain business or attract new customers.
There can also be no assurance that it will be able to establish a compelling advantage over its competitors.

The industry could become even more competitive if OEMs fail to significantly increase their overall levels
of outsourcing. Increased competition could result in significant price competition, reduced revenues, lower
profit margins, or loss of market share, any of which would have a material adverse effect on IMI’s business,
financial condition, and results of operations.

IMI regularly assesses the appropriate pricing model (so as to ensure that it is strategic/value based or
demand based, among others) to be applied on its quotation to existing or prospective customers. IMI is
also strengthening its risk management capabilities to be able to turn some of the risks (e.g., credit risks)
into opportunities to gain or maintain new or existing customers, respectively. IMI also continues to develop
high value-add services that fit the dynamic markets it serves. It continues to enhance capabilities in design
and development, advanced manufacturing engineering, test and systems development, value engineering,
and supply chain management to ensure an efficient product realization experience for its customers.

In addition, IMI’s size, stability and geographical reach allow it to attract global OEMs customers that look
for stable partners that can service them in multiple locations. This is evidenced by increasing number of
global contracts that IMI is able to develop and have multiple sites serving single customers.

Focusing on high value automotive (such as those for ADAS and safety-related, power modules and
electronic control units, among others), industrial and medical segments where strict performance and
stringent certification processes are required, IMI is able to establish a high barrier of entry, business
sustainability and better pricing. Generally, IMI has observed that it is usually difficult for customers in these
industries to shift production as they would have to go through a long lead time in the certification process.
The direction IMI has taken resulted in the rise of IMI’s ranking in the global and automotive EMS spaces.

IMI may be subject to reputation and financial risks due to product quality and liability issues.

The contracts IMI enters into with its customers, especially customers from the automotive and medical
industry, typically include warranties that its products will be free from defects and will perform in
accordance with agreed specifications. To the extent that products delivered by IMI to its customers do not,
or are not deemed to, satisfy such warranties, IMI could be responsible for repairing or replacing any
defective products, or, in certain circumstances, for the cost of effecting a recall of all products which might
contain a similar defect in an occurrence of an epidemic failure, as well as for consequential damages.
Defects in the products manufactured by IMI adversely affect its customer relations, standing and reputation
in the marketplace, result in monetary losses, and have a material adverse effect on its business, financial
condition, and results of operations. There can be no assurance that IMI will be able to recover any losses
incurred as a result of product liability in the future from any third party.

In order to prevent or avoid a potential breach of warranties which may expose IMI to liability, IMI performs
a detailed review and documentation of the manufacturing process that is verified, audited and signed-off
by the customers. In addition, customers are encouraged, and in some cases, required to perform official
audits of IMI’s manufacturing and quality assurance processes, to ensure compliance with specifications.
IMI works closely with customers to define customer specifications and quality requirements, and follow
closely these requirements to mitigate future product liability claims. IMI also insures itself on product liability
and recall on a global basis.

IMI’s production capacity may not correspond precisely to its production demand.

IMI’s customers may require it to have a certain percentage of excess capacity that would allow IMI to meet
unexpected increases in purchase orders. On occasion, however, customers may require rapid increases
in production beyond IMI’s production capacity, and IMI may not have sufficient capacity at any given time

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to meet sharp increases in these requirements. On the other hand, there is also a risk of the underutilization
of the production line, which may slightly lower IMI’s profit margins. In response, IMI makes the necessary
adjustments in order to have a match between demand and supply. In the case of a lack in supply, IMI
equips itself with flexible systems that allow it to temporarily expand its production lines in order to lower
the overhead costs, and then make corresponding increases in its capacity when there is a need for it as
well.

To soften the impact of this, IMI closely coordinates with customers to provide the parties with regular
capacity reports and action plan/s for common reference and future capacity utilizations. IMI also closely
collaborates with its customers to understand the required technology roadmaps, anticipate changes in
technological requirements, and discuss possible future solutions.

IMI is subject to certain restrictive debt covenants.

Some of IMI’s existing loan agreements contain covenants that limit its ability to, among other things, incur
long-term debt to the extent that such additional indebtedness may result to it breaching a prescribed net
debt-to-equity ratio.

Compliance by IMI with these covenants may necessitate it implementing operational adjustments or
obtaining bridge financing from its stockholders.

IMI is closely tracking its financial ratios on a monthly basis and is implementing measures to ensure the
non-breaching of these financial ratios.

IMI may be involved in intellectual property disputes.

IMI’s business depends in part on its ability to provide customers with technologically sophisticated
products. IMI’s failure to protect its intellectual property or the intellectual property of its customers exposes
it to legal liability, loss of business to competition and could hurt customer relationships and affect its ability
to obtain future business. It could incur costs in either defending or settling any intellectual property
disputes. Customers typically require that IMI indemnify them against claims of intellectual property
infringement. If any claims are brought against IMI’s customers for such infringement, whether these have
merit or not, it could be required to expend significant resources in defending such claims. In the event IMI
is subjected to any infringement claims, it may be required to spend a significant amount of money to
develop non-infringing alternatives or obtain licenses. IMI may not be successful in developing such
alternatives or in obtaining such licenses on reasonable terms or at all, which could disrupt manufacturing
processes, damage its reputation, and affect its profitability.

Since IMI is not positioned as an ODM, the likelihood of IMI infringing upon product-related intellectual
property of third parties is significantly reduced. Product designs are prescribed by and ultimately owned
by the customer.

IMI observes strict adherence to approved processes and specifications and adopts appropriate controls
to ensure that IMI’s intellectual property and that of its customers are protected and respected. It
continuously monitors compliance with confidentiality undertakings of IMI and management. As of the date
of this Prospectus, there has been no claim or disputes involving IMI or between IMI and its customers
involving any intellectual property.

Demand for services in the EMS industry depends on the performance and business of the
industry’s customers as well as the demand from end consumers of electronic products.

The performance and profitability of IMI’s customers’ industries are partly driven by the demand for
electronic products and equipment by end-consumers. If the end-user demand is low for the industry’s
customers’ products, companies in IMI’s industry may see significant changes in orders from customers
and may experience greater pricing pressures. Therefore, risks that could harm the customers of its industry
could, as a result, adversely affect IMI as well. These risks include the customer’s inability to manage their

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operations efficiently and effectively, the reduced consumer spending in key customers’ markets, the
seasonality demand for their products, and failure of the customer’s products to gain widespread
commercial acceptance.

The impact of these risks was very evident in the aftermath of the global financial crisis which resulted in
global reduction of demand for electronics products by end-customers. IMI mitigates the impact of industry
downturns on demand by rationalizing excess labor and capacity to geographical areas that are most
optimal, and by initiating cost containment programs. With indications of global financial recovery already
in place, IMI has been able to re-hire some of its employees. There are also electronics requirements
resulting from global regulations, such as those for improving vehicle safety and promoting energy-efficient
technologies that would increase the demand for electronic products and equipment.

IMI continuously addresses its concentration risks. There is no single customer that IMI is dependent on or
accounts for more than 15% of IMI’s revenues. IMI also serves global customers which are not concentrated
on a specific geographic market.

IMI’s industry is dependent on the continuous growth of outsourcing by OEMs.

IMI belongs to an industry that is dependent on the strong and continuous growth of outsourcing in the
communications, consumer automotive, industrial, and medical electronics industries where customers
choose to outsource production of certain components and parts, as well as functions in the production
process. A customer’s decision to outsource is affected by its ability and capacity for internal manufacturing
and the competitive advantages of outsourcing.

IMI’s industry depends on the continuing trend of increased outsourcing by its customers. Future growth in
its revenue depends on new outsourcing opportunities in which it assumes additional manufacturing and
supply chain management responsibilities from its customers. To the extent that these opportunities do not
materialize, either because the customers decide to perform these functions internally or because they use
other providers of these services, IMI’s future growth could be limited.

IMI believes that its global footprint with manufacturing operations in Asia, Europe, and North America, its
global supply chain systems and capabilities, and its design services will continue to provide strategic
advantages for customers to outsource parts of their product development and manufacturing processes
to IMI.

IMI’s industry may experience shortages in, or rises in the prices of components, which may
adversely affect business.

There is a risk that IMI will be unable to acquire necessary components for its business as a result of strong
demand in the industry for those components or if suppliers experience any problems with production or
delivery.

IMI is often required by its customers to source certain key components from customer-nominated and
accredited suppliers only, and it may not be able to obtain alternative sources of supply should such
suppliers be unable to meet the supply of key components in the future. Shortages of components could
limit its production capabilities or cause delays in production, which could prevent it from making scheduled
shipments to customers.

If IMI is unable to make scheduled shipments, it may experience a reduction in its sales, an increase in
costs, and adverse effects on its business. Component shortages may also increase costs of goods sold
because it may be required to pay higher prices for components in short supply and redesign or reconfigure
products to accommodate substitute components.

To the extent possible, IMI works closely with customers to ensure that there are back up suppliers or
manufacturers for customer-supplied components or components supplied by customer-nominated
suppliers to mitigate uncertainties in the supply chain. In addition, IMI has established supplier certification

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and development programs designed to assess and improve suppliers’ capability in ensuring uninterrupted
supply of components to IMI.

Any shortage of raw materials or components could impair IMI’s ability to ship orders of its products
in a cost-efficient manner or could cause IMI to miss its delivery requirements of its retailers or
distributors, which could harm IMI’s business.

The ability of IMI’s manufacturers to supply its products is dependent, in part, upon the availability of raw
materials and certain components. IMI’s manufacturers may experience shortages in the availability of raw
materials or components, which could result in delayed delivery of products to IMI or in increased costs to
it. Any shortage of raw materials or components or inability to control costs associated with manufacturing
could increase the costs for IMI’s products or impair its ability to ship orders in a timely cost-efficient manner.
As a result, it could experience cancellation of orders, refusal to accept deliveries, or a reduction in IMI’s
prices and margins, any of which could harm IMI’s financial performance and results of operations. Other
than for customer-nominated suppliers or specialty components for the manufacture of specific products,
IMI is not dependent on a single supplier for its raw materials.

IMI may be exposed to risk of inventory obsolescence and working capital tied up in inventories.

As an EMS provider, IMI may be exposed to a risk of inventory obsolescence because of rapidly changing
technology and customer requirements. Inventory obsolescence may require it to make adjustments to
write down inventory to the lower of cost or net realizable value, and its operating results could be adversely
affected. IMI is cognizant of these risks and accordingly exercises due diligence in materials planning. IMI
also provides in its inventory systems and planning a reasonable amount for obsolescence. It is working
with key suppliers to establish supplier-managed inventory arrangements that will mutually reduce the risk.
In addition, IMI often negotiates buy back arrangements with customers where, in the event the customers’
purchase orders are delayed, canceled, or enter in the end-of-life phase, the customers assume the risk
and compensate IMI for the excess inventory.

IMI may, from time to time, be involved in legal and other proceedings arising out of its operations.

IMI may, from time to time, be involved in disputes with its employees and various parties involved in its
manufacturing operations, including contractual disputes with customers or suppliers, labor disputes with
workers or be exposed to damage or personal liability claims. Regardless of the outcome, these disputes
may lead to legal or other proceedings and may result in substantial costs, delays in IMI’s development
schedule, and the diversion of resources and management’s attention. IMI may also have disagreements
with regulatory bodies in the course of its operations, which may subject it to administrative proceedings
and unfavorable decisions that result in penalties and/or delay the development of its projects. In such
cases, IMI’s business, financial condition, results of operations and cash flows could be materially and
adversely affected.

IMI is highly dependent on the continued service of its directors, members of senior management
and other key officers.

IMI’s directors, members of its senior management, and other key officers have been an integral part of its
success, and the experience, knowledge, business relationships and expertise that would be lost should
any such persons depart could be difficult to replace and may result in a decrease in IMI’s operating
efficiency and financial performance. Key executives and members of management of IMI include CEO,
President and COO, CFO, Chief Procurement Officer, Leaders of Strategic Business Development and
Mergers and Acquisitions, Global Sales and Marketing, Global HR, Global Design and Development, Global
Advanced Manufacturing Engineering, and Global Quality, and Plant General Managers (GMs). In the event
that IMI loses the services of any such person and is unable to fill any vacant key executive or management
positions with qualified candidates, or if the qualified individual takes time to learn the details of IMI, IMI’s
business and results of operations may be adversely affected.

Any deterioration in IMI’s employee relations could materially and adversely affect IMI’s operations.

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IMI’s success depends partially on the ability of IMI, its contractors, and its third-party marketing agents to
maintain productive workforces. Any strikes, work stoppages, work slowdowns, grievances, complaints or
claims of unfair practices or other deterioration in IMI’s, its contractors’ or its third-party marketing agents’
employee relations could have a material and adverse effect on IMI’s financial condition and results of
operations. There have been no historical events related to strikes or protests from its employees or unions,
given the well-established employee relations of IMI.

IMI’s success depends on attracting, engaging, and retaining key talents, including skilled research
and development engineers.

In order to sustain its ability to complete contracted services and deliver on commitments and promote
growth, IMI will have to continuously attract, develop, engage and retain skilled workforce highly capable
to achieve business goals. IMI recognizes that its competitiveness is dependent on its key talent pipeline,
including leadership, talent and skill pool, and succession plan.

IMI continuously identifies top-caliber candidates and keeps the pipeline full to be ready to assume new
roles and fuel growth. IMI has a strong ability to hire in terms of the quality of recruits as well as in scale.
Specifically, there is strong recruitment in Philippines and in China, having been able to tie up with
universities. In the case of an immediate need for to provide manpower, there are contractual agreements
at hand to meet the demand. They have the ability to rapidly organize and train skilled workers for new
products and services and retain qualified personnel.

IMI also leverages on its global reach to identify, recruit and develop the right employees who can be
deployed to the various operating units or divisions of IMI. It also implements on a regular basis pertinent
employee training and development programs, including a cadetship program that enables it to tap and
employ capable graduates from different leading universities. IMI has implemented proactive measures to
retain employees through sound retention programs, encouraging work-life balance among its employees,
and providing structured career development paths to promote career growth within the organization and
loyalty to IMI.

RISKS RELATING TO COUNTRIES WHERE THE IMI OPERATES (INCLUDING THE PHILIPPINES)

IMI conducts business in various jurisdictions, exposing it to business, political, operational,

financial, and economic risks due to its operations in these jurisdictions.

There is no assurance that there will be no occurrence of an economic slowdown in the countries where
IMI operates, including the Philippines. Factors that may adversely affect an economy include but are not
limited to:

• decreases in business, industrial, manufacturing or financial activity in the Philippines or in the

global market,
• scarcity of credit or other financing, resulting in lower demand for products and services
• the sovereign credit ratings of the country,
• exchange rate fluctuations,
• a prolonged period of inflation or increase in interest rates,
• changes in the relevant government's taxation policies,
• natural disasters, including typhoons, earthquakes, fires, floods and similar events,
• political instability, terrorism or military conflict, and
• other regulatory, political or economic developments in or affecting IMI

Notwithstanding the foregoing, the global operations, marketing, and distribution of IMI’s products inherently
integrate the impact of any economic downturn affecting a single country where IMI operates, and enables
IMI to shift the focus of its operations to other jurisdictions.

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IMI’s manufacturing and sales operations are located in a number of countries throughout Asia, Europe,
and North America. As a result, it is affected by business, political, operational, financial, and economic
risks inherent in international business, many of which are beyond IMI’s control, including difficulties in
obtaining domestic and foreign export, import, and other governmental approvals, permits, and licenses,
and compliance with foreign laws, which could halt, interrupt, or delay IMI’s operations if it is unable to
obtain such approvals, permits, and licenses, and could have a material adverse effect on IMI’s results of
operations.

Changes in law including unexpected changes in regulatory requirements affect IMI’s business plans, such
as those relating to labor, environmental compliance and product safety. Delays or difficulties, burdens, and
costs of compliance with a variety of foreign laws, including often conflicting and highly prescriptive
regulations also directly affect IMI’s business plans and operations, cross-border arrangements and the
inter-company systems.

Increases in duties and taxation and a potential reversal of current tax or other currently favorable policies
encouraging foreign investment or foreign trade by host countries leading to the imposition of government
controls, changes in tariffs, or trade restrictions on component or assembled products may result in adverse
tax consequences, including tax consequences which may arise in connection with inter-company pricing
for transactions between separate legal entities within a group operating in different tax jurisdictions, also
result in increases in cost of duties and taxation.

Actions which may be taken by foreign governments pursuant to any trade restrictions, such as “most
favored nation” status and trade preferences, as well as potential foreign exchange and repatriation controls
on foreign earnings, exchange rate fluctuations, and currency conversion restrictions may adversely affect
IMI’s business and financial condition.

Under existing foreign exchange controls in the Philippines, as a general rule, Philippine residents may
freely dispose of their foreign exchange receipts and foreign exchange may be freely sold and purchased
outside the Philippine banking system. Restrictions exist on the sale and purchase of foreign exchange in
the Philippine banking system. In the past, the Government has instituted restrictions on the ability of foreign
companies to use foreign exchange revenues or to convert Philippine pesos into foreign currencies to
satisfy foreign currency- denominated obligations, and no assurance can be given that the Government will
not institute such or other restrictive exchange policies in the future.

A substantial portion of IMI’s manufacturing operations is located in China, which has regulated financial
and foreign exchange regime. IMI continuously evaluates the options available to the organization to ensure
maximum usage of excess liquidity. Among others, excess liquidity may be repatriated out of China through
dividend payments, payment of management service or royalty fees, use of leading and lagging payment,
and transfer pricing.

Also, because of China’s role in many important supply chains, its exports contain a large amount of value
added applied in other Asian economies. At least as importantly, China has become a principal final
destination for Asian exports. As China, is hit by US trade tariffs, the spill-over into other APAC economies
takes place via international supply chains and changes in China’s domestic demand.

Environmental laws applicable to IMI’s projects could have a material adverse effect on its business,
financial condition or results of operations.

IMI cannot predict what environmental legislation or regulations will be amended or enacted in the future,
how existing or future laws or regulations will be enforced, administered or interpreted, or the amount of
future expenditures that may be required to comply with these environmental laws or regulations or to
respond to environmental claims. The introduction or inconsistent application of, or changes in, laws and
regulations applicable to IMI’s business could have a material adverse effect on its business, financial
condition and results of operations.

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There can be no assurance that current or future environmental laws and regulations applicable to IMI will
not increase the costs of conducting its business above currently projected levels or require future capital
expenditures. In addition, if a violation of any environmental law or regulation occurs or if environmental
hazards on land where IMI’s projects are located cause damage or injury to buyers or any third party, IMI
may be required to pay a fine, to incur costs in order to cure the violation and to compensate its buyers and
any affected third parties.

Any political instability in the Philippines and the countries where IMI operates may adversely affect
the business operations, plans, and prospects of IMI.

The Philippines has from time to time experienced severe political and social instability. The Philippine
Constitution provides that, in times of national emergency, when the public interest so requires, the
Government may take over and direct the operation of any privately-owned public utility or business. The
impact of the Brexit upon the technology and innovation sector largely depends upon what model the UK
adopts for its relationship with the EU. If the UK remains in the European Economic Area then the changes
may be minimal. If the UK joins the European Free Trade Association and negotiates sector specific access
to the single market then the landscape depends on the exact nature of that relationship. If the UK distances
itself further from the EU then the changes may be more extensive.

Macro-economic conditions of different countries where IMI operates may adversely affect IMI’s
business and prospectus.

Historically, the Philippines’ sovereign debt has been rated relatively low by international credit rating
agencies. Although the Philippines’ long-term foreign currency-denominated debt was recently upgraded
by each of Standard & Poor’s, and Moody’s to investment-grade, no assurance can be given that Standard
& Poor’s, or Moody’s or any other international credit rating agency will not downgrade the credit ratings of
the Government in the future and, therefore, Philippine companies. Any such downgrade could have an
adverse impact on the liquidity in the Philippine financial markets, the ability of the Government and
Philippine companies, including AC Industrials, to raise additional financing and the interest rates and other
commercial terms at which such additional financing is available.

In addition, some countries in which IMI operates, such as the Czech Republic and Mexico, have
experienced periods of slow or negative growth, high inflation, significant currency devaluations, or limited
liability of foreign exchange. In countries such as China and Mexico, governmental authorities exercise
significant influence over many aspects of the economy which may significantly affect IMI.

Furthermore, the risk of imposing big border tax to US manufacturers that move jobs outside the country
will have impact to where IMI operates, particularly Mexico. In January 2017, US President Donald Trump
has met with executives of the Big Three U.S. automakers and told the executives of General Motors, Ford
and Fiat Chrysler that he was going to make it easier for them to invest in the country. He will reduce the
taxes and unnecessary regulations to those manufacturing in the United States. Trump began singling out
companies that were planning investments in Mexico that involved moving American jobs. Trump promised
a big border tax on cars shipped from Mexico into the United States.

On an as-need basis, IMI seeks the help of consultants and subject matter experts for changes in laws and
regulations that may have a significant impact in IMI’s business operations. It also maintains good
relationship with local government, customs, and tax authorities through business transparency and
compliance and/or payment of all government-related assessments in a timely manner. IMI has been able
to overcome major crises brought about by economic and political factors affecting the countries where it
operates. The strong corporate governance structure of IMI and its prudent management team are the
foundations for its continued success. IMI also constantly monitors its macroeconomic risk exposure,
identifies unwanted risk concentration, and modifies its business policies and activities to navigate such
risks.

There is no single customer that IMI is dependent on or accounts for more than 15% of IMI’s revenues. IMI
also serves global customers which are not concentrated on a specific geographic market.

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Severe macroeconomic contractions may conceivably lead IMI to tweak or modify its investment decisions
to meet the downturn. As a holding company, IMI affirms the principles of fiscal prudence and efficiency in
the operations to its subsidiaries operating in various countries.

IMI faces risks of international expansion and operation in multiple jurisdictions.

IMI expects to have an international customer base which may require worldwide service and support. IMI
may expand its operations internationally and enter additional markets, which will require significant
management attention. Any such expansion may cause a strain in existing management resources.

The distances between IMI, the customers, and the suppliers globally, create a number of logistical and
communications challenges, including managing operations across multiple time zones, directing the
manufacture and delivery of products across significant distances, coordinating the procurement of raw
materials and their delivery to multiple locations, and coordinating the activities and decisions of IMI’s
management team, the members of which are spread out internationally.

While IMI tries to keep its local expertise, it established global functions to ensure that there is adequate
coordination of activities. In addition, the availability and use of cell phones, e-mails, and internet-based
communication tools by IMI resulted in more efficient and timely coordination of activities and decision
making by management from different sites and countries.

IMI aggressively pursues hiring of experienced international managers and staff globally. This enables IMI
to ensure that it has sufficient manpower complement possessed with the required skills and experience to
work with customers, vendors, and other partners in and out of the relevant country where it operates.

Natural or other catastrophes, including severe weather conditions and epidemics, that may
materially disrupt IMI’s operations, affect its ability to complete projects and result in losses not
covered by its insurance.

The Philippines has experienced a number of major natural catastrophes over the years, including
typhoons, droughts, volcanic eruptions and earthquakes. In October 2013, a 7.2 magnitude earthquake
affected Cebu and the island of Bohol, and in November 2013, Super Typhoon Haiyan (called Yolanda in
the Philippines) caused destruction and casualties of an as yet undetermined amount, in Tacloban, certain
parts of Samar, and certain parts of Cebu City, all of which are located in the Visayas, the southern part of
the Philippines. There can be no assurance that the occurrence of such natural catastrophes will not
materially disrupt IMI’s operations. These factors, which are not within IMI’s control, could potentially have
significant effects on IMI’s manufacturing facilities. As a result, the occurrence of natural or other
catastrophes or severe weather conditions may adversely affect IMI’s business, financial condition and
results of operations.

Natural disasters, such as the 2008 earthquake in China, where most of IMI’s manufacturing operations
are located, could severely disrupt IMI’s manufacturing operations and increase IMI’s supply chain costs.
These events, over which we have little or no control, could cause a decrease in demand for IMI’s services,
make it difficult or impossible for IMI to manufacture and deliver products and for IMI’s suppliers to deliver
components allowing it to manufacture those products, require large expenditures to repair or replace IMI’s
facilities, or create delays and inefficiencies in IMI’s supply chain.

Any escalation in these events or similar future events may disrupt IMI’s operations and the operations of
IMI’s customers and suppliers, and may affect the availability of materials needed for IMI’s manufacturing
services. Such events may also disrupt the transportation of materials to IMI’s manufacturing facilities and
finished products to IMI’s customers.

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There can be no assurance that IMI is fully capable to deal with these situations and that the insurance
coverage it maintains will fully compensate it for all the damages and economic losses resulting from these
catastrophes.

Political instability or threats that may disrupt IMI’s operations could result in losses not covered
by IMI’s insurance.

No assurance can be given that the political environment in the Philippines will remain stable and any
political instability in the future could reduce consumer demand, or result in inconsistent or sudden changes
in regulations and policies that affect IMI’s business operations, which could have an adverse effect on the
results of operations and the financial condition of IMI.

Increased political instability threats or occurrence of terrorist attacks, enhanced national security
measures, and conflicts, as well as territorial and other disputes, which strain international relations, may
reduce consumer confidence and economic weakness.

Any impact on the following cases in countries in which IMI has operations could materially and adversely
affect IMI’s business plans and prospects, financial condition and results of operations.

The Philippines, China, and several Southeast Asian nations have been engaged in a series of long-
standing territorial disputes over certain islands in the West Philippine Sea, also known as the South China
Sea. Moreover, President Donald Trump’s nominee for Secretary of State Rex Tillerson said China must
be denied access to artificial islands it has built in the disputed waters. Trump had previously accused China
of building a military fortress in the South China Sea. China claims more than 80 percent of the South China
Sea, where it has built up its military presence as well as constructing the islands. Vietnam, the Philippines,
Brunei, Malaysia and Taiwan claim parts of the same maritime area, a thriving fishing zone through which
more than $5 trillion of trade passes each year. In July 2016, an international tribunal in The Hague ruled
against China in a case brought by the Philippines, saying it had no historic rights to the resources within a
dashed line drawn on a 1940s map that had formed the basis of its claims. While the court said the ruling
was binding, China said the 29 tribunal had no jurisdiction. China is also in dispute with Japan and India
over claims to a separate set of islands.

President Donald Trump signed an executive order on January 27, 2017 that indefinitely suspends
admissions for Syrian refugees and limits the flow of other refugees into the United States by instituting
what the President has called "extreme vetting" of immigrants. The executive order on Protection of the
Nation from Foreign Terrorist Entry into The United States is the start of tightening borders and halting
certain refugees from entering the United States. The order bars all persons from certain "terror-prone"
countries from entering the United States for 90 days and suspends the US Refugee Admissions Program
for 120 days until it is reinstated "only for nationals of countries for whom" members of Trump's Cabinet
deem can be properly vetted.

The “British exit of the European Union”, or known as Brexit on June 23, 2016 is considered the most
significant economic demerger between major economies since the Second World War. British vote to
leave the European Union is likely to impose major instability on top of economic fragility and artificial
financial markets. The Brexit referendum roiled global markets, including currencies, causing the British
pound to fall to its lowest level in decades. In November 2016, the British High Court ruled that the
government needs the Parliament's approval to trigger Article 50 of the Lisbon Treaty and begin the two-
year process of withdrawing the UK from the EU. On February 1, 2017, Prime Minister Theresa May won
votes from Members of Parliament in the House of Commons for the bill to invoke Article 50 and start the
Brexit process in March 2017. The bill is expected to pass through debates in the Commons and the House
of Lords by March 7, and upon royal assent from Queen Elizabeth II, to become an Act of Parliament.

Investors may face difficulties enforcing judgments against IMI.

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It may be difficult for investors to enforce judgments against IMI owing to its global operations, diverse
residencies of its different officers, and assets located in different jurisdictions. It may particularly be difficult
for investors to effect service of process upon any officer who is not a resident of the country where
judgments from courts or arbitral tribunals are obtained outside or within the Philippines if these are
predicated upon the laws of jurisdictions other than the country where such judgments are obtained.

The Philippines is party to the United Nations Convention on the Enforcement and Recognition of Arbitral
Awards, though it is not party to any international treaty relating to the recognition or enforcement of foreign
judgments. Nevertheless, the Philippine Rules of Civil Procedure provide that a judgment or final order of
a foreign court is, through the institution of an independent action, enforceable in the Philippines as a
general matter, unless there is evidence that: (a) the foreign court rendering judgment did not have
jurisdiction, (b) the judgment is contrary to the laws, public policy, customs or public order of the Philippines,
(c) the party against whom enforcement is sought did not receive notice, or (d) the rendering of the judgment
entailed collusion, fraud, or a clear mistake of law or fact.

Regulatory

Please refer to “Regulatory Framework” on page [•] of this Prospectus.

POWER

AC Energy, Inc. (alternately referred to as “AC Energy”, or “the AC Energy Group” in the entire discussion
of AC Energy) manages a diversified portfolio of renewable and conventional power generation projects
and engages primarily in power project development operations and in other businesses located in the
Philippines, Indonesia, and Vietnam. AC Energy was designated in 2011 as Ayala Corporation’s vehicle
for investments in the power sector to pursue greenfield/brownfield, as well as currently operating, power-
related projects for both renewable and conventional technologies. In 2016, AC Energy expanded its
business purpose to include the purchase, retail, supply and delivery of electricity, and in 2017, the
business purposes were expanded further to include the development, operation and maintenance of
power projects.

Philippines

Starting in 2011, AC Energy made its initial investments in the power sector in the Philippines, with
strategic investments in 50% of a wind farm located in Ilocos Norte province with a net capacity of 52MW
(the “Northwind Project”) (which interest has since increased to 67.79%), 50% in a 2 x 122MW CFB thermal
power plant located in Batangas province (the “SLTEC Project”) (which interest has since been reduced
to 35%), 64% of a second wind farm located in Ilocos Norte province with a net capacity of 81MW (the
“North Luzon Renewables Project”) (which interest has since been reduced to 28.51%), 17.02% limited
partnership interest in a 2 x 316MW coal-fired plant located in Bataan province (the “GNPower Mariveles
Project”) (which interest has since been reduced to 8%), a 85.72% limited partnership interest in a 4 x
138MW coal-fired power plant under construction located in Lanao del Norte province (the “GNPower
Kauswagan Project”), and a 50% limited partnership interest in a 2 x 668MW supercritical coal-fired power
plant, also in Bataan (the “GNPower Dinginin Project”) (which interest has since been reduced to 20%).
AC Energy has continued to make strategic investments in the energy sector since that time. In 2015, AC
Energy invested in the development, construction and operation of a solar power farm located in Bais City,
Negros Oriental (the “Montesol Project”).

AC Energy is in the process of transitioning from a Philippine-focused energy investment holding company
into a regional player with investment, development and operation capabilities, and is actively scaling up
its renewable energy platform with expected investments in various projects in the pipeline in the
Philippines and in markets where it is a new participant, such as Indonesia, Vietnam and Australia.

Indonesia

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In 2017, AC Energy established its first footprint overseas with investments in renewable energy projects
in Indonesia as part of a consortium with Star Energy Group Holdings Pte. Ltd, Star Energy Geothermal
Pte. Ltd. of Indonesia (collectively “Star Energy”) and The Electricity Generating Company (“EGCO”) of
Thailand, and acquired the Salak and Darajat geothermal projects (the “Salak-Darajat Geothermal
Projects”) in West Java, Indonesia with a combined capacity of 637MW of steam and power. AC Energy
has an effective economic stake of 19.80% in the Salak-Darajat Geothermal Projects. The Sidrap wind
project (the “Sidrap Wind Project”), AC Energy’s first greenfield offshore investment, is the first utility-scale
wind farm project in Indonesia with a net capacity of 75MW, which commenced commercial operations in
March 2018.

Vietnam

In December 2017, AC Energy Vietnam Investments Pte Ltd. (“ACEV”), a wholly-owned subsidiary of AC
Energy International Holdings Pte. Ltd. (“AC Energy International”), entered into a 50:50 joint venture with
AMI Renewables Energy Joint Stock Company (“AMI Renewables”), a joint stock company incorporated
in Vietnam to invest in New Energy Investments Corporation (“New Energy Investments”), a joint stock
company with 100% ownership over the shares of the following entities situated in Vietnam: (a) AMI Energy
Khanh Hoa Joint Stock Company (“AMI Khanh Hoa”), which has commenced construction of a 50MW
solar farm in Khanh Hoa province (the “Khanh Hoa Solar Plant”), (b) BMT Renewable Energy Joint Stock
Company (“BMT Dak Lak”), which has commenced construction of a 30MW solar farm located in Dak Lak
province (the “Dak Lak Solar Plant”), and (c) B&T Windfarm Joint Stock Company (“B&T Quang Binh”),
which has entered into an agreement with the government of Quang Binh province for the development of
an up to 200MW wind farm located in Quang Binh province. The Khanh Hoa and Dak Lak Solar Plants
were inaugurated in May and April 2019, respectively.

In June 2018, AC Energy entered into a partnership with the BIM Group of Vietnam for the development
of an aggregate of 330MW of solar power plants located in the province of Ninh Thuan, Vietnam (the “Ninh
Thuan Solar Plants”), which was inaugurated in May 2019. In April 2018, AC Energy International and
Jetfly Asia Pte. Ltd. entered into an agreement for the acquisition of 25.0% interest in The Blue Circle Pte.
Ltd. (“The Blue Circle”) as well as co-investment rights in The Blue Circle’s projects in Southeast Asia. The
Blue Circle is an international renewable energy developer which has a pipeline of projects in Southeast
Asia, over which AC Energy has certain investment rights.

In May 2019, AC Energy, in partnership with The Blue Circle, signed a Shareholders’ Agreement to jointly
construct, own and operate the Mui Ne Wind Farm located at the Binh Thuan province, Southeastern coast
of Vietnam. Construction for the 40 MW first phase will commence immediately, with an expansion
potential of up to 170 MW. Project completion of the first phase is expected in the first half of 2020, in time
for the new wind feed in-tariff deadline of November 2021.

Australia

In May 2018, AC Energy entered the Australian renewable energy market through a joint venture with
international renewable energy developer, UPC Renewable Asia Pacific Holdings Limited (“UPC
Renewables”). AC Energy through its subsidiary, AC Energy International, invested U.S.$30 million for
50.0% ownership in UPC-AC Energy Renewables Australia (HK) Limited (“UPC-AC Energy Renewables
Australia”). AC Energy also extended a U.S.$200 million revolver facility to partially fund the Australia
projects. UPC-AC Energy Renewables Australia has certain projects in the pipeline, including the New
England Solar Farm (“NE Solar Farm”) currently under development located near Uralla in New South
Wales with an expected net capacity of up to 700MW. The NE Solar Farm is being targeted for financial
close by the first half of 2019 with commercial operations targeted by 2021. UPC-AC Energy Renewables
Australia is also developing wind farms on Robbins Island and Jim’s Plain in North West Tasmania with a
targeted net capacity of up to 1,000MW. In addition to the revolver facility, AC Energy has investment
rights to invest equity directly into the projects. UPC-AC Energy Renewables Australia continues to assess
potential investments into additional renewable energy projects across Australia.

Retail Electricity Supply

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In addition to its renewable and conventional energy businesses, AC Energy is also engaged in retail
electricity supply (“RES”). AC Energy obtained a RES license allowing it to sell electricity to end-users in
the contestable market in September 2016. As of June 2019, AC Energy has entered into agreements
with various customers and end-users for the supply of over 100MW.

Significant Transactions

On June 24, 2019, AC Energy completed the acquisition of a 51.48% stake in PHINMA Energy Corporation
(“PHEN”) via a purchase of secondary shares for ₱3.669 billion. AC Energy also subscribed to 2.632 billion
PHEN primary shares at par value. A mandatory tender offer was conducted, with a total of 156,476 shares
having been tendered. AC Energy’s current ownership stake in PHEN is at ~66.34%.

On May 2, 2019, AC Energy, Ayala's energy platform, completed the sale of a 60% economic interest and
49% voting interest in AA Thermal Inc. to Aboitiz Power.

The transaction value is at US$572.9 million after applying agreed adjustments pursuant to the share
purchase agreement. AA Thermal has ownership interest in the 2x300 MW coal-fired power plant in
Mariveles, Bataan owned by GNPower Mariveles Coal Plant Ltd. Co., which has been in operations since
2014, and in the 2x600 MW supercritical coal-fired power plant in Dinginin, Bataan owned by GNPower
Dinginin Ltd. Co., which is currently under construction.

On January 25, 2019 AC Energy launched its inaugural US dollar-denominated senior Green Bond
issuance, raising US$410 million in gross proceeds.

Risk Factors

Most of these factors are contingencies which may or may not occur and AC Energy is not in a position to
express a view on the likelihood of any such contingency occurring.

Increased competition in the power industry, including competition resulting from legislative,
regulatory and industry restructuring efforts could have a material adverse effect on AC Energy’s
operations and financial performance.

AC Energy’s success depends on its ability to identify, invest in and develop new power projects, and AC
Energy faces competition to acquire future rights to develop power projects and to generate and sell power.
No assurance can be given that AC Energy will be able to acquire or invest in new power projects
successfully.

The Philippine government has sought to implement measures designed to establish a competitive power
market. These measures include the ongoing privatization of at least 70% of the NPC-owned-and-controlled
power generation facilities and the grant of a concession to operate transmission facilities, as well as the
implementation of retail competition and open access. The move towards a more competitive environment
could result in the emergence of new and numerous competitors. These competitors may have greater
financial resources, and have more extensive experience than AC Energy, giving them the ability to respond
to operational, technological, financial and other challenges more quickly than AC Energy. These
competitors may therefore be more successful than AC Energy in acquiring existing power generation
facilities or in obtaining financing for and the construction of new power generation facilities. The type of
fuel that competitors use for their generation facilities may also allow them to produce electricity at a lower
cost and to sell electricity at a lower price.

AC Energy may therefore be unable to meet the competitive challenges it will face. The impact of the
restructuring of the Philippine power industry changes the competitive landscape of the industry and such
changes affect AC Energy’s financial position, results of operations and cash flows in various ways.

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In addition, any decision to develop and construct power projects in various jurisdictions, including the
Philippines, Indonesia and Vietnam, is made after careful consideration of regulatory requirements,
availability of fiscal incentives, market conditions (including the demand and supply conditions), land
availability, and other considerations. For those jurisdictions that require participation through a competitive
bidding process or through the submission of a formal proposal, in which AC Energy will need to compete
for projects based on pricing, technical and engineering qualifications, the financial condition of AC Energy,
availability of land, access to financings, track record and other specifications of the proposed project, the
bidding or proposal submission process and selection process may be affected by a number of factors,
including factors which may be beyond AC Energy’s control, such as market conditions or government
incentive programs. In such cases, AC Energy may not acquire the rights to develop new power projects in
the event that AC Energy misjudges its competitiveness when submitting its bids or proposals or, where
bidding includes price competition, if AC Energy’s competitors have more competitive pricing. The ability of
AC Energy’s competitors to access resources that it does not have access to, including labor and capital,
may prevent AC Energy from acquiring additional power projects in strategic locations or from increasing
its generating capacity, and AC Energy may not be able to expand its business as a result.

AC Energy is constantly on the lookout for potential projects through its professional network, and AC
Energy’s partners seeks strategic partners with technical experience in the development of power projects,
and familiarity with the local regulations in the locations where it invests.

AC Energy may not successfully implement its growth strategy and the impact of acquisitions,
investments and value realization initiatives could be less favorable than anticipated.

As part of its business strategy, AC Energy seeks to actively manage its portfolio of power projects to
maximize its capital base and has conducted and continues to carry out acquisitions and investments of
varying sizes as well as value realization through certain dispositions, some of which are significant, as well
as develop additional power projects in both the Philippines and in international markets. This strategy may
require entering into strategic alliances and partnerships and will involve substantial investments. AC
Energy’s success in implementing this strategy will depend on, among other things, its ability to identify and
assess potential partners, investments and acquisitions, opportunities for value realization and
redeployment of capital, and to successfully finance, close and integrate such investments and acquisitions,
control costs and maintain sufficient operational and financial controls.

This growth strategy could place significant demands on AC Energy’s management and other resources.
AC Energy’s future growth may be adversely affected if it is unable to make these investments, value
realization and capital recycling initiatives or form these partnerships, or if these investments, value
realization and capital recycling initiatives and partnerships prove unsuccessful. Further, acquisitions and
investments involve numerous risks, including, without limitation, the following: (a) the assumptions used
in the underlying business plans may not prove to be accurate, in particular with respect to synergies and
expected demand; (b) AC Energy may not be able to integrate acquired businesses, technologies, products,
personnel, and operations effectively; (c) AC Energy may fail to retain key employees, customers and
suppliers of the companies acquired; (d) AC Energy may be required or wish to terminate pre-existing
contractual relationships, which could be costly and/or on unfavorable terms; and (e) AC Energy may
increase its indebtedness to finance these acquisitions. As a result, it is possible that the expected benefits
of completed or future acquisitions, investments and value realization and capital recycling initiatives may
not materialize within the time periods or to the extent anticipated or affect AC Energy’s financial condition.

Further, AC Energy may not be able to identify suitable acquisition and investment opportunities or make
acquisitions and investment, on beneficial terms, or obtain financing necessary to complete and support
such acquisitions. Regulation of merger and acquisition activity by relevant authorities or other national
regulators may also limit AC Energy’s ability to make future acquisitions, mergers or dispositions. In January
2019, AC Energy entered into an agreement for the acquisition of certain interests in PHEN and in
September 2018, AC Energy, through its affiliate, entered into an agreement with Aboitiz Power for the
disposition of certain of its interests in its thermal energy portfolio.

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The impact on AC Energy of any future acquisitions or investments and dispositions cannot be fully
predicted and any of the risks outlined above, should they materialize, could have a material adverse effect
on AC Energy’s business, financial condition, results of operations and prospects.

In addition, AC Energy’s growth to date, in particular driven by acquisitions and investments, has placed,
and the anticipated further expansion of AC Energy’s operations will continue to place, a significant strain
on AC Energy’s management, systems and resources. In addition to training, managing and integrating AC
Energy’s workforce, AC Energy will need to continue to develop AC Energy’s financial and management
controls. AC Energy can provide no assurance that AC Energy will be able to efficiently or effectively
manage the growth and integration of AC Energy’s operations and internationally dispersed businesses
and any failure to do so may materially and adversely affect AC Energy’s business, financial condition,
results of operations and prospects. In addition, if general economic and regulatory conditions or market
and competitive conditions change, or if operations do not generate sufficient funds or other unexpected
events occur, AC Energy may decide to delay, modify or forego some aspects of its growth strategies, and
its future growth prospects could be adversely affected.

AC Energy continues to actively review and balance its portfolio in light of market conditions, regulatory
developments, technological improvements, and industry best practices.

The operations of AC Energy’s power projects are subject to significant government regulation,
including regulated tariffs such as FIT, and AC Energy’s margins and results of operations could
be adversely affected by changes in the law or regulatory schemes.

The inability of AC Energy and the applicable power projects to predict, influence or respond appropriately
to changes in law or regulatory schemes, including any inability or delay in obtaining expected or contracted
increases in electricity tariff rates or tariff adjustments for increased expenses, or any inability or delay in
obtaining or renewing permits for any facilities, could adversely impact our results of operations and cash
flow.

Furthermore, changes in laws or regulations or changes in the application or interpretation of laws or

regulations in jurisdictions where power projects are located, (particularly utilities where electricity tariffs
are subject to regulatory review or approval) could adversely affect AC Energy’s business, including, but
not limited to:

• adverse changes in tax law;

• changes in the timing of tariff increases or in the calculation of tariff incentives;
• change in existing subsidies and other changes in the regulatory determinations under the relevant
concessions;
• other changes related to licensing or permitting which increase capital or operating costs or
otherwise
• affect the ability to conduct business; or
• other changes that have retroactive effect and/or take account of revenues previously received and
• expose power projects to additional compliance costs or interfere with our existing financial and
business planning.

Any of the above events may result in lower margins for the affected businesses, which could adversely
affect AC Energy’s results of operations.

For renewable assets, pricing is either fixed by regulatory arrangements which operate instead of, or in
addition to, contractual arrangements or is based on market prices. To the extent that costs rise above the
level approved in the tariff, the power projects that are subject to regulated tariffs would bear the risk. During
the life of a project, the relevant government authority may unilaterally impose additional restrictions on the
project’s tariff rates, subject to the regulatory frameworks applicable in each jurisdiction. Future tariffs may
not permit the project to maintain current operating margins, which could have a material adverse effect on
AC Energy’s business, financial condition, results of operations and prospects.

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AC Energy keeps abreast of regulatory developments to make sure that it is able to respond to shifts timely.

Failure to obtain financing on reasonable terms or at all could adversely impact the execution of AC
Energy’s expansion and growth plans.

AC Energy’s expansion and growth plans are expected to require significant fund raising. As part of AC
Energy’s current strategy to exceed 5,000MW of renewable energy capacity by 2025, AC Energy estimates
that it will require around U.S.$2.0 billion of equity financing. AC Energy’s continued access to debt and
equity financing as a source of funding for new projects, acquisitions and investments, and for refinancing
maturing debt is subject to many factors, including: (a) Philippine regulations limiting bank exposure
(including single borrower limits) to a single borrower or related group of borrowers; (b) AC Energy’s
compliance with existing debt covenants; (c) the ability of AC Energy to service new debt; (d) the
macroeconomic fundamentals driving credit ratings of the Philippines; and (e) perceptions in the capital
markets regarding AC Energy and the industries and regions in which it operates and other factors, some
of which may be outside of its control, including general conditions in the debt and equity capital markets,
political instability, an economic downturn, social unrest, changes in the regulatory environments where
any power projects are located or the bankruptcy of an unrelated company operating in one or more of the
same industries as AC Energy, any of which could increase borrowing costs or restrict AC Energy’s ability
to obtain debt or equity financing. There is no assurance that AC Energy will be able to arrange financing
on acceptable terms, if at all. Any inability of AC Energy to obtain financing from banks and other financial
institutions or from capital markets would adversely affect AC Energy’s ability to execute its expansion and
growth strategies.

AC Energy maintains constant communication with financial institutions and investors, and constantly
monitors market developments.

AC Energy’s international businesses and results of operations are subject to the macroeconomic,
social and political developments and conditions of the countries where AC Energy’s portfolio of
projects are located.

In addition to the Philippines, AC Energy’s portfolio of power projects in operation and under construction
are currently located in Indonesia and Vietnam, with plans for further international expansion in other
jurisdictions. International operations and plans for further international expansion may be affected by the
respective domestic economic and market conditions as well as social and political developments in these
countries, government interference in the economy in certain countries and changes in regulatory
conditions, and there is no guarantee that AC Energy’s existing operations as well as expansion plans will
be successful in those countries. AC Energy’s financial condition, prospects and results of operations could
be adversely affected if it is not successful internationally or if these international markets are affected by
changes in political, economic and other factors, over which AC Energy has no control.

AC Energy seeks strategic partners with technical experience in the development of power projects, and
familiarity with the local regulations in the locations where it invests, and constantly monitors market
developments.

Changes in tax policies, affecting tax exemptions and tax incentives could adversely affect AC
Energy’s results of operations.

Certain subsidiaries, affiliates and joint ventures of AC Energy, including Montesol, NorthWind, North Luzon
Renewables, GNPK and GMCP, are registered with the BOI and the PEZA and benefit from certain
incentives including, among others, income tax holidays (“ITH”) for a certain period and lower corporate
income tax upon expiry of the applicable ITH, and duty-free importation of capital equipment, spare parts
and accessories.

The second package of the Comprehensive Tax Reform Program (“CTRP”) of the Duterte administration
was submitted to Congress on 16 January 2018. The second package of the CTRP reportedly aims to lower

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corporate income taxes while reducing fiscal incentives for corporations, such as income tax holidays,
special rates, and custom duty exemptions.

If the second package of the CTRP is passed into law, or if these tax exemptions or tax incentives expire,
are revoked, or are repealed or other new laws are enacted, the income from these sources will be subject
to the corporate income tax rate, which is 30.0% of net taxable income as of September 30, 2018 or the
new tax rates as per any new laws enacted. As a result, AC Energy’s tax expense would increase, and its
profitability would decrease. The expiration, non-renewal, revocation or repeal of these tax exemptions and
tax incentives, the enactment of any new laws, and any associated impact on AC Energy, could have a
material adverse effect on AC Energy’s business, financial condition and results of operations.

AC Energy keeps abreast of regulatory developments to make sure that it is able to respond to shifts timely.

AC Energy’s long-term success is dependent upon its ability to attract and retain key personnel and
in sufficient numbers.

AC Energy depends on its senior executives and key management members to implement AC Energy’s
projects and business strategies. If any of these individuals resigns or discontinues his or her service, it is
possible that a suitable replacement may not be found in a timely manner or at all. If this were to happen,
there could be a material adverse effect on AC Energy’s ability to successfully operate its power projects
and implement its business strategies.

Power generation involves the use of highly complex machinery and processes and AC Energy’s success
depends on the effective operation and maintenance of equipment for its power generation assets.
Technical partners and third-party operators are responsible for the operation and maintenance of certain
power projects.

Any failure on the part of such technical partners and third-party operators to properly operate and/or
adequately maintain these power projects could have a material adverse effect on AC Energy’s business,
financial condition and results of operations.

AC Energy has an employee engagement program in place, as well as programs for employee
development.

AC Energy’s business depends on commitments to the promotion of renewable energy.

The countries in which AC Energy has investments have demonstrated a commitment to renewable energy.
As a result, these countries have created favorable regulatory and tax regimes and financial incentives, as
well as renewable portfolio standards that require distributors to source a certain percentage of their power
requirements from renewable energy sources. For example, Vietnam’s FIT programme provides for a FIT
rate of $9.35 cents/ kWh for 20 years for solar plants completed by June 2019 (with the exception of solar
power projects in located in Ninh Thuan province, which has extended this period to December 2019) and
$8.50 cents/kWh for wind projects completed by November 2021. These commitments are, however,
generally matters of domestic public policy and are subject to the execution of the relevant power purchase
agreement (“PPA”).

Should these commitments to renewable energy be reduced for any reason, it could affect AC Energy’s
ability to operate or renew AC Energy’s permits and licenses and reduce the financial incentives available
to AC Energy, which could, in turn, have a material adverse effect on AC Energy’s business, financial
condition, results of operations and prospects.

AC Energy continues to actively review and balance its portfolio in light of market conditions, regulatory
developments, technological improvements, and industry best practices, and it keeps abreast of
developments in renewable energy and storage. It grows its portfolio in line with its environmental, social
and good governance commitments.

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AC Energy may not be able to adequately influence the operations of its associates and joint
ventures and the failure of one or more of its strategic partnerships may negatively impacts its
business, financial condition, results of operations and prospects.

AC Energy derives a substantial portion of its income from investments in associates and joint ventures, in
which it does not have majority voting control. These relationships involve certain risks including the
possibility that these partners:

• may have economic interests or business goals that are different from AC Energy;
• be unable or unwilling to fulfill their obligations under relevant agreements, including shareholder
agreements under which AC Energy has certain voting rights in respect of key strategic, operating
and financial matters;
• take actions or omit to take any actions contrary to, or inconsistent with, AC Energy’s policies or
objectives or prevailing laws;
• have disputes with AC Energy as to the scope of their responsibilities and obligations; and/or
• have difficulties in respect of seeking funds for the development or construction of projects.

The success of these partnerships depends significantly on the satisfactory performance by the partners
and the fulfillment of their obligations. If AC Energy or a strategic partner fails to perform its obligations
satisfactorily, or at all, the partnership may be unable to perform adequately. As a result, cooperation among
its partners or consensus with other shareholders in these entities is crucial to these businesses’ sound
operation and financial success. AC Energy’s business, financial condition, results of operations and
prospects may be materially adversely affected if disagreements develop with its strategic partners and are
not resolved in a timely manner.

In addition, if any of AC Energy’s strategic partners discontinues its arrangement with AC Energy, is unable
to provide expected resources or assistance, or competes with AC Energy on business opportunities, AC
Energy may not be able to find a substitute for such strategic partner. Failure of one or more of AC Energy’s
strategic partners to perform their obligations may have a material adverse effect on AC Energy’s business,
financial condition, results of operations and prospects.

AC Energy seeks strong, strategic partners to do business with, and the selection and evaluation of projects
and partners goes through a rigorous process overseen by management and subject to approval of the AC
Energy board of directors.

Risks and delays relating to the development of greenfield power projects could have a material
adverse effect on AC Energy’s operations and financial performance.

The development of greenfield power projects involves substantial risks that could give rise to delays, cost
overruns, unsatisfactory construction or development in the projects. Such risks include the inability to
secure adequate financing, inability to negotiate acceptable offtake agreements, and unforeseen
engineering and environmental problems, among others. Any such delays, cost overruns, unsatisfactory
construction or development could have a material adverse effect on the business, financial condition,
results of operation and future growth prospects of AC Energy.

For AC Energy’s projects under development, the estimated time frame and budget for the completion of
critical tasks may be materially different from the actual completion date and costs, which may delay the
date of commercial operations of the projects or result in cost overruns.

AC Energy is expanding its power generation operations and there are a number of projects in its energy
portfolio under construction. These projects involve environmental, engineering, construction and
commission risks, which may result in cost overruns, delays or performance that is below expected levels
of output or efficiency. In addition, projects under construction may be affected by the timing of the issuance
of permits and licenses by government agencies, any litigation or disputes, inclement weather, natural
disasters, accidents or unforeseen circumstances, manufacturing and delivery schedules for key
equipment, defect in design or construction, and supply and cost of equipment and materials. Further,

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project delays or cancelations or adjustments to the scope of work may occur from time to time due to
incidents of force majeure or legal impediments.

Depending on the severity and duration of the relevant events or circumstances, these risks may
significantly delay the commencement of new projects, reduce the economic benefit from such projects,
including higher capital expenditure requirements and loss of revenues, which in turn could have a material
adverse effect on AC Energy’s business, financial condition, results of operations and cash flows.

AC Energy mitigates these risks through contractual arrangements for delay damages and business
interruption insurance, among others.

Any restriction or prohibition on AC Energy’s subsidiaries’, associates’ or joint ventures’ ability to

distribute dividends would have a negative effect on its financial condition and results of
operations.

AC Energy, as a holding company, conducts its operations through its subsidiaries, associates and joint
ventures. As a holding company, AC Energy’s income is derived primarily from dividends paid to AC Energy
by its subsidiaries, associates and joint ventures. For the year ended 31 December 2018 and for the first
six months of 2019, AC Energy received ₱20.8 million and ₱18.8 million, respectively.

AC Energy is reliant on these sources of funds with respect to its obligations and in order to finance its
subsidiaries. The ability of AC Energy’s direct and indirect subsidiaries, associates and joint ventures to
pay dividends to AC Energy (and their shareholders in general) is subject to applicable law and may be
subject to restrictions contained in loans and/or debt instruments of such subsidiaries and may also be
subject to the deduction of taxes. Currently, the payment of dividends by a Philippine corporation to another
Philippine corporation is not subject to tax.

In addition, certain subsidiaries are subject to debt covenants for their respective existing debt. For
example, under the terms of the project financing loans in respect of the GNPK Project, the power project
may be unable to pay dividends unless certain covenants are met, including compliance with a specified
debt service coverage ratio and debt service reserves. Failure to comply with these covenants may result
in an event of default, which if not waived, could result in debt becoming immediately due and payable. This
could affect the relevant company’s liquidity and ability to generally fund its day-to-day operations. In the
event this occurs, it may be difficult to repay or refinance such debt on acceptable terms or at all.

Any restriction or prohibition on the ability of some or all of AC Energy’s subsidiaries, associates and/or
joint ventures to distribute dividends or make other distributions to AC Energy, either due to regulatory
restrictions, debt covenants, operating or financial difficulties or other limitations, could have a negative
effect on AC Energy’s cash flow and therefore, its financial condition.

AC Energy proactively monitors its financial position, and those of its project companies, including
compliance with financial covenants. Possible restrictions are carefully monitored and managed.

The administration and operation of power generation projects by project companies involve
significant risks.

The administration and/or operation of power generation projects by project companies involve significant
risks, including:

• breakdown or failure of power generation equipment, transmission lines, pipelines or other

equipment or processes, leading to unplanned outages and operational issues;
• flaws in the equipment design or in power plant construction;
• issues with the quality or interruptions in the supply of key inputs, including fuel or water;
• material changes in legal, regulatory or licensing requirements;
• human errors in the operation of equipment;
• performance below expected levels of output or efficiency;

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• actions affecting power generation assets owned or managed by AC Energy, its joint ventures,
affiliates or its contractual counterparties;
• pollution or environmental contamination affecting the operation of power generation assets;
• force majeure and catastrophic events including fires, explosions, earthquakes, volcanic eruptions,
floods and terrorist acts that could cause forced outages, suspension of operations, loss of life,
severe damage and plant destruction;
• planned and unplanned power outages due to maintenance, expansion and refurbishment;
• inability to obtain or the cancelation of required regulatory, permits and approvals; and
• opposition from local communities and special interest groups.

AC Energy mitigates these risks through contractual arrangements for performance damages and business
interruption insurance, among others.

There is no assurance that any event similar or dissimilar to those listed above will not occur or will not
significantly increase costs or decrease or eliminate revenues derived by AC Energy, its joint ventures and
affiliates from their power projects.

Climate change policies may adversely affect AC Energy’s business and prospects.

AC Energy is currently invested in certain coal-fired power plants in the Philippines. Policy and regulatory
changes, technological developments and market and economic responses relating to climate change may
affect AC Energy’s business and the markets in which it operates. The enactment of an international
agreement on climate change or other comprehensive legislation focusing on greenhouse gas emissions
could have the effect of restricting the use of coal. Other efforts to reduce greenhouse gas emissions and
initiatives in various countries to use cleaner alternatives to coal such as natural gas may also affect the
use of coal as an energy source.

In addition, technological developments may increase the competitiveness of alternative energy sources,
such as renewable energy, which may decrease demand for coal generated power. Other efforts to reduce
emissions of greenhouse gases and initiatives in various countries to encourage the use of natural gas or
renewable energy may also discourage the use of coal as an energy source. The physical effects of climate
change, such as changes in rainfall, water shortages, rising sea levels, increased storm intensities and
higher temperatures, may also disrupt AC Energy’s operations. As a result of the above, AC Energy’s
business, financial condition, results of operations and prospects may be materially and adversely affected.

AC Energy is mindful of its environmental, social, and governance commitments, and strives to conduct its
business in a sustainable manner. AC Energy’s goal is to build 5GW of attributable renewable capacity by
2025, with at least 50% of output generated from renewables.

Environmental regulations may cause the relevant project companies to incur significant costs and
liabilities.

The operations of AC Energy’s project companies are subject to environmental laws and regulations by
central and local authorities in the countries in which the projects operate. These include laws and
regulations pertaining to pollution, the protection of human health and the environment, air emissions,
wastewater discharges, occupational safety and health, and the generation, handling, treatment,
remediation, use, storage, release and exposure to hazardous substances and wastes. These
requirements are complex, subject to frequent change and have tended to become more stringent over
time. The project companies have incurred, and will continue to incur, costs and capital expenditures in
complying with these laws and regulations and in obtaining and maintaining all necessary permits. While
the project companies have procedures in place to allow it to comply with environmental laws and
regulations, there can be no assurance that these will at all times be in compliance with all of their respective
obligations in the future or that they will be able to obtain or renew all licenses, consents or other permits
necessary to continue operations. Any failure to comply with such laws and regulations could subject the
relevant project company to significant fines, penalties and other liabilities, which could have a material
adverse effect on AC Energy’s business, financial condition, results of operations and prospects.

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In addition, environmental laws and regulations, and their interpretations, are constantly evolving and it is
impossible to predict accurately the effect that changes in these laws and regulations, or their interpretation,
may have upon AC Energy’s business, financial condition, results of operations or prospects. If
environmental laws and regulations, or their interpretation, become more stringent, the costs of compliance
could increase. If AC Energy cannot pass along future costs to customers, any increases could have a
material adverse effect on AC Energy’s business, financial condition, results of operations and prospects.

AC Energy is is mindful of its environmental, social, and governance commitments, and strives to conduct
its business in a sustainable manner. It aims to comply with the environmental regulations in areas where
it operates, as guided by its E&S Policy.

AC Energy’s power project development operations and the operations of the power projects are
subject to inherent operational risks and occupational hazards, which could cause an unexpected
suspension of operations and/or incur substantial costs.

Due to the nature of the business power project development and operations, AC Energy and its project
companies engage or may engage in certain inherently hazardous activities, including operations at height,
use of heavy machinery and working with flammable and explosive materials. These operations involve
many risks and hazards, including the breakdown, failure or substandard performance of equipment, the
improper installation or operation of equipment, labor disturbances, natural disasters, environmental
hazards and industrial accidents.

These hazards can cause personal injury and loss of life, damage to or destruction of property and
equipment, and environmental damage and pollution, any of which could result in suspension of the
development or operations of any of the power projects or even imposition of civil or criminal penalties,
which could in turn cause AC Energy or any of the project companies to incur substantial costs and damage
its reputation and may have a material adverse effect on AC Energy’s business, financial condition and
results of operations.

AC Energy mitigates these risks through contractual arrangements for performance damages and business
interruption insurance, among others. AC Energy is mindful of its environmental, social, and governance
commitments, and strives to conduct its business in a sustainable manner, including complying with health
and safety regulations.

Grid curtailments may limit the generation capacity of power projects.

From time-to-time, national grid operators curtail the energy generation for a number of reasons, including
line congestions and during the instances that dispatch schedules of power plants are not implementable
(i.e. if the grid operators foresee that the dispatch schedules may place the grid system at risk). In such
circumstances, a power project’s access to the grid and thus its generation dispatch can be reduced. Such
reductions result in a corresponding reduction in revenue, which, if prolonged or numerous could have a
material adverse effect on AC Energy’s business, financial condition, results of operations and prospects.

AC Energy enters into transactions with related parties.

In the ordinary course of business, AC Energy transacts with its related parties, such as its subsidiaries and
certain of its associates and joint ventures, and affiliates enter into transactions with each other. These
transactions have principally consisted of advances, loans, bank deposits, reimbursement of expenses,
purchase and sale of real estate and other properties and services, sale of electricity, management,
marketing and administrative service agreements.

AC Energy has instituted internal policies with respect to related party transactions and the related party
transaction committee of Ayala Corporation oversees such matters. These related party transactions may
involve conflicts of interest, which, although not contrary to law, may be detrimental to AC Energy.

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AC Energy has instituted internal policies with respect to related party transactions and the related party
transaction committee of Ayala Corporation oversees such matters. These related party transactions may
involve conflicts of interest, which, although not contrary to law, may be detrimental to AC Energy.

AC Energy is exposed to credit and collection risks.

As in other businesses, the power business, including AC Energy’s RES business in the Philippines, is
exposed to credit and collection risks related to its customers. These include the National Transmission
Corporation, contestable customers as well as electric cooperatives that have varying credit ratings and
private distribution utilities. In addition, the power projects in Indonesia and in Vietnam are exposed to
collection risks from the Perusahaan Listrik Negara (“PLN”) as the sole electricity business authority in
Indonesia and Vietnam

Electricity, which has total control of the national power transmission and distribution market in Vietnam,
respectively. There can, however, be no assurance that all customers will pay AC Energy in a timely manner
or at all. In such circumstances, AC Energy’s working capital needs would increase, which could, in turn,
divert resources away from AC Energy’s other projects. If a large amount of its customers were unable or
unwilling to pay AC Energy, its financial condition could be negatively affected.

AC Energy evaluates its counterparties carefully and projects are subject to careful evaluation by the AC
Energy management and oard of directors.

Exchange rate and/or interest rate fluctuations may have a significant adverse impact on AC
Energy’s business, financial condition, results of operations and prospects.

As a result of the international nature of AC Energy’s business, changes in foreign currency rates could
have an adverse impact on AC Energy’s business, financial condition, results of operations and prospects.
Currency fluctuations affect AC Energy because of mismatches between the currencies in which operating
costs are incurred and those in which revenues are received. AC Energy’s functional currency is the
Philippine Peso, and AC Energy has and may have assets, income streams and liabilities denominated in
a number of currencies, including the U.S. Dollar, Indonesian Rupiah, Vietnamese Dong and Australian
dollars.

AC Energy keeps abreast of market developments to make sure that it is able to respond to shifts timely.

The insurance coverage of the power projects may not be adequate.

The power projects maintain levels of insurance, which AC Energy believes are typical with the respective
business structures and in amounts that it believes to be commercially appropriate. However, a power
project may become subject to liabilities against which it has not insured adequately or at all, or are unable
to insure.

In addition, insurance policies contain certain exclusions and limitations on coverage, which may result in
claims not being honored to the extent of losses or damages suffered. Further, such insurance policies may
not continue to be available at economically acceptable premiums, or at all. The occurrence of a significant
adverse event, the risks of which are not fully covered or honored by such insurers, could have a material
adverse effect on a power project’s business, financial condition, results of operations and prospects. In
addition, under some of the power project’s debt agreements, the power project is required to name the
lenders under such debt agreements as a beneficiary or a loss payee under some of its insurance policies
or assign the benefit of various insurance policies to the lenders. Therefore, even if insurance proceeds
were to be payable under such policies, any such insurance proceeds will be paid directly to the relevant
lenders instead of to the power project. If an insurable loss has a material effect on a power project’s
operations, the power project’s lenders may not be required to pay any insurance proceeds or to
compensate the power project for loss of profits or for liabilities resulting from business interruption, and
this could have a material adverse effect on AC Energy’s business, financial condition, results of operations
and prospects.

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AC Energy continually reviews its portfolio, including the adequacy of insurance coverage, in light of
industry developments and the projects’ operations.

Political instability in the Philippines may have a negative effect on the general economic conditions
in the Philippines which could have a material adverse impact on the results of operations and
financial condition of AC Energy.

The Philippines has from time to time experienced political and military instability. In recent history, there
has been political instability in the Philippines, including impeachment proceedings against two former
presidents and the chief justice of the SC, hearings on graft and corruption issues against various
government officials, and public and military protests arising from alleged misconduct by previous and
current administrations. The SC also recently ruled against Maria Lourdes P. Sereno in the quo warranto
proceedings initiated by the Office of the Solicitor General (“OSG”), removing her from the post of Chief
Justice of the SC. There can be no assurance that acts of election-related or other political violence will not
occur in the future, and any such events could negatively impact the Philippine economy.

The Philippine Presidential elections were held in May 2016, and on June 30, 2016 President Rodrigo
Duterte assumed the presidency with a mandate to advance his “Ten-Point Socio-Economic Agenda”
focusing on policy continuity, tax reform, infrastructure spending and countryside development, among
others. The Duterte administration has initiated efforts to build peace with communist rebels and other
separatists through continuing talks with these groups.

President Duterte’s unconventional methods may also raise risks of social and political unrest. An unstable
political environment, whether due to the impeachment of government officials, imposition of emergency
executive rule, martial law or widespread popular demonstrations or rioting, could negatively affect the
general economic conditions and operating environment in the Philippines, which could have a material
adverse effect on AC Energy’s business, financial condition and results of operations.

In addition, AC Energy may be affected by political and social developments in the Philippines and changes
in the political leadership and/or government policies in the Philippines. Such political or regulatory changes
may include (but are not limited to) the introduction of new laws and regulations that could impact AC
Energy’s business.

No assurance can be given that any changes in such regulations or policies imposed by the Government
from time to time or the future political environment in the Philippines will be stable or that current or future
administrations will adopt economic policies conducive to sustaining economic growth. Political instability
in the future could reduce consumer demand for retail and consumer goods to AC Energy’s disadvantage,
or result in inconsistent or sudden changes in regulations and policies that affect AC Energy’s business
operations, which could have a material adverse impact on the results of operations and financial condition
of AC Energy.

AC Energy keeps abreast of regulatory and market developments to make sure that it is able to respond to
shifts timely.

A substantial portion of AC Energy’s business activities and assets are based in the Philippines,
which exposes AC Energy to risks associated with the country, including the performance of the
Philippine economy.

Historically, AC Energy has derived a substantial portion of its operating income and operating profits from
the Philippines and, as such, it is highly dependent on the state of the Philippine economy. Demand for AC
Energy’s services and products are directly related to the strength of the Philippine economy (including its
overall growth and income levels), the overall levels of business activity in the Philippines as well as the
amount of remittances received from overseas Filipinos. Factors that may adversely affect the Philippine
economy include:

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• decreases in business, industrial, manufacturing or financial activities in the Philippines, the

Southeast Asian region or globally;
• scarcity of credit or other financing, resulting in lower demand for products and services provided
by companies in the Philippines, the Southeast Asian region or globally;
• foreign exchange rate fluctuations;
• foreign exchange controls;
• inflation or increase in interest rates;
• levels of employment, consumer confidence and income;
• changes in the Philippine government’s fiscal and regulatory policies;
• Philippine government budget deficits;
• a re-emergence of SARS, bird flu, or H1N1, or the emergence of other similar diseases in the
Philippines or in other countries in Southeast Asia;
• natural disasters, including but not limited to tsunamis, typhoons, earthquakes, fires, floods and
similar events;
• geopolitical tensions between the Philippines and other claimant countries concerning disputed
territories in the South China Sea;
• political instability, terrorism or military conflict in the Philippines, other countries in the region or
globally; and
• other regulatory, social, political or economic developments in or affecting the Philippines.

Any future deterioration in economic conditions in the Philippines due to these or other factors could
materially and adversely affect AC Energy’s borrowers and contractual counterparties. This, in turn, could
materially and adversely affect AC Energy’s financial position and results of operations, including AC
Energy’s ability to grow its asset portfolio, the quality of AC Energy’s assets and its ability to implement AC
Energy’s business strategy. Therefore, changes in the conditions of the Philippine economy could materially
and adversely affect AC Energy’s business, financial condition or results of operations.

AC Energy continues to actively review and balance its portfolio in light of market conditions, regulatory
developments, technological improvements, and industry best practices.

Natural or other catastrophes, including severe weather conditions, may materially disrupt AC
Energy’s operations and result in losses not covered by its insurance.

The Philippines has experienced a number of major natural catastrophes over the years, including
typhoons, droughts, floods, volcanic eruptions and earthquakes. There can be no assurance that the
occurrence of such natural catastrophes will not materially disrupt AC Energy’s operations. These factors,
which are not within AC Energy’s control, could potentially have significant effects on AC Energy’s
operations. While AC Energy carries insurance for certain catastrophic events, in amounts and with
deductibles that AC Energy believes are in line with general industry practices in the Philippines, there are
losses for which AC Energy cannot obtain insurance at a reasonable cost or at all. However, should an
uninsured loss or a loss in excess of insured limits occur, AC Energy could lose all or a portion of the capital
invested in such business, as well as the anticipated future turnover, while remaining liable for any costs or
other financial obligations related to the business. Any material uninsured loss could materially and
adversely affect AC Energy’s business, financial position and results of operations.

For example, the Central Philippines experienced a severe typhoon, Typhoon Haiyan (Yolanda) in
November 2013, which caused extensive damage and claimed thousands of lives and damaged several
branches of AC Energy located in the region and had a significant effect on the economy of the region
affected by the typhoon, which, among other things, led to an increase in inflation, a decrease in the pace
of economic growth and/or a reduction in consumer spending, all of which would have had an adverse
effect on AC Energy’s results of operations.

AC Energy is mindful of its environmental, social, and governance commitments, and strives to conduct its
business in a sustainable manner, hand in hand with its risk management policy and insurance programs.

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Acts of terrorism could destabilize the country and could have a material adverse effect on AC
Energy’s business, financial position and results of operations.

The Philippines has been subject to a number of terrorist attacks in the past several years. The Philippine
army has been in conflict with the Abu Sayyaf organization which has been identified as being responsible
for kidnapping and terrorist activities in the Philippines, and is also alleged to have ties to the Al-Qaeda
terrorist network and, along with certain other organizations, has been identified as being responsible for
certain kidnapping incidents and other terrorist activities particularly in the southern part of the Philippines.

Furthermore, the Government and the Armed Forces of the Philippines (“AFP”) have clashed with members
of several separatist groups seeking greater autonomy, including the Moro Islamic Liberation Front (“MILF”),
the Moro National Liberation Front (“MNLF”) and the New People’s Army (“NPA”). In October 2011, 19 AFP
troops were killed in a firefight with MILF members in the southern Philippines. In December 2011, five AFP
soldiers were killed in a clash with NPA members. Beginning in September 2013, Government troops have
been involved in violent and deadly clashes with a faction of the MNLF that has been accused of
kidnappings and bombings in parts of Mindanao.

There have been numerous bombing incidents in Mindanao and elsewhere in the Philippines, which have
resulted in death and injury to the civilian population as well as military and security personnel.

In May 2017, after a joint operation of the AFP and the Philippine National Police (“PNP”) was launched in
Marawi City to capture an alleged terrorist leader, prolonged fighting ensued between the AFP and PNP
and a radical Islamist group called the Maute Group. The Maute Group is a group inspired by the bigger
extremist militant group known as the Islamic State in Iraq and Syria (“ISIS”). President Rodrigo Duterte
declared martial law in Mindanao. Hostilities have led to several casualties and substantial property
damage.

In October 2017, the Government announced that the leaders of the Maute Group have been killed. These
continued conflicts between the Government and separatist groups could lead to further injuries or deaths
by civilians and members of the AFP, which could destabilize parts of the Philippines and adversely affect
the Philippine economy. There can be no assurance that the Philippines will not be subject to further acts
of terrorism or violent crimes in the future, which could have a material adverse effect on AC Energy’s
business, financial condition, and results of operations.

AC Energy mitigates these risks through business interruption insurance, among others.

Territorial disputes with China and a number of Southeast Asian countries may disrupt the
Philippine economy and business environment.

The Philippines, China and several Southeast Asian nations have been engaged in a series of longstanding
territorial disputes over certain islands in the West Philippine Sea, also known as the South China Sea. The
Philippines maintains that its claim over the disputed territories is supported by recognized principles of
international law consistent with the United Nations Convention on the Law of the Sea (“UNCLOS”). Despite
efforts to reach a compromise, a dispute arose between the Philippines and China over a group of small
islands and reefs known as the Scarborough Shoal. Actions taken by both sides have threatened to disrupt
trade and other ties between the two countries, including a temporary ban by China on Philippine banana
imports, a temporary suspension of tours to the Philippines by Chinese travel agencies and the rejection
by China of the Philippines’ request for arbitral proceedings administered in accordance with the UNCLOS
to resolve the disputes.

In 2016, the Permanent Court of Arbitration ruled in favor of the Philippines against China over territorial
disputes in the West Philippine Sea. The arbitral tribunal unanimously ruled, among others, that (a) China
has “no historical rights” to the resources within the sea areas falling within the “nine-dash line”; (b) Chinese
reclamation activity in the West Philippine Sea has caused irreparable damage to the environment,
obligating the Chinese government to stop further activities in the West Philippine Sea; and (c) China has
violated the Philippines’ sovereign rights in its exclusive economic zone by interfering with Philippine fishing

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and petroleum exploration, constructing artificial islands, and failing to prevent Chinese fishermen from
fishing in the zone.

However, China has said it will not recognize the ruling. With no formal enforcement mechanism in place,
the territorial dispute in the West Philippine Sea remains contentious and unresolved.

There had been other occurrences of territorial disputes with Malaysia and Taiwan. In March 2013, several
hundred armed Filipino-Muslims illegally entered Malaysia in a bid to enforce an alleged historical claim on
the territory. Clashes between the Filipino-Muslim individuals and the Malaysian armed forces resulted in
casualties on both sides.

Taiwan imposed economic sanctions on the Philippines as a result of an incident in May 2013, whereby a
Taiwanese fisherman was unintentionally killed by a Philippine coast guard ship that opened fire on his
vessel in a disputed exclusive economic zone between Taiwan and the Philippines. The sanctions were
eventually lifted after a formal apology was issued by the Philippine government. On May 18, 2018, China’s
People’s Liberation Army Air Force announced that it has sent an H-6K bomber in the Paracel Islands in
the South China Sea.

Should territorial disputes between the Philippines and other countries in the region continue or escalate
further, the Philippines and its economy may be disrupted, and AC Energy’s operations could be adversely
affected as a result.

AC Energy keeps abreast of regulatory and market developments to make sure that it is able to respond to
shifts timely.

Volatility in the value of the Peso against the U.S. dollar and other currencies as well as in the global
financial and capital markets could adversely affect AC Energy’s businesses.

Sudden fluctuations or volatility in foreign exchange rates may make it difficult for the company to forecast
and manage its financials. The Peso was at ₱49.92 per U.S. $1.00 in December 31, 2017, then depreciated
to ₱52.72 per U.S. $1.00 at the end of 2018. The Peso slightly recovered at end of June 2019 to ₱51.36
against the U.S. dollar.

The Company monitors market developments and actively reviews its foreign exchange position so that
potential material adverse effects can be promptly addressed.

Uncertainties and instability in global market conditions could adversely affect AC Energy’s
business, financial condition, and results of operations.

Global markets have experienced, and may continue to experience, significant dislocation and turbulence
due to economic and political instability in several areas of the world. These ongoing global economic
conditions have led to significant volatility in capital markets around the world, including Asia, and further
volatility could significantly impact investor risk appetite and capital flows into emerging markets including
the Philippines.

Further, economic conditions in some Eurozone sovereign states could possibly lead to these member
states re-negotiating or restructuring their existing debt obligations, which may lead to a material change in
the current political and/or economic framework of the European Monetary Union. One potential change
that may result from the crisis is an end to the single-currency system that prevails across much of Europe,
with some or all European member states reverting to currency forms used prior to adoption of the euro.
The crisis could also lead to the restructuring or breakup of other political and monetary institutions within
the EU. The risk may have been exacerbated by the referendum on membership of the European Union,
held in the UK on June 23, 2016, where the UK public voted by a majority in favor of the British government
taking the necessary action for the UK to leave the EU.

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On March 29, 2017 the UK delivered to the European Council notice of its intention to withdraw from the
EU, pursuant to Article 50 of the Treaty on the European Union. The delivery of such notice started a two-
year period during which the UK is negotiating with the EU the terms of its withdrawal and of its future
relationship with the EU. If the parties fail to reach an agreement within this time frame, all EU treaties
cease to apply to the UK, unless the European Council, in agreement with the UK, unanimously decides to
extend this period. Absent such extension and subject to the terms of any withdrawal agreement, the United
Kingdom will withdraw from the European Union no later than March 29, 2019. There are a number of
uncertainties in connection with such negotiations, including their timing, and the future of the UK’s
relationship with the EU.

In addition, the UK’s decision to withdraw from the EU has also given rise to calls for the governments of
other European Union member states to consider withdrawal. These developments, or the perception that
any of them could occur, have had and may continue to have a material adverse effect on global economic
conditions and the stability of global financial markets, and may significantly reduce global market liquidity
and restrict the ability of key market participants to operate in certain financial markets, which could, in turn,
depress economic activity and have a ripple effect across sovereign states and the private sector in Europe
and the rest of the world and possibly lead to a global economic crisis. Any changes to the euro currency
could also cause substantial currency readjustments across Europe and other parts of the world.

Until the terms and timing of the UK’s exit from the EU are clearer, it is not possible to determine the impact
that the UK’s departure from the EU and/or any related matters may have on the stability of the Eurozone
or the European Union. These events and uncertainties could adversely impact AC Energy’s business,
financial condition and results of operations.

AC Energy keeps abreast of regulatory and market developments to make sure that it is able to respond to
shifts timely.

Developments outside the Philippines, including U.S. policies related to global trade and tariffs
could adversely affect AC Energy’s business, financial condition and results of operations.

The current international political environment, including existing and potential changes to U.S. policies
related to global trade and tariffs, have resulted in uncertainty surrounding the future state of the global
economy.

In September 2018, the U.S. imposed tariffs of 10% on many products from China. In response, the
European Union, China and other jurisdictions have introduced tariffs on U.S. goods. An escalating trade
war may have material adverse effects on the power industry and AC Energy’s business may be impacted
by these tariffs. Any further expansion in the types or levels of tariffs implemented has the potential to
negatively impact AC Energy’s business, financial condition and results of operations. Additionally, there is
a risk that the U.S. tariffs on imports are met with tariffs on U.S. produced exports and that a broader trade
conflict could ensue, which has the potential to significantly impact global trade and economic conditions.
Potential costs and any attendant impact on pricing arising from these tariffs and any further expansion in
the types or levels of tariffs implemented could adversely affect AC Energy’s business, financial condition
and results of operations.

Economic disruption in other countries, even in countries in which AC Energy does not currently conduct
business or have operations, could also adversely affect AC Energy’s businesses and results. Adverse
market and economic conditions continue to create a challenging operating environment for financial
services companies. In particular, the impact of interest and currency exchange rates, the risk of geopolitical
events, fluctuations in commodity prices and concerns about European stagnation as well as diverging
monetary policies among the major economies have affected financial markets and the economy.

In addition to the macroeconomic factors discussed above, other events beyond AC Energy’s control,
including terrorist attacks, cyber-attacks, military conflicts, economic or political sanctions, disease
pandemics, political unrest or natural disasters could have a material adverse effect on economic and

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market conditions, market volatility and financial activity, with a potential related effect on AC Energy’s
businesses and results.

There can be no assurance that the uncertainties affecting global markets will not negatively impact credit
markets in Asia, including in the Philippines. These developments may adversely affect trade volumes with
potentially negative effects on the Philippines.

AC Energy keeps abreast of regulatory and market developments to make sure that it is able to respond to
shifts timely.

Competitive Strengths

AC Energy believes that it has the following strengths:

• Well-positioned to benefit from a rapidly growing region increasingly embracing renewable energy
sources to address its long-term energy needs

AC Energy believes that it has selected highly attractive markets in the Asia Pacific in which to
pursue growth, particularly in the renewable energy space.
For the period 2007 - 2017, power consumption grew by 5% CAGR, according to the DOE. In order
to meet increasing demand, growth in installed capacity is essential and has compelled the
Philippine government to encourage the expansion in renewable energy capacity. The National
Renewable Energy Board (“NREB”) has set a target of reaching 15GW of installed renewable
capacity by 2030. In addition, renewable initiatives are currently in place, including income tax
holiday, lower corporate income tax rate and tax-free importation. The NREB has also launched
the Renewable Portfolio Standards (“RPS”), which mandates distribution utilities to source a portion
of their power supply from renewable energy and requires 35% of power demand to come from
renewable energy by 2030.

Similar to the Philippines, Indonesia, over the same period, power generation grew by 6.0% based
on information from the Perusahaan Listrik Negara (“PLN”, Indonesia’s sole electricity business
authority), underpinned by strong economic growth and the government’s electrification efforts.
Renewable power is expected to play a significant role in further supply expansion as the
government targets new and renewable energy sources to account for 23% of total energy
generation by 2025 and 31% by 2050. To support this growth, several renewable initiatives have
been introduced or are under review, such as favorable tariff for solar and wind, income tax and
importation incentives.

Vietnam offers one of the most attractive renewable energy markets in the region due to its large
population and rapid nominal GDP growth. Over the same period, electricity consumption grew by
10.7% driven by strong economic growth and the country’s rapidly expanding manufacturing sector,
based on information from the Ministry of Industry and Trade of Vietnam. According to Business
Monitor International, the Vietnam government is targeting power generation of over 330TWh by
2020 and over 695TWh by 2030, which are significantly higher than the aggregate electricity
generated in 2017 of 160TWh. Renewable power is expected to play a key role in supporting the
expansion in supply with the revised Power Development Plan 7 targeting 12GW and 6GW,
respectively, in solar and wind by 2030. In addition, renewable initiatives are currently in-place to
support this renewable target: for example, a 20-year FIT for solar and wind import tax exemptions
and corporate income tax reductions.

Being a mature and developed market, Australia offers stability with growth driven by the national
directive to shift towards renewable energy sources and the increasing cost competitiveness of
renewable technology. Australia has an established renewable market underpinned by the
Renewable Energy Act 2000. With the support of positive regulatory framework and the country’s
strong renewable projects pipeline, Australia’s non-hydroelectric renewable market capacity is

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expected to grow 7.2% annually during 2018 to 2027 according to Business Monitor International
data, especially with the decommissioning of coal-fired power plants that begun in 2012.

• Proven track record of delivering growth, rapid execution, performance and realizing value

In 2011, Ayala designated AC Energy (formerly AC Energy Holdings, Inc.), as the AC Energy
Group’s platform for its investments in the power sector. In view of AC Energy’s desire to be
responsive to the rapidly growing power supply needs of the Philippines and to its commitment to
sustainability, it assembled a portfolio and pipeline of projects from both conventional and
renewable energy sources.

To deliver on its objectives, on the same year, AC Energy made its initial foray into the renewables
space with its acquisition of a 50% stake in Northwind Power Development Corporation
(“NorthWind”), which operates a wind farm operating in Ilocos Norte, for a 16MW attributable
capacity. At the time of the investment, it was the only wind farm in the country and considered the
largest in Southeast Asia. AC Energy also signed a 50:50 JV agreement with the PHINMA Group,
a leading diversified business group in the Philippines, to develop the South Luzon Thermal Energy
Corporation (“SLTEC”) coal project, AC Energy’s first investment in conventional energy. The
project was subsequently expanded to include a second unit.

Having established its foothold in the Philippine power sector, AC Energy embarked on a series of
strategic power sector investments over the succeeding years.

In 2012, AC Energy announced that it was entering into a joint venture with Power Partners, Ltd.
Co. (“Power Partners”), a private partnership with a long history of power plant development in the
Philippines and founded in 2001, and Sithe Global Power, a company affiliated with the Blackstone
Group, as sponsors of GMCP which was undergoing commissioning at the time.

In 2013, it announced that it entered into an Investment Framework Agreement with UPC
Renewables Partners, and the Philippine Investment Alliance for Infrastructure (“PINAI”), a fund
financed by the Government Service Insurance System, Dutch pension fund asset manager APG
Asset Management, the Macquarie Group and the Asian Development Bank. The agreement saw
the launch of the North Luzon Renewables Project, an 81MW wind farm in Ilocos Norte, the PINAI
consortium’s first-ever investment in the country. In the same year, AC Energy and Power Partners
also established a JV to develop a thermal power plant in Lanao del Norte which would later
become the GNPower Kauswagan Project.

The period from 2014 to 2016 saw AC Energy further growing its attributable capacity and network
of partnerships, in the course of which AC Energy achieved several key milestones. In addition to
the acquisition of a 50% stake in GNPD, and the start of SLTEC Unit 1 and 2’s commercial
operations, in 2016 AC Energy announced its first geothermal investment and first international
investment in partnership with Star Energy and EGCO of Thailand to acquire a stake in the Salak-
Darajat Geothermal Projects, Chevron’s geothermal operations in Indonesia.

In 2016, AC Energy was granted a RES license by the ERC, enabling it to supply electricity to end-
users in contestable markets, after successfully demonstrating its technical, financial and
managerial capability to procure electricity and establish a system and the infrastructure needed to
ensure the supply of electricity to contestable customers. AC Energy also began commercial
operations of the Montesol Project, its first solar farm project, expanding AC Energy’s portfolio and
renewables technology capabilities to include solar, in addition to thermal, wind and geothermal.

Starting 2015, AC Energy began to realize value from its earlier investments. Mitsubishi and
Marubeni Corporation (“Marubeni”), among Japan’s largest trading houses and among the most
active Japanese business groups in the country, partnered with AC Energy by acquiring equity
interest in the North Luzon Renewables Project (in 2015) and in SLTEC (in 2016), respectively.

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With fresh capital from the sale of its strategic stakes in its portfolio, a larger balance sheet, and
the improved cost efficiency of emerging solar and wind technologies, AC Energy further embarked
on the expansion of its renewable energy and international capabilities.

In 2017, AC Energy acquired 100% of San Carlos Clean Energy (now AC Energy Development,
Inc.), a Philippines-based renewable energy developer, further expanding AC Energy’s in-house
renewable energy developmental and operational capability.

Over the next two years, AC Energy broadened its footprint in Indonesia, with the inauguration of
the Sidrap Project in 2018, AC Energy’s first offshore utility-scale wind farm and Indonesia’s first
commercial-scale wind farm. Through its partnership with the BIM Group and the AMI Group, the
acquisition of The Blue Circle, and establishment of a joint venture with UPC Renewables in
Australia, AC Energy has expanded its international presence and on-the-ground expertise to
include the rapidly developing renewable energy markets of Vietnam and Australia.

In May 2019, AC Energy completed the sale of a 49% voting interest with 60% economic interest
in AA Thermal, Inc. to AboitizPower. The transaction value was at USD 572.9 million after applying
agreed adjustments pursuant to the sale purchase agreement, providing AC Energy with significant
realized value and allowing it to recycle capital for its renewable energy objectives.

In 24 June 2019, AC Energy completed the acquisition of PHINMA’s combined 51.48% stake in
PHEN. AC Energy acquired PHINMA’s stake via a purchase of secondary shares for ₱3.669 billion.
AC Energy also subscribed to 2.632 billion PHEN primary shares at par value. A mandatory tender
offer was also conducted, with a total of 156,476 shares having been tendered. AC Energy’s total
ownership stake is now at ~66.34%, adding approximately 300MW of attributable capacity to AC
Energy’s portfolio.

Having grown its revenues and equity in net income and attributable capacity, including projects
under construction, AC Energy believes that it has demonstrated its ability to identify and deliver
attractive projects, attract world-class partners that complement its capabilities and create growth,
particularly in the renewable energy space.

Further to its achievements, to date, AC Energy has also achieved several awards among which
are:

a. Fastest Growing Energy Platform in IFM Awards 2017 – Philippines by London-based

International Finance Magazine

b. Smart Project Award by Project Finance International during the Asia Best Practice
Citations 2017

c. Recognized by several regional and international organizations including The Asset,

Alpha Southeast Asia, Project Finance International, International Financing Review
Asia and IJGlobal for the acquisition of the geothermal and power business of Chevron
Global Energy in Indonesia in 2017

• Portfolio of projects across geographies, technologies and regulatory regimes provides stable
cashflows, diversification and a strong platform for growth

AC Energy believes that it benefits from a portfolio approach to its investments, providing AC
Energy with a blend of seasoned and new operating projects that provide stable cashflows
underpinned by attractive, long-term contractual arrangements which are mostly dollar-linked and
a diverse business model (a combination of bilateral contracts, spot sales and FIT contracts), fuel
types, geographies and regulatory regimes that AC Energy is able to leverage as a platform for
renewable capacity expansion and international growth.

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The Northwind Project, Southeast Asia’s first commercial wind farm, is a 52MW wind farm in Ilocos
Norte province. Phases 1 and 2, with combined capacity of 33MW, began commercial operations
in 2005 and 2008 respectively, benefit from a FIT rate of ₱5.76/KWh for 20 years beginning from
June 2014. Phase 3 has a FIT rate of ₱8.53/KWh and is valid for 20 years. Phases 1 and 2, and
Phase 3 have demonstrated strong capacity factors at 42% and 44% respectively in 2018, owing
to the attractive wind energy potential of the northern Philippines. This recently declined to 27% for
all three units due to the El Nino phenomenon in the first half of 2019.

The North Luzon Renewables Project, an 81MW wind farm also in Ilocos Norte province, was
awarded a FIT rate of ₱8.53/KWh from November 2014 and until 20 years thereafter. For 2018, it
registered an availability factor of 94%.

AC Energy’s initial foray into solar energy, the Montesol Project, is an 18MW solar farm in the
province of Negros Oriental in the Visayas region of the Philippines. It is entitled to a FIT rate of
₱8.69/KWh valid for 20 years from March 2016. AC Energy believes in the potential for the project
to be further expanded to 50MW.

In Indonesia, the Salak-Darajat Geothermal Projects and Sidrap Wind Project, similarly enjoy
attractive commercial arrangements. The Salak- Darajat Geothermal Projects has PLN, the
national electricity distributor and the Indonesia market’s primary power purchaser, as its offtaker
having granted the project with a take-or-pay contract. The Sidrap Wind Project has a 30-year PPA
with the PLN at a US dollar-linked, levelized tariff, providing AC Energy with a hedge against any
potential volatility in the Indonesia Rupiah.

GMCP, AC Energy’s largest operating power asset in its portfolio to-date, in partnership with Power
Partners and Aboitiz Power, provides AC Energy with access to a highly attractive 2 x 316MW
clean pulverized coalfired power generation facility. Located in the Luzon island, the country’s
population and industrial base, over 95% of GMCP’s offtake is contracted by electric cooperatives,
with PPSAs ranging from 10 to 15 years. Most of the electric cooperatives that are off-takers of
GMCP are rated AAA by the National Electrification Administration as of end-2017. GMCP began
commercial operations in February 2014.

SLTEC similarly benefits from its proximity to the Mega Manila area, the region covering Metro
Manila, Central Luzon, and the CALABARZON area and the country’s economic center. SLTEC’s
capacity is fully contracted under a 15-year PPA. Unit 1 and 2 of SLTEC began commercial
operations in April 2015 and February 2016 respectively.

• Pipeline of projects in partnership with recognized and accomplished power industry developers,
operators and investors provides a visible path to growth

AC Energy believes that its partners in its domestic and international operations are some of the
most established developers and operators of conventional and renewable assets. In addition to
pursuing attractive investment opportunities together with the sector’s most established names, AC
Energy believes that its commitment to its objectives, visible track record of success in achieving
growth and the ability to forge partnerships in various market segments has made it a partner of
choice.

Key among AC Energy’s partners in the conventional energy business in the Philippines are Power
Partners, Marubeni and AboitizPower. Power Partners is a private limited partnership organized
and established in the Philippines in 2001 and formed by principals having extensive backgrounds
in power development both in the Philippines and around the world. Marubeni has significant power
presence in the country such as through the Ilijan natural gas-fired plant, Sual and Pagbilao coal-
fired plants and the San Roque hydro plant.

AboitizPower, one of the country’s largest power generation companies by gross installed capacity,
has been a partner of AC Energy in the GNPower Mariveles and the GNPower Dinginin Projects,

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and a shareholder in both projects even prior to AC Energy’s partial selldown of AA Thermal.
AboitizPower is led by the Spanish-Filipino Aboitiz family, whose involvement in the Philippine
power sector began in 1905. To-date, AboitizPower and its affiliated companies collectively is one
of the country’s largest business conglomerates, with a long history of operating conventional
power assets.

PINAI, an infrastructure-focused fund whose investors include the Macquarie Group, and the Asian
Development Fund, has also been a repeat partner of the AC Energy Group. Initially a partner for
the North Luzon Renewables Project, PINAI subsequently co-invested in the GNPower Kauswagan
Project, joining AC Energy and Power Partners as an additional limited partner.

The GNPower Kauswagan and GNPower Dinginin projects, are scheduled to commence
commercial operations from 2019 to 2020 and are expected to add 552MW of subcritical and 1,336
MW of supercritical net capacity into the system, respectively, of which an aggregate of 1,137MW
is attributable to AC Energy.

In the international space, AC Energy has partnered with UPC Renewables, a U.S.-based
renewable energy developer with over 20 years of global experience in the construction and
operations of wind and solar energy projects. UPC Renewables has developed over 3,500MW of
wind and solar projects, has a presence across 12 countries and has built 70 projects with
approximately U.S.$5.0 billion of project debt and equity deployed.

AC Energy began its partnership with UPC Renewables in the North Luzon Renewables Project.
Subsequent to this, AC Energy and UPC Renewables expanded their partnership by developing
and constructing the Sidrap Wind Project. Inaugurated by Indonesia’s President Joko Widodo, the
Sidrap Wind Project is AC Energy’s first offshore and Indonesia’s first utility-scale wind farm.

In 2018, UPC Renewables and AC Energy established a joint venture, UPC-AC Energy
Renewables Australia, which saw AC Energy invest U.S.$30 million for a 50% equity stake and
provide a U.S.$200 million facility to fund the partnership’s equity needs. UPC-AC Energy
Renewables Australia is developing the Robbins Island and Jim’s Plain wind projects and the NE
Solar Farm located in Australia, which in total potentially combine for up to 1,700MW of renewable
energy capacity.

In Southeast Asia, AC Energy has forged ties with The Blue Circle, the BIM Group, the AMI Group
and Star Energy for various wind, solar and geothermal projects. Through The Blue Circle, AC
Energy is participating in the development of The Blue Circle’s pipeline of projects across Southeast
Asia.

Through the BIM Group, AC Energy is participating in the development of 330MW of solar power
projects in the Ninh Thuan province of Vietnam. Through the AMI group, AC Energy is part of the
development of 80MW solar projects in Khan Hoa and Dak Lak provinces in Vietnam. These
projects in Vietnam are expected to benefit from a FIT rate incentive.

AC Energy believes that its various partnerships provide it with the ability to source high quality
projects efficiently and with local market expertise. Collectively, AC Energy’s current partnerships
provide visibility to over 4GW of expected gross capacity across wind, solar and geothermal
projects in the Philippines, Indonesia, Vietnam and Australia, helping drive AC Energy towards its
goal of achieving 5GW of attributable capacity from renewable energy sources by 2025.

For further information on AC Energy, please refer to its website www.acenergy.com.ph.

Regulatory

Downstream Oil Industry Deregulation Law

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Republic Act No. 8479, otherwise known as the Downstream Oil Industry Deregulation Act of 1998 (the
“Oil Deregulation Law”), provides the regulatory framework for the downstream oil industry in the
Philippines.

Under the Oil Deregulation Law, any person may import or purchase any quantity of crude oil and
petroleum products from foreign and domestic sources, lease or own and operate refineries and other
downstream oil facilities, and market such crude oil and petroleum products either in a generic name or
in its own trade name, or use the same for its own requirement. The same law declared as policy of the
state the liberalization and deregulation of the downstream oil industry in order to ensure a truly
competitive market under a regime of fair prices, adequate and continuous supply of environmentally
clean and high quality petroleum products.

To ensure the attainment of these objectives, the DOE, in consultation with relevant government
agencies, promulgated the Implementing Rules and Regulations of the Oil Deregulation Law in March
1998 through Department Circular No. 98-03-004 and the Supplementing Rules and Regulations of the
Oil Deregulation Law in June 1998 through Department Circular No. 98-06-009. The rules require any
person or entity engaged in any activity in the downstream oil industry to comply with the notice,
reportorial, quality, health, safety and environmental requirements set forth therein.

The DOE is the lead government agency overseeing the oil sector. With the enactment of the Oil
Deregulation Law, the regulatory functions of the DOE were significantly reduced. Deregulating the
downstream oil industry effectively removed the rate-setting function of the then Energy Regulatory Board,
leaving price-setting to market forces. DOE’s current function is solely to monitor prices and violations
under the law, which includes prohibited acts such as cartelization and predatory pricing.

Other functions of the DOE under the Oil Deregulation Law include the following:

a. monitoring and publishing the daily international crude oil prices, following the movements of
domestic oil prices, monitoring the quality of petroleum and stopping the operation of businesses
involved in the sale of petroleum products which do not comply with national standards of quality;

b. monitoring the refining and manufacturing processes of local petroleum products to ensure that
clean and safe technologies are applied;

c. maintaining a periodic schedule of present and future total industry inventory of petroleum products
to determine the level of supply;

d. immediately acting upon any report from any person of an unreasonable rise in prices of petroleum
products; and

e. in times of national emergency, when the public interest so requires, during the emergency and
under reasonable terms, temporarily taking over or directing the operations of any person or entity
engaged in the industry.

Promotion of Retail Competition

Pursuant to the Oil Deregulation Law’s objective to promote a competitive petroleum product market at
the retail level, the DOE is mandated to promote and encourage the active and direct participation of the
private sector and cooperatives in the retailing of petroleum products through joint venture or supply
agreements with new industry participants for the establishment and operation of gasoline stations. Under
prevailing rules and regulations, new industry participants are given preference in the (i) formulation and
implementation on management and skills training for the establishment, operation, management and
maintenance of gasoline stations and (ii) grant of gasoline station training and loans to be used as capital
for the establishment and operation of gasoline stations.

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Rules Relating to Retailing of Liquid Petroleum Products

In November 2017, the DOE promulgated Department Circular No. 2017-11-0011 or the Revised Rules
and Regulations Governing the Business of Retailing Liquid Fuels (the “Revised Retail Rules”). The
Revised Retail Rules apply to all persons engaged or intending to engage in the business of Retailing
Liquid Fuels. Liquid Fuels refer to gasoline, diesel, and kerosene.

A person intending to engage in the business of retailing liquid petroleum products must notify the Oil
Industry Management Bureau (“OIMB”) of its intention to engage in such activity and, upon compliance
with the requirements under the Liquid Petroleum Products Retail Rules, secure a certificate of
compliance (“Certificate of Compliance”) from the OIMB. The certificate shall be valid for a period of five
(5) years. The owner or operator of a retail outlet shall be deemed to be engaged in illegal trading of liquid
petroleum products if such owner or operator operates a retail outlet without a Certificate of Compliance.
Storage and dispensing of liquid fuels that are for own-use operation shall not be covered by the Revised
Retail Rules only upon issuance of a Certificate of Non-Coverage (“CNC”) by the DOE.

The Revised Retail Rules likewise imposes: (a) mandatory standards and requirements for new retail
outlets and minimum facility requirements for existing retail outlets; (b) rules and procedures relating to
fuel storage, handling, transfer and/or dispensing of liquid fuels; (c) requirements of other types of retail
outlets; (d) the conduct of inspection and monitoring by the OIMB; (e) rules and procedures relating to
liquid fuels quantity and quality; and (f) fines and/or sanctions against prohibited acts.

Liquid petroleum products dispensed at retail outlets must comply with the Philippine National Standards.
The Prohibited Acts include illegal trading, adulteration, underdelivering, refusal/ obstruction of inspection
and sampling, hoarding, and continuing to operate after an order or notice of cessation of operation has
been issued by the DOE. The refusal of inspection shall constitute prima facie evidence of the commission
of Prohibited Acts under the Revised Retail Rules.

The Biofuels Act of 2006

Republic Act No. 9367, also known as “The Biofuels Act of 2006”, aims to reduce the dependence of the
transport sector on imported fuel and, pursuant to such law, regulations mandate that all premium gasoline
fuel sold by every oil company in the Philippines should contain a minimum 10% blend of bioethanol
starting August 6, 2011. For diesel engines, the mandated biodiesel blend in the country was increased
from 1% to 2% starting February 2009.

In June 2015, the DOE issued Department Circular No. DC 2015-06-005, or the Amended Guidelines on
E-10 Implementation, which temporarily waives compliance by oil companies with the required bioethanol
blend for premium plus grade gasoline products when supply of locally produced bioethanol products are
insufficient to meet demand.

In 2008, a Joint Administrative Order known as the “Guidelines Governing the Biofuel Feedstock
Production and Biofuel Blends Production, Distribution and Sale” (the “Guidelines”) was issued by various
Philippine government agencies. The Guidelines mandate oil companies to blend biodiesel with diesel
and bioethanol with gasoline. The Guidelines further require oil companies to source biofuels only from
biofuel producers accredited by the DOE or from biofuel distributors registered with the DOE. Moreover,
unless authorized by DOE to import in case of shortage of supply of locally-produced bioethanol as
provided for under the Act, an oil company’s failure to source its biofuels from accredited biofuels
producers and/or registered biofuel distributors would constitute a prohibited act.

In June 2015, the DOE issued Department Circular No. DC 2015-06-007, or the Revised Guidelines on
the Utilization of Locally-Produced Bioethanol (“Revised Guidelines”), which repealed Department
Circular No. 2011-12-0013, or the “Guidelines on the Utilization of Locally-Produced Bioethanol in the
Production of E-Gasoline Consistent with the Biofuels Act of 2006”. The Revised Guidelines require oil
companies operating within the Philippines to secure and maintain a DOE accreditation as an “Oil Industry
Participant in the Fuel Bioethanol Program” and submit to the OIMB certain reports in order for the OIMB

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to monitor the oil companies’ compliance with the Revised Guidelines, including an annual performance
compliance report relating to the oil companies’ compliance with the minimum biofuel blends and monthly
reports on compliance with local monthly allocations for the use of locally-sourced bioethanol. The
Revised Guidelines further require oil companies to strictly comply with the Local Monthly Allocation
(“LMA”). The LMA refers to the local bioethanol volume imposed on oil companies based on the committed
volume by the local bioethanol producers of bioethanol available for lifting by the oil companies and
computed and circulated by the OIMB.

In February 2016, the Congress of the Philippines promulgated Republic Act No. 10745, amending The
Biofuels Act of 2006. The law allows natural gas power generation plants to use neat diesel (instead of
the mandated biofuel blend) as alternative fuel during shortages of natural gas supply. The DOE issued
Department Order No. 2016-07-0012 or the implementing rules and regulations for Republic Act No.
10745. This provides that the natural gas power generating plants with duly issued Certificate of
Compliance from the ERC can avail of the use of neat diesel in the following instances:

1. During maintenance and/or shutdown of facilities used for the supply of natural gas such as
pipelines, terminal, etc.

2. During force majeure which adversely affect the supply of natural gas to natural gas power plants,
or

3. Other analogous instances.

All suppliers of natural gas shall submit to the DOE their preventive maintenance schedule indicating the
dates when the suppliers of natural gas would be critical. During force majeure events, the DOE shall
determine the affected facilities for proper issuance of certification of the shortage of natural gas supplies.

LPG Laws and Regulations

B.P. 33

B.P. 33, as amended by PD 1865, provides for certain prohibited acts inimical to public interest and
national security involving petroleum and/or petroleum products. These prohibited acts include, among
others, (a) illegal trading in petroleum and/or petroleum products, and (b) under delivery or underfilling
beyond authorized limits in the sale of petroleum products or possession of underfilled liquefied petroleum
gas cylinder for the purpose of sale, distribution, transportation, exchange or barter. For this purpose, the
existence of the facts hereunder gives rise to the following presumptions:

1. That cylinders containing less than the required quantity of liquefied petroleum gas which are not
property identified, tagged and set apart and removed or taken out from the display area and made
accessible to the public by marketers, dealers, sub-dealers or retail outlets are presumed to be for
sale;

2. In the case of a dispensing pump in a petroleum products retail outlet selling such products to the
public, the absence of an out-of-order sign, or padlocks, attached or affixed to the pump to prevent
delivery of petroleum products therefrom shall constitute a presumption of the actual use of the
pump in the sale or delivery of such petroleum products; and

3. When the seal, whether official or of the oil company, affixed to the dispensing pump, tank truck or
liquefied petroleum gas cylinder, is broken or is absent or removed, it shall give rise to the
presumption that the dispensing pump is underdelivering, or that the liquefied petroleum gas
cylinder is underfilled, or that the tank truck contains adulterated finished petroleum products or is
underfilled.

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The use of such pumps, cylinders or containers referred to above, to deliver products for sale or
distribution shall constitute prima facie evidence of intent of the hauler, marketer, refiller, dealer or retailer
outlet operator to defraud.

Under the said law, “illegal trading in petroleum and/or petroleum products” is understood to mean, among
others, (a) the sale or distribution of petroleum products without license or authority from the OIMB, (b)
non-issuance of receipts by licensed oil companies, marketers, distributors, dealers, subdealers and other
retail outlets, to final consumers; provided: that such receipts, in the case of gas cylinders, shall indicate
therein the brand name, tare weight, gross weight, and price thereof, (c) refilling of liquefied petroleum
gas cylinders without authority from the OIMB, or refilling of another company’s or firm’s cylinders without
such company’s or firm’s written authorization, and (d) marking or using in such cylinders a tare weight
other than the actual or true tare weight thereof.

“Underfilling” or “under delivery” refers to a sale, transfer, delivery or filling of petroleum products of a
quantity that is actually beyond authorized limits than the quantity indicated or registered on the metering
device of container. This refers, among others, to the quantity of petroleum retail outlets or to liquefied
petroleum gas in cylinder or to lube oils in packages.

R.A. 9514 - IRR

The Implementing Rules and Regulations of Republic Act No. 9514 or the Fire Code of 2008 also outlines
requirements for storage and handling of LPG by outside bulk LPG stores and filling stations and the
transportation of LPG which require among others, that during the unloading or transfer of LPG, the tank
truck shall be located or parked clear of a public thoroughfare, unless the failure to transfer would create
a hazard or it is impossible due to topography.

LPG Industry Rules

In January 2014, the Department of Energy issued Department Circular 2014-01-0001, or the Rules and
Regulations Governing the Liquefied Petroleum Gas Industry (the “LPG Industry Rules”). The LPG
Industry Rules apply to all persons engaged or intending to engage in the business of importing, refining,
refilling, marketing, distributing, handling, storing, retailing, selling and/or trading of LPG.

A Standards Compliance Certificate (“SCC”) from the OIMB is required before engaging in any LPG
Industry Activity. The SCC is valid for a maximum of three calendar years from date of issue and may be
renewed. LPG Industry participants must also submit certain reports to the OIMB.

The LPG Industry Rules also imposes (a) minimum standards and requirements for refilling and
transportation of LPG; (b) qualifications and responsibilities for LPG Industry participants such as bulk
suppliers, refillers, marketers, dealers, and retail outlets.

Brand owners whose permanent mark appears on the LPG cylinder are presumed under the rules as the
owner thereof, irrespective of their custody, and shall ensure that its cylinders comply with all required
quality and safety standards. The owner of the cylinders is also required to secure product liability
insurance for any liability that may result from an unsafe condition of LPG cylinders.

Rules Pertinent to Auto-LPG Motor Vehicles

On February 13, 2007, the DOE issued DOE Circular No. DC 2007-02-0002 entitled “Providing for the
Rules and Regulations Governing the Business of Supplying, Hauling, Storage, Handling, Marketing and
Distribution of Liquefied Petroleum Gas for Automotive Use” (the “Auto-LPG Rules”). The Auto-LPG Rules
govern the business of supplying, hauling, storage, handling, marketing and distribution of LPG for
automotive use.

Under the rules, an Auto-LPG Industry Participant is required to secure from the DOE through the OIMB
an SCC before it can operate. The Auto-LPG Rules also mandate all participants to observe a code of

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practice consisting of operational guidelines and procedures to ensure the safe operation in the auto LPG
business. Illegal trading, adulteration and hoarding are likewise prohibited. Under the Auto-LPG Rules,
the following shall constitute prima facie evidence of hoarding: (a) the refusal of Auto-LPG Dispensing
Stations to sell LPG products for automotive use shortly before a price increase or in times of tight supply,
and in both instances if the buyer or consumer has the ability to pay in cash for the product; and (b) the
undue accumulation of Auto-LPG Dispensing Stations of LPG products for automotive use in times of
tight supply or shortly before a price increase. For purposes of this Auto LPG Rules, “undue accumulation”
shall mean the keeping or stocking of quantities of LPG products for automotive use beyond the inventory
levels as required to be maintained by the Auto-LPG Dispensing Stations, for a period of thirty (30) days
immediately preceding the period of tight supply or price increase.

The Land Transportation Office (“LTO”) also issued Memorandum Circular No. RIB-2007-891 or the
“Implementing Rules and Regulations in the Inspection and Registration of Auto-LPG Motor Vehicles.”
The Circular requires the device for the use of LPG as fuel by any motor vehicle to be installed only by
the conversion/installing shop duly certified by the Bureau of Product and Standards (“BPS”) of the DTI
under its Philippine Standards Certification Mark scheme. The converted vehicle shall be subjected to an
annual maintenance and inspection by the BPS certified conversion/installing shop. The BPS certified
conversion/installing shop shall issue a corresponding Certificate of Inspection and Maintenance
Compliance.

Governmental approval of AC Energy’s products and services is generally not required. However,
petroleum products refined at the Limay Refinery are subject to Philippine National Standards (“PNS”)
specifications. The DTI, through the Bureau of Products Standards, ensures that all products comply with
the specifications of the PNS. The Oil Deregulation Law also requires the registration with the DOE of any
fuel additive prior to its use in a product.

On September 7, 2010, the DENR issued Department Order No. 2010-23 on the Revised Emission
Standards for Motor Vehicles Equipped with Compression Ignition and Spark Ignition Engines, mandating
compliance of all new passenger and light duty motor vehicles with Euro IV (PH) emission limits subject
to fuel availability, starting on January 1, 2016. Euro IV vehicle emission technology requires a more
stringent fuel quality of 0.005% sulfur content for both diesel and gasoline.

Philippine government regulations also require the following: fire safety inspection certificates; certificates
of conformance of facilities to national or accepted international standards on health, safety and
environment; product liability insurance certificates or product certificate of quality; and the ECC issued
by the DENR for service stations and for environmentally-critical projects. These certificates have to be
submitted to the DOE for monitoring (not regulation) purposes. Reports to the DOE are required for the
following activities/projects relating to petroleum products: (a) refining, processing, including recycling and
blending; (b) storing/ transshipment; (c) distribution/operation of petroleum carriers; (d) gasoline stations;
(e) LPG refilling plant; (f) bunkering from freeports and special economic zones; and (g) importations of
petroleum products and additives. In addition, importations of restricted goods require clearances from
the proper governmental authorities.

Oil Pollution Compensation Act of 2007

Republic Act No. 9483, otherwise known as the Oil Pollution Compensation Act of 2007, imposes strict
liability on the owner of the ship for any pollution damage caused within the Philippine territory. Pollution
damage is the damage caused outside the ship by contamination due to the discharge of oil from the ship,
as well as the cost of preventive measures to protect it from further damage.

The law also provides that any person who has received more than 150,000 tons of “contributing oil” (as
explained below) in a calendar year in all ports or terminal installations in the Philippines through carriage
by sea shall pay contributions to the International Oil Pollution Compensation Fund in accordance with
the provisions of the 1992 International Convention on the Establishment of an International Fund for
Compensation for Oil Pollution Damage. For this purpose, “oil” includes any persistent hydrocarbon

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mineral oil such as crude oil, fuel oil, heavy diesel oil and lubricating oil, whether carried on board a ship
as cargo or in bunkers of such a ship.

A person shall be deemed to have received “contributing oil,” for purposes of determining required
contributions, if he received such oil from another country or from another port or terminal installation
within the Philippines, notwithstanding that this oil had already been previously received by him. Where
the quantity of contributing oil received by any person in the Philippines in a calendar year, when
aggregated with the quantity of contributing oil received in the Philippines in that year by such person’s
subsidiaries or affiliates, exceeds 150,000 tons, such person, including its subsidiaries and affiliates, shall
pay contributions in respect of the actual quantity received by each, notwithstanding that the actual
quantity received by each did not exceed 150,000 tons. Persons who received contributing oil are required
to report to the DOE. Contributing oil means crude oil and fuel oil as defined under Republic Act No. 9483.

Republic Act No. 9483 provides for the establishment of a fund to be constituted from, among others, an
impost amounting to ten centavos per liter levied on owners and operators and tankers and barges hauling
oil and/or petroleum products in Philippine waterways and coast wise shipping routes. This new fund,
named the Oil Pollution Management Fund, will be in addition to the requirement under the 1992 Civil
Liability Convention and 1992 Fund Convention and will be administered by the Maritime Industry
Authority (“MARINA”).

In April 2016, the DOTr (then the DOTC) promulgated the implementing rules and regulations of Republic
Act No. 9483. Under the rules, oil companies are required to submit (a) reports on the amount of
contributing oil received and (b) sales and delivery reports of persistent oil.

Other Regulations on Water Pollution

Philippine maritime laws and regulations are enforced by two Philippine government agencies: the
MARINA and the Philippine Coast Guard. Both are agencies under the DOTr.

The MARINA is responsible for integrating the development, promotion, and regulation of the maritime
industry in the Philippines. It exercises jurisdiction over the development, promotion, and regulation of all
enterprises engaged in the business of designing, constructing, manufacturing, acquiring, operating,
supplying, repairing, and/or maintaining vessels, or component parts thereof, of managing and/or
operating shipping lines, shipyards, dry docks, marine railways, marine repair ships, shipping and freight
forwarding agencies, and similar enterprises.

To address issues on marine pollution and oil spillage, the MARINA issued: (a) Circular No. 2007-01
which mandated the use of double-hull vessels including those below 500 tons deadweight tonnage by
the end of 2008 for transporting Black Products; and (b) Circular No. 2010-01 for transporting White
Products in certain circumstances by 2011.

The Philippine Coast Guard, in a 2005 Memorandum Circular, provided implementing guidelines based
on the International Convention for the Prevention of Pollution from Ships, MARPOL 73/78. The guidelines
provide that oil companies in major ports or terminals/depots are required to inform the Philippine Coast
Guard through its nearest station of all transfer operations of oil cargoes in their respective areas.
Furthermore, oil companies and tanker owners are required to conduct regular team trainings on
managing oil spill operations including the handling and operations of MARPOL combating equipment. A
dedicated oil spill response team is required to be organized to react to land and ship-originated oil spills.
Oil companies, oil explorers, natural gas explorers, power plants/barges and tanker owners are also
required to develop shipboard oil pollution emergency plans to be approved by the Philippine Coast
Guard.

Moreover, both the Clean Water Act and the Philippine Coast Guard Guidelines provide that the spiller or
the person who causes the pollution has the primary responsibility of conducting clean-up operations at
its own expense.

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Renewable Energy Act

Republic Act No. 9513, otherwise known as the Renewable Energy Act of 2008 (the “RE Law”) was
signed into law by former President Gloria Macapagal-Arroyo on December 16, 2008 and became
effective on January 31, 2009. The RE Law provides for the acceleration and development of renewable
resources. It aims to increase the utilization of renewable energy which will provide enhanced market
and business opportunities for the renewable energy generation subsidiaries.

Among the RE Law’s declared policies is to accelerate and develop the use of the country’s renewable
energy (“RE”) resources to (a) reduce the country’s dependence on fossil fuels, thereby minimizing
exposure to price fluctuations in the international markets, and (b) reduce or prevent harmful emissions
and promote a healthy and sustainable environment.

The RE Law imposes a government share on existing and new RE development projects at a rate of 1%
of the gross income from the sale of renewable energy and other incidental income from generation,
transmission and sale of electric power, except for indigenous geothermal energy which shall be at a rate
of 1.50% of gross income. Proceeds from micro-scale projects for communal purposes and non-
commercial operations, not exceeding 100 kW, and proceeds from the development of biomass
resources will not be subject to the said government share.

The RE Law offers fiscal and non-fiscal incentives to RE developers, including developers of hybrid
systems, subject to certification by the DOE in consultation with the BOI. These incentives include an
ITH for the first seven years of commercial operations; duty-free importations of RE machinery, equipment
and materials effective within ten years upon issuance of certification, provided, said machinery,
equipment and materials are directly and actually needed and exclusively used in RE facilities; special
realty tax rates on civil works, equipment, machinery and other improvements of a registered RE
developer not exceeding 1.50% of the net book value; net operating loss carry-over; corporate tax rate
of 10% after the seventh year; accelerated depreciation; zero-percent VAT on sale of fuel or power
generated from RE sources and other emerging sources using technologies such as fuel cells and
hydrogen fuels and on purchases of local supply of goods, properties and services needed for the
development, construction and installation of RE facilities; cash incentives for missionary electrification;
tax exemption on the sale of carbon emission credits; and tax credit on domestic purchases of capital
equipment and services.

All fiscal incentives apply to all RE capacities upon the effectivity of the RE Law. RE producers from
intermittent RE resources are given the option to pay transmission and wheeling charges on a per
kilowatt-hour basis at a cost equivalent to the average per kilowatt-hour rate of all other electricity
transmitted through the grid. Qualified and registered RE generators with intermittent RE resources shall
be considered “must dispatch” based on available energy and shall enjoy the benefit of priority dispatch.
Electricity generated from RE resources for the generator’s own consumption and/or for free distribution
to off-grid areas is exempt from the universal charge. The RE Law further provides financial assistance
from government financial institutions for the development, utilization and commercialization of renewable
energy projects, as may be recommended and endorsed by the DOE.

Pursuant to Department Circular No. DO2009-05-008 dated May 25, 2009 (Rules and
Regulations Implementing the Renewable Energy Act of 2008), the DOE, the BIR and the Department of
Finance shall, within six months from its issuance, formulate the necessary mechanism and/or guidelines
to implement the entitlement to the general incentives and privileges of qualified RE developers.
However, to fully implement the RE Law, the Renewable Portfolio Standards, the RE Market and the
changes in the WESM Rules for intermittent generation should still be implemented.

Further, the RE Law provides a policy on FIT. The FIT scheme mandates electric power industry
participants to source RE-derived electricity at a guaranteed fixed price (the “FIT Rate”). This scheme
was primarily viewed as a way to entice the private sector players to hasten investment into the renewable
power generation sector due to the urgent need of the Philippines to deploy additional capacity.

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RE projects are governed by an RE Contract, a service agreement between the Philippine Government
and an RE developer over an appropriate period of time as determined by the DOE in which the RE
developer will have the exclusive right to explore, develop or utilize a particular RE area.

Feed-In Tariff

The ERC issued Resolution No. 16, Series of 2010 (“ERC Resolution No. 16-2010” or the “FIT Rules”),
otherwise known as “Resolution Adopting the Feed-In Tariff Rules”, which establishes the FIT system
and regulates the method of establishing and approving the FITs and the FIT Allowance (“FIT-All”).

The FIT Rules are specific for each emerging renewable energy technology and to be applied only to
generation facilities which enter into commercial operation after effectivity of the FIT Rules or to such
parts of such existing facilities which have been substantially modified or expanded as provided under
the FIT Rules.

Under the FIT Rules, the FITs are specific for each eligible renewable energy plants (“Eligible RE Plants”),
which are those power facilities with COCs issued to them that utilize emerging renewable energy
resources or to such parts of such existing facilities that have been substantially modified or expanded,
which enter into commercial operation after effectivity of the FIT Rules. These include facilities intended
for their owners’ use, which are connected to the transmission or distribution networks and are able to
deliver to such networks their generation or parts thereof.

The renewable energy plants which have started commercial operations after the effectivity of the RE
Law and are not bound under any contract to supply the energy they generate to any distribution utility
or consumer, may avail of the FITs from time to time they are certified by the ERC as eligible through an
amendment of the COC issued to them and for a period of 20 years less the number of years they have
been in operation.

FITs shall be established for each generation plant using: (a) wind energy resources; (b) solar energy
resources; (c) ocean energy resources; (d) run-of-river hydroelectric power resources; (e) biomass
energy resources; and (f) renewable energy components of technologies listed above of hybrid systems
under the RE Law.

The FIT System applicable to renewable energy plants in on-grid areas are: (a) Technology-specific FITs;
(b) Fixed FITs; and (c) Time-of-Use FITs.

Eligible RE Plants shall be entitled to the applicable FITs to them for a period of 20 years. After this
period, should these plants continue to operate, their tariffs will be based on prevailing market prices or
whatever prices they should agree with an offtaker.

Electricity consumers who are supplied with electricity through the distribution of transmission network
shall share in the cost of the FITs in part through a uniform charge (in P/kWh) referred to as the FIT-All
and applied to all billed kWh. NGCP ensures that the FIT-All fund is sufficient to pay all renewable energy
producers regularly.

Nationality Restrictions

Please refer to “Regulatory Framework – Nationality Restrictions” on page [•] of this Prospectus.
Environmental Laws

Please refer to “Regulatory Framework – Environmental Laws” on page [•] of this Prospectus.

INFRASTRUCTURE

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AC Infrastructure Holdings Corporation

AC Infrastructure Holdings Corporation (“AC Infra”) is Ayala Corporation’s vehicle for investments in
the infrastructure and logistics sector. It operates and manages a portfolio of projects in the toll road, rail,
airport, and logistics sectors through its various subsidiaries.

AC Infra intends to meet the country’s urgent need for efficient, reliable, safe, and sustainable modes of
mass transportation and transport services to move people, goods, and services by investing in strategic
solutions using new or existing technologies and platforms. It develops businesses and infrastructure
projects to support the growing needs of the public and private sectors in the areas of mass transportation,
mobility, and fulfilment solutions services.

Established in 2006, AC Infra has been participating in various public-private partnership (“PPP”) bids
and has been awarded three PPP projects to date. Following its first PPP win of the Muntinlupa-Cavite
Expressway (“MCX”), formerly known as the Daang Hari-SLEX connector road, in 2012, it also won,
through a consortium comprising the Ayala and First Pacific groups, the Automated Fare Collection
System project as well as the operation and maintenance of LRT 1 and the LRT 1 Cavite Extension project,
together with the Metro Pacific and Macquarie groups.

Since its inauguration in July 2015, MCX serves an average of 35,000 vehicles daily as of July 2019. Light
Rail Manila Corporation, which operates and maintains LRT1, has increased the number of light rail
vehicles running on the line by from 77 to 113 as of July 2019 since it took over operations in September
2015. Construction work on the Cavite extension project is ongoing, which will add 11.7kms to the line from
Baclaran to Bacoor, Cavite.

The beep payment system has sold over 7.9 million cards and facilitated ₱16 billion in transaction value
across various rail, bus, and toll road systems in 2018.

In 2017, AC Infra entered the logistics space with its investment in Entrego Fulfillment Solutions, Inc.
Entrego was initially set-up as Zalora Philippine’s in-house fulfillment solutions division to ensure delivery
lead times and service levels are aligned with customers’ expectations. In 2017, this division was spun-off
and Entrego emerged as an independent company – a joint venture between AC Infra and the Global
Fashion Group, an affiliate of Zalora.

Entrego helps businesses manage their B-to-C and B-to-B logistics and fulfillment needs by providing
customized end-to-end solutions. Its technology backbone enables real-time tracking of shipment,
providing clients visibility and peace of mind that goods get to their destination.

AC Infra constantly looks for opportunities to build infrastructure needed to support new and innovative
business models and accelerate growth in the country.

MCX Tollway Inc.

Ownership: 100% owned by Ayala Corporation
Concession Terms: 30 Years

MCX Tollway, Inc. is Ayala’s first toll road project, which was awarded in 2011, under the Government’s
PPP program. It is a vital access road that links the rapidly growing city of Muntinlupa and the province of
Cavite to Metro Manila.

Project Overview: 4-km, 4-lane toll road, from the junction of Daang Reyna and Daang Hari in Las
Pinas/Bacoor, Cavite to SLEX through Susana Heights Interchange in Muntinlupa, traversing the New
Bilibid Prison Reservation. The link-road passes through the Susana Heights Interchange as exit and entry
from north and south of SLEX and widening of the existing bridge crossing SLEX as well as the expansion
of the Susana Heights toll plaza.

Light Rail Manila Corporation

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AC Infra Effective Stake: 35%

Concession Terms: 35 Years

Light Rail Manila Corporation (“LRMC”) is a joint venture company of AC Infra, Metro Pacific Light Rail
Corporation, and Philippine Investment Alliance for Infrastructure fund. LRMC operates and maintains the
existing LRT Line 1 and will construct an 11.7-km extension from the present end-point at Baclaran to the
Niog area in Bacoor, Cavite. A total of eight new stations will be built along this route, which traverses the
cities of Parañaque and Las Piñas up to Bacoor, Cavite to help ease the worsening traffic conditions in
this corridor and enhance commercial development around the rail stations.

Project Overview: Line 1 runs a total of 20 kilometers from Baclaran in Pasay City to Roosevelt in
Quezon City and will be extended by another 11.7-kilometers extension from the present end point at
Baclaran to the Niog area in Bacoor, Cavite. Of this length, 10.5 kilometers will be elevated and
1.2kilometers will be at-grade. The whole stretch of the integrated LRT 1 will have a total length
of approximately 32.4 kilometers.

AF Payments Inc.
Ownership: The AF Consortium is composed of the following companies:
• 36% Ayala Group Effective Stake, composed of AC Infra, BPI Card Finance Corporation and Globe.
• 20% Metro Pacific Investments, 20% Smart Communications, Inc., and 10% Meralco Financial
Services Corp. for the First Pacific group
Concession Terms: 10 years

AF Payments Inc. is a consortium between the two of the country’s biggest conglomerates, the Ayala
Group and First Pacific Group – known as the AF Consortium. The AF Consortium brings together
companies that have strong track records and experience in operating banking and payments, utilities,
retail, telecommunications, and toll road businesses, focused on developing commuting efficiency and
improving customer experience.

Project Overview: AFPI provides contactless and electronic payment systems used in various mass
transportation systems. The cashless payment system is used to make payments on public transport,
specifically the rail system, and is planned to be available in a wide range of retailers and facilities. The
name of the application is beep™.

Entrego Fulfillment Solutions, Inc.

In 2017, AC Infra entered the logistics space with its investment in Entrego Fulfillment Solutions, Inc.
Entrego was initially set-up as Zalora Philippine’s in-house fulfillment solutions division to ensure delivery
lead times and service levels are aligned with customers’ expectations. In 2017, this division was spun-off
and Entrego emerged as an independent company – a joint venture between AC Infra (60%) and the Global
Fashion Group (40%), an affiliate of Zalora.

Risk / Challenges Relating to the Group’s Infrastructure Business

AC Infra’s ability to successfully operate its transport infrastructure business

AC Infra’s ability to successfully grow and operate its transport infrastructure business is subject to
various risks and uncertainties, including:

• the need to procure materials, equipment and services at reasonable costs and in a timely
manner;
• reliance on third-party providers and consultants, for those aspects of the business where AC Infra
has limited expertise or experience;
• the possible need to raise additional financing to fund transport infrastructure projects, which AC Infra
may be unable to obtain on satisfactory commercial terms or at all;

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• errors or delays in the design, engineering, construction, installation, inspection, commissioning,

management or operation of each project;
• penalties if concession requirements are not satisfied;
• its ability to secure adequate right-of-way for its toll road projects;
• its ability to complete projects according to budgeted costs and schedules;
• its ability to reach forecasted traffic figures;
• its ability to implement increases in tariff/fees; and
• delays or denials of required approvals, including required concessional and environmental
approvals.

In addition, exposure to the following risks have been growing in significance alongside AC Infra’s
expansion into investments outside of traditional transport infrastructure businesses such as logistics:
• systems security breach and other potential systems integrity issues that will hamper the businesses
from rendering technology-driven solutions to their clients or customers
• brand and reputational hits may discourage clients or customers from patronizing services offered
• inability to differentiate products or services may lead to losing market share due to increasing
competition
• inability to attract and retain talent may hamper the development of value-adding solutions or impede
the delivery of services

Occurrence of any of the foregoing or a failure by AC Infra to successfully operate its transport
infrastructure business could have a material adverse effect on its business, financial condition and
results of operations.

AC Infra’s ability to secure new concessions

AC Infra’s plans in relation to the transport infrastructure business contemplate the continued
acquisition of new concessions and projects. AC Infra’s ability to expand its business and increase
operating profits may be limited as a result of various external events. For example, concessions for new
projects under consideration may be awarded to competing bidders or competition for such concessions
may increase the cost of new concessions, thereby reducing returns.

In addition, changes in laws, rules or regulations or government policy, such as unexpected changes in
regulatory requirements (including with respect to taxation and tariffs), could increase the cost of
conducting the transport infrastructure business or change the potential return available to AC Infra
from the project which could have a material adverse effect on its business, financial condition, results
of operations and prospects.

Mitigation of Risks

Given the significance and potential impact of risks described above, the key steps described below have
been taken by business units across the AC Infra Group to address and/or mitigate these risks:

Improved compliance monitoring and communication channels with regulatory agencies and other
subunits of the government
• Investee companies have set up their compliance arms to ensure that provisions set under their
respective concession agreements are met, for PPP projects, and/or applicable regulatory
requirements are adhered to.
• For investee companies involved in PPP Projects, protocols are formalized to ensure clear and
meaningful communications with their grantors and/or other regulators, as may be applicable; for
example, institution of dispute resolution committees to help resolve disputes between the
concessionaire and its grantor.
• For investee companies outside of the PPP format, formal and regular engagement with
regulators, as may be applicable, are included in their corporate communications programs

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• With such initiatives, the business units are expected to establish better rapport with grantors,
regulators and other subunits of the government that would allow them to better address issues
and/or take the necessary actions to avoid jeopardizing business operations
• Keeping an eye on upcoming or possible changes in the regulatory environment is part of the
mandate of these compliance teams

Talent and internal capability development as a key corporate priority

• As with other business units under the Ayala Group, talent development is a key priority in the AC
Infra Group. Talent development milestones are explicitly included in corporate and individual
KPIs.
• Business units consciously take steps to hear out and address employee grievances

Strong CSR and Sustainability thrusts

• Investee companies subscribe to the corporate social responsibility and sustainability thrusts
espoused by the Ayala Group geared towards meeting the Sustainable Development Goals as
defined by the United Nations.
• Each company is encouraged to allot resources for sustainability and community development
project. (e.g. LRMC and AFPI supporting DOT in its key projects such as its initiative for
Intramuros)
• Such initiatives are expected to help build brand reputation and equity as well improve stakeholder
engagement

System integrity is key

• For tech-driven businesses, maintaining system integrity is of utmost priority such that these
business units put up robust IT and systems teams to meet business requirements while
maintaining system security and system integrity
• Representatives from these companies subscribe to initiatives in developing, adopting and
maintaining system integrity protocols spearheaded by Ayala for business units under its group
• Where applicable, investee companies secure insurance policies against potential breaches

Regulatory

Government Procurement Reform Act

Under the Government Procurement Reform Act, which was approved on January 10, 2003 (“Government
Procurement Reform Act”), all procurement activities of the Philippine government, its departments,
bureaus, offices and agencies, including state universities and colleges, government-owned and/or
controlled corporations, government financial institutions and local government units shall be done through
public, open and competitive bidding. The said law covers all procurement activities by all branches and
instrumentalities of the Philippine government, including infrastructure projects, regardless of source of
funds, whether local or foreign.

Each procuring entity (i.e., the relevant Philippine government agency or instrumentality) is required to
establish a bids and awards committee, composed of at least five but not more than seven members. The
committee shall advertise and/or post the invitation to bid, conduct pre-procurement and pre-bid
conferences, determine the eligibility of prospective bidders, receive bids, conduct the evaluation of bids,
undertake post-qualification proceedings, recommend award of contracts to the head of the procuring entity
or his duly authorized representative.

The Government Procurement Reform Act requires a winning bidder, as a measure of guarantee for the
faithful performance of and compliance of its obligations under the contracts, to post a performance security
prior to the signing of any awarded contract. The failure to do the same within the period stipulated in the
bidding documents may disqualify the bidder.

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Build-Operate-Transfer Law

Under Republic Act No. 6957 (the “BOT Law”), which took effect on October 9, 1990, all government
infrastructure agencies, including government-owned and controlled corporations and local government
units, were authorized to enter into contract with any duly prequalified private contractor for the financing,
construction, operation and maintenance of any financially viable infrastructure facilities through private
initiative and investment: the Build-Operate-Transfer (“BOT”) or Build-Transfer (“BT”).

Republic Act No. 7718 (“RA 7718”) amended the original BOT Law and authorized variations of the
contractual schemes that may be entered into by the Government with qualified private parties. RA 7718
also introduced the concept of of unsolicited proposals, by virtue of which national and local government
agencies are allowed to accept unsolicited proposals for projects which (a) involve a new concept or
technology, (b) are not part of the list of priority projects identified by the agency, including any projects
which may have been identified in the Comprehensive and Integrated Infrastructure Program (“CIIP”), and
(c) do not involve direct government guarantees, subsidies or equity. The CIIP is a list of priority
infrastructure projects, including the proposed timeline and scope of work, which is prepared by the NEDA
and the Office of the President for projects appropriate for purely private investment, public-private
partnership and purely public investment.

The BOT Law embodies the basic principle of PPP in infrastructure development and has been cited as
instrumental in increasing private investment in infrastructure, especially in the areas of power,
telecommunications, airports and water utilities.

Guidelines and Procedures for Entering into Joint Venture Agreements

The Philippine government issued a set of guidelines on joint ventures between the Philippine government
and private entities which covers all government-owned and/or controlled corporations, government
corporate entities, government instrumentalities with corporate powers, government financial institutions,
state universities and colleges. Excluded from the application of the guidelines are local government units
and transactions of government financial institutions in the ordinary course of business. The guidelines
provide for the parameters for entering into joint venture agreements, which should involve investments
made only in activities directly and immediately related to and in furtherance of the primary corporate
purpose of the investing government entity. Further, the joint venture should be clear in its intent to
undertake a specific activity and should not crowd out the private sector.

Under the guidelines, the preferred mode of implementing a joint venture agreement is through a special
purpose joint venture company to be formed by the government and the private sector which shall be
registered as a stock corporation in compliance with the ownership and nationality requirements under
Philippine law (if applicable). The Philippine government must have proportionate representation to the
board of such joint venture company. The joint venture company shall be permitted to derive income from
the authorized activities under the agreement and is further encouraged to stipulate a fixed period for the
participation of the participating agency or instrumentality of the Philippine government. The selection of a
partner may be made through competitive selection or negotiated agreements.

The Civil Aviation Authority Act

The Civil Aviation Authority of the Philippines (“CAAP”) is an independent regulatory body attached to the
DOTr. The CAAP regulates the air transportation system in the Philippines, which includes the power to
provide prescribe and revise safety standards for the operation of air navigation facilities located in the
Philippines. Pursuant to its functions, it issued on May 27, 2011 the Philippine Civil Aviation Regulations or
Board Resolution No. 2011-025. The standards include General Policies and Air Operator Certification and
Administration.

Toll Regulatory Board

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The TRB was created under P.D. No. 1112 for the regulation of toll facilities and operates as an attached
agency of the DOTC. Pursuant to Executive Order No. 133 s. 2013, in relation to PD No. 1112, the TRB is
authorized and empowered to enter into contracts or Toll Operation Agreement (“TOA”) in behalf of the
Government with qualified persons or entities, for the construction, operation and maintenance of toll
facilities such as but not limited to national highways, roads, bridges, and public thoroughfares. The TOA
is subject to the approval of the President of the Philippines and has a fixed term not exceeding 50 years.

The TRB is also the issuing authority of the Toll Operation Certificates (“TOC”). The TOC is the authority
granted to qualified persons, to develop, improve, upgrade, expand, rehabilitate, reconstruct, modernize
and/or construct/build and operate and maintain a toll facility. The TOC has a fixed term not exceeding 50
years and may be amended, modified or revoked by the TRB whenever the public interest so requires
subject to the payment of just compensation, if any is due.

The privilege to operate toll facilities in the Philippines is limited by nationality restrictions. The Philippine
Constitution provides that a franchise, certificate, or any other form of authorization for the operation of a
public utility can only be granted to Filipino citizens or corporations or associations organized under
Philippine laws at least 60.0% of whose capital is owned by Filipinos.

Among the operation and maintenance facilities of toll facilities which may form part of a TOC or a TOA,
include (a) For operation: (i) toll collection system, (ii) traffic control system, (iii) tollroad patrol and vehicle
control with communications system, (iv) facilities for assistance of disabled vehicles and in case of
emergencies, (v) information service and message sign boards, (vi) vehicle regulation facilities, (vii)
telephone and lighting facilities, and, (viii) emergency operations; and (b) For maintenance (i) patrolling and
inspection facility, (ii) road cleaning and obstruction control, (iii) electricity and water supply, (iv) repavement
facilities, steel bridge painting, bridge strengthening, interchange improvement, parking area improvement,
slope protection, pavement painting and the like, (v) disaster prevention and reaction facilities, and (vi)
environmental enhancement and protection.

Aside from the power to grant an administrative franchise, the TRB is also vested with the power to issue,
modify and promulgate toll rates, and upon notice and hearing, to approve or disapprove petitions for the
increase thereof. The procedures for approval of initial, adjusted or periodic toll rates as well as approval
of provisional toll rates are governed by the 2013 Revised Rules of Procedure of the TRB.

HEALTHCARE

In 2015, Ayala set up Ayala Healthcare Holdings, Inc. or AC Health. AC Health is envisioned to be a
portfolio of healthcare business currently comprising retail pharmacy and primary care, targeting the
growing middle-income segment.

AC Health’s initial entry into the space was the acquisition of a 50% stake in the Generika group, the
pioneer in the retail of quality generic medicines in the country. The third largest pharmacy chain in the
Philippines, Generika has a total of over 830 stores nationwide as of September 2019. Generika was
established in September 2003 to address the need for quality and affordable medicines and promote use
of generic drugs, which offer up to 85% savings vs. branded equivalents. Generika continues to expand
its footprint, with a target to reach 1,000 stores by 2020. It is also improving access to quality generics by
growing its housebrand portfolio which, to date, has 100 medicines under the Actimed and Nutrawell
brand.

In primary care, AC Health started a chain of community-based retail clinics under the FamilyDOC brand,
now the largest retail clinic chain in the country. FamilyDOC offers the combined services of an outpatient
doctor’s clinic, a diagnostic facility, and a pharmacy at an affordable cost. As of September 2019, it has
68 clinics in the Greater Metro Manila Area (Cavite, Laguna, Las Pinas, Paranaque, Manila, Pasig, Taguig,
Pateros, Marikina, Rizal, Quezon City, Caloocan, and Valenzuela), and has served over 400,000 unique
patients since it opened in December 2015. FamilyDOC employs almost 700 medical professionals,

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including over 120 Family Medicine residents under its duly-accredited Residency Training Program, the
largest program in the country.

AC Health has also established Vigos Technologies, the first digital health portfolio in the Philippines.
Vigos’ portfolio of health technology solutions includes VigosEMR, an Electronic Medical Record system,
MedGrocer, an FDA-licensed online pharmacy, and AIDE, a home health care platform. It has also
invested in Tikehau-SPRIM, a Singapore-based health fund, and in Fibronostics, a global US-based
healthcare technology company focusing on non-invasive algorithm-based solutions for diagnostic testing.

AC Health’s vision is to build an integrated healthcare ecosystem, strengthening synergies and

partnerships across the various healthcare units, and within the Ayala Group. It continues to be mindful of
potentially disruptive trends, exploring other segments of the industry to enhance its portfolio of services,
with a strong focus on making healthcare more accessible and affordable to more Filipinos.

Risk Factors

The Group is a relatively new participant in the healthcare industry, which continues to be highly
fragmented, and competitive.

As a relatively new participant in the healthcare industry, the Group faces many challenges, including:
(a) attracting customers and patients despite current health-seeking attitudes and behavior, (b) attracting
and retaining medical professionals, including doctors, nurses, pharmacists and other allied medical
professionals; (c) successfully competing with companies engaged in similar businesses in the same
markets, some of which may vary in size, have built trusted brands, have a longer operating history, have
cost advantages and/or have greater expertise and financial resources; and (d) pushing it advocacies to
relevant regulatory bodies to ensure a favorable regulatory environment for generic medicines, primary
care, specialty care, and health technology. In addition, AC Health may incur substantial expenditures in
developing and scaling its operations. Because of the nature of healthcare as a business, investments
take a longer time to realize profitability, requiring patience in the near-term. While its vision to build an
integrated healthcare ecosystem has set it apart among other players in the industry, the Group will need
to deliver on this vision, in spite of limited available assets for investment.

Regulatory

Universal Health Care

Republic Act No. 1123, otherwise known as the Universal Health Care Act (the “UHC Law”) was signed
into law by President Rodrigo Roa Duterte on February 20, 2019 and seeks to improve access to health
services by ensuring the availability of medicines and health facilities.

Under the UHC Law, every Fiipino citizen shall be entitled to health coverage that will lower out-of-pocket
health expenses. All Filipino citizens shall likewise be automatically enrolled into the National Health
Insurance Program and expand PhilHealth coverage to include free medical consultations and laboratory
tests. This guarantees access to the full spectrum of health care which includes preventive, promotive,
curative, rehabilitative, and palliative care.
Accessible Cheaper and Quality Medicines Act
Republic Act No. 9502, amending Republic Act Nos. 8293 (the “Intellectual Property Code”), 6675 (the
“Generics Act of 1988), and 5921 (the “Pharmacy Law”), or the Universally Accessible Cheaper and Quality
Medicines Act of 2008, now allows parallel importation of cheaper drugs and medicines from abroad whose
local patents have not expired. It likewise allows pharmacies and licensed retailed to sell over-the-counter
products, and requires drug manufacturers to produce, distribute, and make widely available unbranded
generic equivalents to their branded drugs.
Under the law, any organization or company involved in the manufacture, importation, repacking, marketing
and/or distribution of drugs and medicines are required to indicate prominently the generic name of the

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product, and in the case of brand name products, the generic name must appear prominently and
immediately above the brand name in all product labels as well as in advertising and other promotional
materials. Drug outlets, including drugstores, hospital and non-hospital pharmacies and nontraditional
outlets such as supermarkets and stores, are likewise required to inform any buyer about any and all other
drug products having the same generic name, together with their corresponding prices so that the buyer
may adequately exercise his option.

Please refer to “Regulatory Framework” on page [•] of this Prospectus.

EDUCATION

Ayala Corporation started investing in the education sector through AC Education, Inc., after recognizing
the large demand for quality talent from service industries such as banking, telecom, retail, IT-BPO, and
tourism. In May 2019, AC Education merged with iPeople, inc., the education holding company of House
of Investments, Inc. or HOI, a member of the Yuchengco Group of Companies. This merger brought
together the AC Education schools with iPeople’s institutions, Mapua University, Malayan Colleges Laguna
and Malayan Colleges Mindanao, with a total of approximately 60,000 students. The merger also brings
together complementary strengths in different academic disciplines, geographies and customer segments.
Publicly listed iPeople is the surviving entity, with HI and its affiliates, and AC, controlling 51.3% and 33.5%,
respectively.

Affordable Private Education Center

Affordable Private Education Center (“APEC Schools”), is a chain of secondary schools that provides quality
education at an affordable price. APEC Schools grew its enrollment from 130 students when it first opened
in 2013 to over 18,000 students* in school year 2018/19. APEC is present in 23 sites across Metro Manila,
Rizal, Cavite, and Batangas.

University of Nueva Caceres

The University of Nueva Caceres (“UNC”) is one of the leading universities in the Bicol region. Acquired in
2015, UNC has grown to approximately 8,500 students*, enrolled in various programs in the arts and
sciences, business and accountancy, computer studies, criminal justice, education, engineering and
architecture, graduate studies, law, nursing, as well as basic education.

National Teachers College

In 2018, AC Education acquired National Teachers College, the pioneering private teacher-training
institution in the country. With programs in education, hospitality, psychology, business administration and
IT, the 90-year old institution has grown to more than 12,000 students*.

Mapua University

Mapua is widely considered to be the leading and largest private engineering and IT school in the country.
A world ranked QS-3 Star university, the school is known to have the greatest number of Centers of
Excellence in Engineering, a recognition granted by the Commission on Higher Education. Mapua is also
the first institution in Southeast Asia to have its programs recognized by the Accreditation Board of
Engineering and Technology. The university has approximately 12,000 students*.

Malayan Colleges Laguna

Founded in 2006, Malayan Colleges Laguna (“MCL”) is known to be the best private engineering and
technology higher education institution in the CALABARZON region. The school consistently performs at
the top end of different board exams. Situated in a 6-hectare campus in Cabuyao, Laguna, MCL provides

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programs in senior high school, business, engineering and information technology to its approximately
6,000 students*.

*in school year 2018/19

Malayan Colleges Mindanao

Located in Matina, Davao City, Malayan Colleges Mindanao (“MCM”) is the first expansion of Mapua
University outside Luzon. Located in a 2.3-hectare campus, MCM began its operations in July 2018. The
school offers engineering, architecture, computer science, multimedia and business courses, as well as
senior high school. Catering to roughly 1,300 students, the school desires to provide more programs that
cater to the development needs of the community and the region.

Risk Factors

Education is a heavily regulated industry that is susceptible to the changing economic and social
landscape.

Post K-12 implementation, the following are some of the challenges brought about by the changing
environment and regulatory policy:

(a) Attracting and retaining students brought about by the diminishing necessity for a tertiary degree in
order to begin one’s career.

(b) Increased competition for talent due to the growth in salaries of educators in public education.

(c) Competition brought about by the increasing capacity in public education institutions, both state and
local, and the more aggressive recruitment by private higher education institutions.

(d) Private education institutions are heavily reliant on government subsidies through the Senior High
School Voucher program and the Tertiary Education Subsidy program, among others.

iPeople is likewise monitoring the regulatory landscape for current regulations and any changes that may
have an impact on its existing and potential markets. In addition, iPeople may incur substantial expenditures
in developing and scaling its operations.

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 EMPLOYEES AND LABOR RELATIONS
Ayala is committed to promoting the safety and welfare of its employees. As of June 30, 2019, it has a
total of [153] employees, [95] of which are managers and [58] are staff. It believes in inspiring the
employees, developing their talents, and recognizing their needs as business partners. Strong and open
lines of communication are maintained to relay Ayala’s concern for their safety, and deepen their
understanding of Ayala’s value-creating proposition.

The CBA for the staff was granted dissolution by end of the year of 2017.

Ayala is looking at approximately growing its manpower to 160 by the end of June 2020.

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 DESCRIPTION OF PROPERTY
Ayala Corporation owns four (4) floors of the Tower One Building located in Ayala Triangle, Ayala Avenue,
Makati which were purchased in 1995 and are used as corporate headquarters of the Company. Other
properties of the Company include various provincial lots relating to its business operations totaling about
1,397.33 hectares and Metro Manila lots totaling 3.12 hectares. The Honda Cars Makati, Honda Cars Pasig,
Honda Cars Alabang, Isuzu Alabang and Honda Cars Global City dealership buildings are located on its
Metro Manila lots which are leased to these dealerships. Certain properties are subject to certain
conditions, restrictions and covenants in which the Company is compliant.

ALI

The following table provides summary information on ALI’s land bank as of June 30, 2019.

Properties included are either wholly-owned or part of a joint venture and free of lien unless noted.

Land within Estates

Description of Property

Parcel Location Hectares

Land bank within Estates 6,489
Metro Manila 168
Makati CBD Makati City 46
BGC Taguig City 27
Parklinks Quezon City - Pasig City 35
Arca South Taguig City 21
Vertis North Quezon City 16
Circuit Makati Makati City 11
Cloverleaf Quezon City 7
Southpark District Muntinlupa City 4
Luzon 5,298
Nuvali Sta. Rosa, Laguna 1545
Alviera Porac, Pampanga 1468
Altaraza San Jose Del Monte, Bulacan 844
Lio El Nido, Palawan 837
Vermosa Imus, Cavite 426
Evo City Kawit, Cavite 180
Visayas 851
Sicogon Island Resort Iloilo 662
North Point Talisay, Negros Occidental 130
Cebu Park District Cebu City, Cebu 19
Atria Park District Mandurriao, Iloilo 10
Gatewalk Central Mandaue, Cebu 13
Seagrove Mactan, Cebu 13
Capitol Central Talisay, Negros Occidental 4
Mindanao 172
Habini Bay Alubijid - Laguindingan, Misamis Oriental 134
Azuela Cove Davao City, Davao del Sur 25
Abreeza Davao City, Davao del Sur 9
Centrio Cagayan de Oro, Misamis Oriental 3

Land outside Estates

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Description of Property

Parcel Hectares
Land bank outside Estates 5,135
Metro Manila 162
Las Pinas 89
QC 25
Muntinlupa 18
Manila 16
Pasig 8
Paranaque 4
Makati 3
Mandaluyong 1
Pasay 0.1
Luzon 4,427
Cavite 1953
Batangas 909
Laguna 665
Tarlac 290
Bulacan 230
Bataan 220
Pampanga 81
Camarines Sur 29
Rizal 26
Quezon 20
Cagayan - Tuguegarao 2
Nueva Ecija 2
Visayas 101
Cebu 71
Iloilo 19
Negros Occidental 11
Mindanao 445
Misamis Oriental 230
Davao del Sur 215

Leased Properties
ALI has an existing contract with BCDA to develop, under a lease agreement a mall with an estimated gross
leasable area of 152,000 square meters on a 9.8-hectare lot inside Fort Bonifacio.

The lease agreement covers 25 years, renewable for another 25 years subject to reappraisal of the lot at
market value. The annual fixed lease rental amounts to P106.5 million while the variable rent ranges from
5% to 20% of gross revenues. Subsequently, ALI transferred its rights and obligations granted to or imposed
under the lease agreement to SSECC, a subsidiary, in exchange for equity.

On January 28, 2011, a notice was given to ALI for the P 4.0 billion development of a 7.4-hectare lot at the
University of the Philippines’ Diliman East Campus, also known as the UP Integrated School, along
Katipunan Avenue, Quezon City.

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Description of Property

ALI signed a 25-year lease contract for the property last June 22, 2011, with an option to renew 58,000
square meters for another 25 years by mutual agreement. The project involves the construction of a retail
establishment with 63,000 square meters of available gross leasable area and a combination of
Headquarter-and-BPO- type buildings with an estimated 8,000 square meters of office space.

Rental Properties
The Company’s properties for lease are largely shopping centers and office buildings. It also leases land,
carparks and some residential units. As June 30, 2019, rental revenues from these properties accounted
for ₱18.6 billion or 22.4% of Ayala Land’s consolidated revenues (which include real estate sales, interest
income from real estate sales, equity in net earnings, interest and investment income and other income),
16% higher than the ₱16.1 billion recorded in the same period in 2018. Lease terms vary depending on the
type of property and tenant.

Property Acquisitions
With 11,624 hectares in its land bank as of June 30, 2019, Ayala Land believes that it has sufficient
properties for development in next 25 years. Nevertheless, ALI continues to seek new opportunities for
additional, large-scale, master-planned developments in order to replenish its inventory and provide
investors with an entry point into attractive long-term value propositions. The focus is on acquiring key sites
in the Mega Manila area and other geographies with progressive economies that offer attractive potential
and where projected value appreciation will be fastest.

On April 4, 2018, ALI signed a Deed of Absolute Sale with Central Azucarera de Tarlac, Inc. for the
acquisition of several parcels of land with an aggregate area of approximately 290 hectares located in
Barangay Central, City of Tarlac, Province of Tarlac.

On February 20, 2018, the PCC approved the setting up of a joint venture between ALI and Royal Asia
Land, Inc. to acquire, own, and develop a 936-hectare commercial and residential project in Silang and
Carmona, Cavite. Both firms will own 50% equity in the joint venture vehicle while Royal Asia Land, Inc. will
receive a consultation fee of 2% of the joint venture firm's gross revenue for its participation in the planning
and development of the property. ALI, meanwhile, will develop and market the project and receive a
management fee of 12% and sales and marketing fee of 5% of the gross revenue. The PCC has deemed
that the transaction does not result in a substantial
lessening of competition because it will not have a structural effect on the market.

In June 2015, ALI, through SM-ALI Group consortium, participated and won in the bidding for Lot No. 8-B-
1, containing an area of 263,384 sqm, which is a portion of Cebu City-owned lot located at the South Road
Properties, Cebu City covered by Transfer Certificate of Title No. 107-2011000963. SM-ALI Group
consortium is a consortium among SM Prime Holdings, Inc., Ayala Land, and CHI. The SM-ALI Group will
co-develop the property pursuant to a joint master plan.

In April 2015, ALI purchased all of the 8.2 million common shares of Aegis PeopleSupport Realty
Corporation amounting to P 435 million. Aegis PeopleSupport Realty Corporation is a PEZA-registered
entity and the owner of Aegis building along Villa Street, Cebu IT Park, Lahug, Cebu City. The building is a
certified LEED-Gold Office with a gross leasable area of 18,092 sqm and is largely occupied by
Teleperformance under a long-term lease.

On February 6, 2015, ALI purchased the combined remaining interest of Allante Realty and Development
Corporation (Allante) and DBH, Inc. (“DBH”) in North Triangle Depot Commercial Corporation (“NTDCC”)
consisting of 167,548 common shares and 703,904 preferred shares amounting to P 229 million. This brings
ALIC) consisting of 167,548 common shares and 703,904 total outstanding capital stock of NTDCC.

In January 2014, ALI entered and signed into a 50-50% joint venture agreement with AboitizLand, Inc. for
the development of a 15-hectare mixed-use community in Mandaue City, Cebu. The first project of this joint
venture will involve the construction of a mall and a residential condominium unit with an estimated initial
cost of P 3 billion.

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On November 23, 2013, ALI, through its wholly-owned subsidiary, Ayala Hotels and Resorts Corp,
(“AHRC”) signed an agreement to acquire 100% interest in Asian Conservation Company, Inc. (“ACCI”)
which effectively consolidates the remaining 40% interest in Ten Knots Development Corp. (“TKDC”) and
Ten Knots Philippines Inc. (“TKPI”) (60%-owned subsidiary of ALI prior to this acquisition). The agreement
resulted in ALI effectively obtaining 100% interest in TKPI and TKDC.

On April 16, 2013, ALI entered into a Sale and Purchase Agreement with Global International Technologies
Inc. (“GITI”) to acquire the latter’s 32% interest in ALI Property Partners Co. (“APPCo”) for P3.52 billion.
GITI is a 100% owned company of the Goldman Sachs Group Inc.

The acquisition increased ALI’s stake in APPCo from 68% to 100%. APPCo owns BPO buildings in Makati,
Quezon City and Laguna with a total gross leasable area of around 230,000 sqm. The carrying amount of
the non-controlling interest is reduced to nil as APPCo became wholly owned by ALI. The difference
between the fair value of the consideration paid and the amount by which the non-controlling interest is
adjusted is recognized in equity attributable to ALI amounting to P 2,722.6 million.

Mortgage, Lien or Encumbrance over Properties

ALI has certain properties in Makati City that are mortgaged with BPI in compliance with BSP rules on
directors, officers, stockholders and related interests.

MWC

The Concession Agreement grants MWC the right to operate, maintain in good working order, repair,
decommission, and refurbish the MWSS facilities in the East Zone, which include treatment plants, pumping
stations, aqueducts and the business area office. However, legal title to these facilities remains with MWSS.
The net book value of these facilities on Commencement Date based on MWSS’ closing audit report
amounted to ₱4.6 billion, with a sound value, or the appraised value less observed depreciation, of ₱10.40
billion. These assets are not reflected in the financial statements of MWC.

Pursuant to the terms of the Concession Agreement, new assets contributed to the MWSS system by MWC
during the term of the Concession Agreement are reflected in MWC’s financial statements and remain with
MWC until the Expiration Date (as defined in the Concession Agreement), at which time all right, title and
interest in such assets automatically vest to MWSS. The Concession Agreement allows MWC to mortgage
or create security interests over its assets solely for the purpose of financing, or refinancing, the acquisition
or construction of the said assets, provided that no such mortgage or security interest shall (i) extend
beyond the Expiration Date of the Concession Agreement, and (ii) be subject to foreclosure except following
an event of termination as defined under the Concession Agreement.

On July 17, 2008, MWC, together with all of its Lenders signed an Omnibus Amendment Agreement and
Intercreditor Agreement and these agreements became effective on September 30, 2008. Prior to the
execution of the Omnibus Amendment Agreement, the obligations of MWC to pay amounts due and owing
or committed to be repaid to the lenders under the existing facility agreements were secured by
Assignments of Interests by Way of Security executed by the MWC in favor of a trustee acting on behalf of
the lenders. The Assignments were also subject to the provisions of the Amended and Restated
Intercreditor Agreement dated March 1, 2004 and its Amendatory Agreement dated December 15, 2005
executed by MWC, the lenders and their appointed trustee.

Under the Omnibus Amendment Agreement, the lenders effectively released MWC from the assignment of
its present and future fixed assets, receivables and present and future bank accounts, all the Project
Documents (except for the Concession Agreement, Technical Corrections Agreement and the Department
of Finance Undertaking Letter), all insurance policies where MWC is the beneficiary and performance bonds
posted in its favor by contractors or suppliers.

In consideration for the release of the assignment of the above-mentioned assets, MWC agreed not to
create, assume, incur, permit or suffer to exist, any mortgage, lien, pledge, security interest, charge,
encumbrance or other preferential arrangement of any kind, upon or with respect to any of its properties or

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Description of Property

assets, whether now owned or hereafter acquired, or upon or with respect to any right to receive income,
subject only to some legal exceptions. The lenders shall continue to enjoy their rights and privileges as
Concessionaire Lenders (as defined under the Agreement), which include the right to appoint a qualified
replacement operator and the right to receive payments and/or other consideration pursuant to the
Agreement in case of a default of either MWC or MWSS. Currently, all lenders of MWC are considered
Concessionaire Lenders and are on pari passu status with one another.

IMI

IMI has production facilities in the Philippines (Laguna, Cavite and Taguig), China (Shenzhen, Jiaxing,
Chengdu, and Suzhou), Bulgaria, Czech Republic, Germany, Mexico and the UK. It also has a prototyping
and NPI facility located in Tustin, California. Engineering and design centers, on the other hand, are located
in the Philippines, Singapore, China, United States, Bulgaria, Czech Republic, and Germany. IMI also has
a global network of sales and logistics offices in Asia, North America and Europe.

IMI’s global facilities and capabilities of each location as of June 30, 2019 are shown as follows:

FLOOR AREA
LOCATION CAPABILITIES
(square meters)
Manufacturing Sites

- 31 smt lines 2 FC lines

- 5 COB / COF lines
Box build to Complex Equipment Manufacturing
- LVHM, HVLM
- Solder Wave, Potting. AI & AG W/B
Philippines - Laguna - Protective Coating
96,182
(2 sites) - ICT, FCT, AOI, RF Testing
- Design & Development
- Test & System Development
- Cleanroom to class 100
- Low Pressure Molding (Overmold)
- Precision Metals / Machining

- 3 SMT lines
- Box Build
- PTH Solder Wave
Philippines - Cavite 2,360
- ICT. FCT, AOI
- 3D X-ray
- LVHM

- Power Component Discrete Packaging e.g.

2L,3L,4L TO-247, 3L TO252 2L 3L TO-220
- Silicon Carbide and Gallium Nitrade Packaging
- Ag Sintering Process
- Diversified Packaging - from Low to High Power
and Small to Large Outline
- R & D line / Captive Lines for Power QFN and
Modules
Philippines - PSI Laguna 9,858
-Customized Power Packaging Requirements
-Low / Med Power Discrete Packaging and
Processes including Au Wire Bonding
- AI Ribbon, CU Clip interconnect
- 3D Packaging, MCM, High Reliability OFN
Packages: 3 x 3 mm, 3.3 x 3.3 mm 4x5 mm,
5x6 mm, 6x5 mm 8x8 mm at 1 mm to 1.5 mm
package height

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Description of Property

-17 SMT lines, 1 COB line

- Box Build
- PTH, Solde Wave
- POP, Auto Pin insertion
China - Pingshan 29,340 - Potting, Conformal coating and Burn-in
- ICT, FCT, AOI, RF Testing
- Test & System Development
- Design & Development
- LVHM, HVLM

-21 SMT lines, 1 COB line

- Box Build
- PTH, Auto Pin insertion, Solder Wave
- ICT, FCT, AOI, RF Testing
- Test & System Development
- LVHM, HVLM
China - Kuichiong 23, 524
- X-RAY 3D testing RoHS screening instrument,
BGA rework
- Burn-in test for high- end power supply. Thermal
cycle test, Vibration test
- Conformal Coating Potting, PCB router, underfill
- Bar-code tracking system

-11 SMT lines

- Vapor Phase Vacuum Reflow, SMD Odd shape
Component Auto Mount
- Box Build (w/ Automated Customized Assembly
Line)
- PTH, Auto Pin insertion, Solder Wave, Selective
Solder Wave
China - Jiaxing 18,452
-Full Auto Selective Conformal Coating Line and
CC AOI
- Ultrasonic welding and lamination
- Plastic injection (180T/300T press)
- SPI, 2D & 3D AOI, ICT, FCT, 3D X-Ray, Run-in
- Test & System Development
HVLM

- 6 SMT lines
- Box Build
- PTH, Auto Pin insertion, BGA, X - Ray
- Solder Wave
China - Chengdu 7,500
- Automated Conformal Coating
- ICT, FCT, AOI
- HVLM / LVHM
- Test Development

- 2 SMT prorotyping lines

- Engineering Development
- Prototype Manufacturing Center
USA0 Tustan, CA* 1,184
- Precision Assembly
- SMT, COB, FCOF
- Box Build

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Description of Property

- Bulgaria - 15 SMT lines

- Serbia - 6 SMT lines
- Box Build
- PCB Assembly and Testing
- PTH, Auto Pin insertion, Solder Wave
Botevgrad, Bulgaria (2 sites) 115,416 - Protective Coating
Sofia, Bulgaria (1 site) - Cabling
- ICT, FCT, AOI
- Test & System Development
- Design & Development
Nis, Serbia (1 site) 50,000 - Plastic Injection Embedded Toolshop
- Overmolding
- Metrology & Laboratory
- Chip on Board
- Tooling
- Automation

- 9 SMT lines
- 40 Plastic Injection Machines (50-1, 600T
including overmolding
- Box Build (w/ Automated Customized Assembly
El Salto, Guadalajara Mexico Line)
25,000
(2 sites) - PTH, Auto Pin insertion, Solder Wire, Selective Solder Wave
-Full Auto Selective Conformal Coating Line and CC AOI, Automated potting
- SPI, 2D & 3D AOI, ICT, FCT, 3D X-Ray
-Embedded Toolshop
- Test & System Development

- 6 SMT lines
- 2 Pin insertion
- 3 Wave soldering
- 2 Selective soldering
Tremosna, Pizenska Czech
7,740 - 3 Selective coating
Republic
- ICT, FCT, AOI (SMT, CC)
- Mechanical Assembly
- 4 Automated line
- Further customized assembly line

- VIA bond plus qualification

- Bonding material development
- Manual line, mainly lower quantity projects
- Prototype 84 inch
Nuremberg, Germany (VIA) - 2 clear rooms (ISO class 6 & ISO class 7)
4,268
VIA optronics GmbH -ESD control
- Engineering, prototyping and production process
improvement
- Test & System development (electrical)
- Optical test labor (mainly for display evaluation)

- Semi autline and full autoline

Suzhou, China (VIA) - Large size bonding in MaxVu II
9,750
VIA optronics Suzhou - Touch capabilities, ACF process
-Curved bonding & bonding to plastic cover

- Metal Mesh Sensor on roll

- Customized design
Shiga, Japan (VIA)
10,000 - 100um.50um Film thickness
VTS - Touchsensor Co., Ltd.
- Up to 55" VTS internal
- Up to 85" through external partners

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Description of Property

-3 high-speed ASM Siplace SMT Lines (2.4m

components/day)
- High Reliability PCB Assembly & Box Build
- Full Test Facilities
UK-Hook (STI) 5,946
- Dedicated prototype facility with 2 felxible Mydata
lines
- Special processes & full repair and rework facility
- Clean Room, NPI, RF Screened Room

- Manufacturer of highly secure satellite

communications equipment (under long term
Airbuss DS contract)
- Manufacturer of specialist amplifiers
- Specialist spares and repairs
- Full rack wiring and integration
UK- Poynton (STI) 5,481
- Specialist test facility - RF Testing, Anechoic
Chamber, EMC Chamber & Moog 6 Degree of
Freedom Motion Bed
- Complex Wiring & Heavy Metalwork
- Advanced Box Build
- AS9100-D

- 3 high-speed placements (6m components/day

capacity)
- High volume PCB Assembly and Box Build
Cebu, Phils (STI) 2,601 - Equipment and operational standards fully
compatible with Hook manufacturing site
- IP proection and full traceability
guaranteed

Total Manufacturing Space 409,317

Sales and Marketing Support

Hong Kong* 300 Procurement, marketing and supply chain support
Japan 110 Sales Support
Total Support Space 410

Total 409,317

BPI

In view of the planned re-development of the BPI Head Office building located at 6768 Ayala Avenue,
Makati City, BPI’s executive office and select business and support units have temporarily relocated to the
Ayala North Exchange Tower 1, Ayala Avenue corner Salcedo St., Legaspi Village, Makati City.

The rest of the business and support units have also temporarily relocated to BPI Buendia Center and
various other sites in Makati, San Juan, Quezon City, and Muntinlupa.

Of the Bank’s 861 local branches (excluding BanKo), 699 operate as BPI branches: 457 in Metro
Manila/Greater Metro Manila Area and 404 in the provincial area. BPI owns 31% of these branches and
leases the remaining 69%. Total annual lease expenses amounted to ₱606 million as of June 2019.
Expiration dates of the lease contracts vary from branch to branch.

BFSB’s Head Office is located at BFB Center, Paseo De Roxas, corner Dela Rosa St., Makati City. It
operates 162 branches of which 19% are bank owned while 81% are leased. Total year-to-date June 2019
lease amounted to P102 million.

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These office and branches are maintained in good condition for the benefit of both the employees and the
transacting public. The Bank enforces standards for branch facade, layout, number and types of equipment
and upkeep of the premises. The Bank also continuously reconfigures the mix of its traditional branches,
and kiosk branches as it adjusts to the needs of its customers.

To date, the Bank has not identified any property to acquire.

All of the bank-owned properties are free from any lien.

Globe

Buildings and Leasehold Improvements

Globe Telecom’s Corporate Office is located at The Globe Tower, 32nd Street corner 7th Avenue, Bonifacio
Global City, Taguig. Globe also owns several floors of condominium corporation Pioneer Highlands
Towers 1 and 2, located at Pioneer Street in Mandaluyong City. In addition, the Company also owns host
exchanges in the following areas: Bacoor, Batangas, Ermita, Iligan, Makati, Mandaluyong, Marikina,
Cubao-Aurora, among others.

The Company leases office spaces in W City Center, located at 7 th Avenue corner 30th Street, Bonifacio
Global City, Taguig, for its Network Technical Group. It also leases office spaces in Limketkai Gateway
Tower located in Cagayan de Oro City and in Abreeza Technohub located in Davao City. It also leases
the space for most of its Globe Stores, as well as the Company’s base stations and cell sites scattered
throughout the Philippines. Globe’s existing business centers and cell sites located in strategic locations
all over the country are generally in good condition and are covered by specific lease agreements with
various lease payments, expiration periods and renewal options. As the Company continues to expand its
network, Globe intends to lease more spaces for additional cell sites, stores, and support facilities with
lease agreements, payments, expiration periods and renewal options that are undeterminable at this time.

Telecommunications Equipment

As at 30 June 2019, the Company has a nationwide 2G, 3G, 4G-LTE providing nationwide voice, SMS
and mobile broadband services. Globe’s 4G-LTE and the recently launched 5G technology provides fixed
wireless broadband services in selected areas.

Globe’s wireless network has a Circuit Switched Core Network to provide voice service via 2G, 3G and
4G (using Circuit Switch Fallback). In addition, it has a nationwide network of Packet Switches to support
its mobile broadband data services as well as VoLTE soon. The rest of Globe’s nationwide core network
includes Home Location Register, Signaling Gateways, and mobile broadband backend equipment. It also
utilizes a number of Short Messaging Service Centers, and other Value-Added Services application
platforms to cater of Globe’s rich portfolio of Value-Added Service which includes an Emergency Cell
Broadcast Messaging system to provide for emergency alert messaging in compliance to Republic Act
10639 other known as “AN ACT MANDATING THE TELECOMMUNICATIONS SERVICE PROVIDERS
TO SEND FREE MOBILE ALERTS IN THE EVENT OF NATURAL AND MAN-MADE DISASTERS AND
CALAMITIES”.

The infrastructure for Innove’s fixed telephone service includes a Nationwide Virtual IP Multimedia System
(vIMS) infrastructure, the first of its kind implemented for domestic Fixed telephone service in the
Philippines and an advanced Next Generation Network International Gateway Facility that supports both
traditional international long-distance calls and international Voice Over IP Service. For Fixed Broadband
service, Globe leverages on a combination of copper (ADSL, VDSL 35B), fiber (FTTx) technologies as
well as fixed wireless broadband technologies based on massive MIMO 4G-LTE and 5G. It is worth to
note that Globe also has the largest deployed base of high capacity Massive MIMO Radio Access Network
nodes in the Philippines which serves both Fixed Wireless Broadband Customers and Mobile Broadband
customers as well.

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As part of its continuous network modernization program, Globe has also introduced Software Defined
Network and Network Function Virtualization (NFV) technologies in the core network layer of its network.
Network function virtualization leverages on commercial off-the-shelf hardware and the capabilities of
cloud computing thus providing flexibility in deployment, capacity efficiency, better scalability, resiliency
and ultimately lower total cost of ownership for Globe’s network. As part of the deployment of SDN-NFV,
Globe has deployed, in both its wireless and fixed broadband core network virtualized network elements
including virtual unified service nodes (vUSN), and virtual unified packet gateways (vUGW) and virtual
Home Subscriber Services node which stores and manages identities, authentication data, subscription
information, and location information about our subscribers. At the same time, Globe’s 5G services utilizes
a virtual 5G core network to deliver Fixed Wireless Broadband service in areas where fiber deployment is
challenged by various permit and right of way issues.

Globe also has a national transmission network Globe established, operates and maintains two (2) geo-
redundant and complementary Fiber Optic Backbone Network (“FOBN”) linking the Luzon, Visayas and
Mindanao island groups. These two (2) FOBNs are now the primary national transmission backbone for
Globe backbone to support all of the different telecommunication services and Value-Added Service
offered by Globe to its customers. In addition to these two (2) FOBNs, Globe also operates and maintains
a fiber optic backbone linking the island of Luzon to the province of Palawan. Complementing these fiber
optic backbones are Digital Microwave (“MW”) Terrestrial network employing Next Generation Internet
Protocol (IP) MW supplemented by an extensive fiber optic networks in the key urban areas. To serve very
remote rural areas, Globe also leverages on Very Small Aperture Satellite (VSAT) technology to deliver
2G, 3G and LTE services.

With its aggressive mobile broadband expansion program, Globe was able to expand its mobile broadband
coverage to 96% of Philippine Towns as of Q2 2019. Globe’s successful commercial launch of 5G
technology in June 20, 2019 was in line with its commitment to deliver 1 st World Internet Access Service
to the Filipino consumers.

Investments in Cable Systems

To provide resiliency and geographic diversity, Globe has also invested in several submarine cable
systems, which the Company either owns or has rights of use on, a share of the systems'' total capacity.
Investments in cable systems include the cost of the Globe Group's ownership share in the capacity of
certain cable systems under Construction & Maintenance Agreements; or indefeasible rights of use
(“IRUs”) under Capacity Purchase Agreements.

To date, Globe has investments in the following cable systems (shown below with their major connectivity
paths):

• APCN2 – Asia Pacific Cable Network-2 (Trans-Asian region);

• C2C – City-to–City (Trans-Asian region);
• SEA-ME-WE3 – Southeast Asia-Middle East-Western Europe 3;
• SJC – Southeast Asia Japan Cable System – connects Singapore, Brunei, Hong Kong, China
Mainland, Japan and the Philippines;
• TGN-IA – Tata Global Network–Intra Asia cable system - connects the Philippines to Japan, Hong
Kong, and Singapore with onward connectivity via the TGN-P (Tata Global Network-Pacific)
network to the United States; and
• SEA–US (Southeast Asia-United States) – connects Philippines, Indonesia, Guam, Hawaii and
the mainland United States
• AAG – Asia-America Gateway – connects Singapore, Malaysia, Thailand, Vietnam, Brunei, Hong
Kong, and Philippines to Guam, Hawaii and California (investment thru Globe’s subsidiary Bayan
Communications)

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The Company also has an international cable landing station located in Nasugbu, Batangas that directly
accesses the C2C cable network, a 17,000-kilometer-long submarine cable network linking the Philippines
to Hong Kong, Taiwan, China, Korea, Japan and Singapore. Globe has separately purchased capacity in
the C2C cable network which it subsequently transferred to its subsidiary, Innove Communications, Inc.

Additionally, Globe has acquired capacities, either through lease or IRU, in selected cable systems where
the Company is not a consortium member or a private cable partner. These include capacities in East Asia
Crossing (EAC), and Fiber Optic Link Around the Globe (FLAG), among others.

On 17 March 2009, Globe formally opened its second international cable landing station in Ballesteros,
Cagayan with the Company being the exclusive landing party in the Philippines to the Tata Global Network
– Intra Asia (“TGN-IA”) cable system. TGN-IA is a 6,700-kilometer trans-Asian submarine cable system
that links the Ballesteros, Cagayan cable landing station in the Philippines to Japan, Hong Kong, and
Singapore with onward connectivity via the TGN-Pacific network to Guam and the United States.

On 30 September 2013, the Southeast Asia-Japan Cable (“SJC”) System was formally launched where
Globe is the exclusive landing party in the Philippines. The SJC System is one of the highest capacity
systems in the world (supporting an initial design capacity of 28 terabits per second, the fastest speed an
undersea cable system can provide). This enhances the Company’s global link to support businesses and
consumers’ increasing demand for high-speed internet and connectivity. Globe joins some of the biggest
names in the industry including Brunei International Gateway Sendirian Berhad (BIG), Google, SingTel,
KDDI, PT Telekomunikasi Indonesia International (Telin), China Mobile, China Telecom, China Telecom
Global Limited (an affiliate of China Telecom), Donghwa Telecom Co., Ltd., and TOT of Thailand, in this
consortium.

On August 2014, Globe Telecom joined a consortium of international telecommunications companies to

build a $250 million cable system directly connecting Southeast Asia and United States. Completed in
August 2017, the SEA-US undersea cable system provides superior latency, delivering an additional
20Terabits per/second capacity, utilizing the latest 100 gigabits per second transmission equipment. Such
additional capacity will cater to the exponential growth of bandwidth between the two continents.

Capital Expenditures
Globe spent a total of ₱19.0 billion for capital expenditures as at June 30, 2019, which were funded by
borrowings and cash flow from operations.

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 LEGAL PROCEEDINGS
Except as disclosed herein or in the Information Statements of Ayala’s subsidiaries or affiliates which are
themselves public companies or as has been otherwise publicly disclosed, there are no material pending
legal proceedings for the past five years and the preceding years until June 30, 2019 to which Ayala or
any of its subsidiaries or affiliates or its Directors or executive officers is a party or of which any of its
material properties are subject in any court or administrative government agency.

AYALA CORPORATION

As of June 30, 2019, Ayala is not involved in any litigation it considers material. In any event, below is a
legal proceeding involving Ayala that may be significant:

Kevin Enterprises vs. R. Banuag, et. al.; Civil Case No. 2003-2006; RP vs. AC & E. Solidum; Civil
Case No. 2004-243; RTC Branch 21, Cagayan de Oro City

On August 19, 2004, a complaint was filed challenging Ayala’s ownership of a twenty (20)-hectare property
located in Cagayan de Oro City. Ayala is the owner of portions of the OCT No. 632 under derivative titles
TCT Nos. 43185 and 43187. The complaint was filed on the ground that the property has not been declared
alienable and disposable and should be reverted to the State.

The Corporation is resisting the complaint in that the lands were previously classified as alienable and
disposable and in fact registered in the name of the Corporation’s predecessors in interest in a cadastral
case.

The Cagayan de Oro Hall of Justice was burned sometime in January 2015. The records of this case were
among those burned and to date the OSG has not taken efforts to reconstitute the records or refile a new
complaint.

AYALA LAND, INC.

As of June 30, 2019, ALI, its subsidiaries, and its affiliates, are not involved in any litigation regarding an
event which occurred during the past five (5) years that they consider material.

However, there are certain litigations ALI is involved in which it considers material, and though the events
giving rise to the said litigation occurred beyond the five (5) year period, the same are still unresolved, as
follows:

Las Piñas Property

Certain individuals and entities have claimed an interest in certain of ALI’s properties located in Las Piñas,
Metro Manila.

Prior to purchasing the aforesaid properties, ALI conducted an investigation of titles to the properties and
had no notice of any title or claim that was superior to the titles purchased by ALI. ALI traced its titles to
their original certificates of title and ALI believes that it has established its superior ownership position over
said parcels of land. ALI has assessed these adverse claims and believes that its titles are in general
superior to the purported titles or other evidence of alleged ownership of these claimants. On this basis,
beginning October 1993, ALI filed petitions in the RTC of Makati and Las Piñas for quieting of title to nullify
the purported titles or claims of these adverse claimants. These cases are at various stages of trial and
appeal. Some of these cases have been decided by the SC. These include decisions affirming the title of
ALI to some of these properties, which have been developed and offered for sale to the public as Sonera,
Ayala Southvale. The SC issued a decision adverse to ALI’s title over these properties dated 26 July 2017
and denied ALI’s motions for reconsideration.
Legal Proceedings

Ayala Property Management Corp.

As a result of the explosion which occurred on October 19, 2007 at the basement of the Makati
Supermarket Building, the Philippine National Police has filed a complaint with the DOJ and recommended
the prosecution of certain officers/employees of Makati Supermarket Corporation, the owner of the
building, as well as some employees of ALI’s subsidiary, APMC, among other individuals, for criminal
negligence. In a Joint Resolution dated April 23, 2008, the DOJ special panel of prosecutors ruled that
there was no probable cause to prosecute the APMC employees for criminal negligence. This was affirmed
by the DOJ Secretary in a Resolution dated November 17, 2008. A Motion for Reconsideration (“MR”) was
filed by the Philippine National Police which remains pending with the DOJ. To date, no civil case has
been filed by any of the victims of the incident.

ALI has made no allowance in respect of such actual or threatened litigation expenses.

GLOBE TELECOM, INC.

As of June 30, 2019, the Globe Group is contingently liable for various claims arising in the ordinary conduct of
business and certain tax assessments which are either pending decision by the courts or are being contested,
the outcome of which are not presently determinable. In the opinion of management and legal counsel, the
possibility of outflow of economic resources to settle the contingent liability is remote.
Interconnection Charge for Short Messaging Service
On October 10, 2011, the NTC issued Memorandum Circular (“MC”) No. 02-10-2011 titled Interconnection
Charge for Short Messaging Service requiring all public telecommunication entities to reduce their
interconnection charge to each other from ₱0.35 to ₱0.15 per text, which Globe complied as early as November
2011. On December 11, 2011, the NTC One Stop Public Assistance Center filed a complaint against Globe,
Smart and Digitel alleging violation of the said MC No. 02-10-2011 and asking for the reduction of SMS off-net
retail price from ₱1.00 to ₱0.80 per text. Globe filed its response maintaining the position that the reduction of
the SMS interconnection charges does not automatically translate to a reduction in the SMS retail charge per
text.
On November 20, 2012, the NTC rendered a decision directing Globe to:
▪ Reduce its regular SMS retail rate from ₱1.00 to not more than ₱0.80;
▪ Refund/reimburse its subscribers the excess charge of ₱0.20; and
▪ Pay a fine of ₱200.00 per day from December 1, 2011 until date of compliance.

On May 7, 2014, NTC denied the MR filed by Globe last

December 5, 2012 in relation to the November 20, 2012 decision. Globe’s assessment is that Globe is in
compliance with the NTC Memorandum Circular No. 02-10-2011. On June 9, 2014, Globe filed a petition for
review of the NTC decision and resolution with the CA.
The CA granted the petition in a resolution dated September 3, 2014 by issuing a 60-day TRO on the
implementation of NTC MC 02-10-2011. On October 15, 2014, Globe posted a surety bond to compensate for
possible damages as directed by the CA.
On June 27, 2016, the CA rendered a decision reversing the NTC’s abovementioned decision and resolution
requiring telecommunications companies to cut their SMS rates and return the excess amount paid by
subscribers. The CA said that the NTC order was baseless as there is no showing that the reduction in the
SMS rate is mandated under NTC MC No. 02-10-2011; there is no showing, either that the present ₱1.00 per
text rate is unreasonable and unjust, as this was not mandated under the memorandum. Moreover, under the
NTC’s own MC No. 02-05-2008, SMS is a VAS whose rates are deregulated. The respective motions for
reconsideration filed by NTC and that of intervenor Bayan Muna Party List (“Bayan Muna”) Representatives
Neri Javier Colmenares and Carlos Isagani Zarate were both denied.
The NTC thus elevated the CA’s ruling to the SC via a Petition for Review on Certiorari dated September 15,
2017.

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For its part, Bayan Muna filed its own Petition for Review on Certiorari of the CA’s Decision. On January 4,
2018, Globe received a copy of the SC’s Resolution dated November 6, 2017, requiring it to comment on said
petition of Bayan Muna. Subsequently, on February 21, 2018, Globe received a copy of the SC’s Resolution
dated December 13, 2017 consolidating the Petitions for Review filed by Bayan Muna and NTC, and requiring
Globe to file its Comment on the petition for review filed by NTC. Thus, on April 2, 2018, Globe filed its
Consolidated Comment on both Bayan Muna and the NTC’s petitions for review. On September 18, 2018,
Globe received a copy of Bayan Muna’s Consolidated Reply to Globe’s Consolidated Comment and Digitel
and Smart’s Comment.
Globe believes that it did not violate NTC MC No. 02-10-2011 when it did not reduce its SMS retail rate from
₱1.00 to ₱0.80 per text, and hence, would not be obligated to refund its subscribers. However, if it is ultimately
decided by the SC (in case an appeal is taken thereto by the NTC from the adverse resolution of the CA) that
Globe Telecom is not compliant with said circular, Globe may be contingently liable to refund to its subscribers
the ₱0.20 difference (between ₱1.00 and ₱0.80 per text) reckoned from November 20, 2012 until said decision
by the SC becomes final and executory. Management does not have an estimate of the potential claims
currently.

Guidelines on Unit of Billing of Mobile Voice Service

On July 23, 2009, the NTC issued NTC MC No. 05-07-2009 (Guidelines on Unit of Billing of Mobile Voice
Service) which provides that the maximum unit of billing for the Cellular Mobile Telephone System or CMTS,
whether postpaid or prepaid, shall be six (6) seconds per pulse. The rate for the first two (2) pulses, or equivalent
if lower period per pulse is used, may be higher than the succeeding pulses to recover the cost of the call set-
up. Subscribers may still opt to be billed on a one (1) minute per pulse basis or to subscribe to unlimited service
offerings or any service offerings if they actively and knowingly enroll in the scheme.
On December 28, 2010, the CA rendered its decision declaring null and void and reversing the decisions of the
NTC in the rates applications cases for having been issued in violation of Globe and the other carriers’
constitutional and statutory right to due process. However, while the decision is in Globe’s favor, there is a
provision in the decision that NTC did not violate the right of petitioners to due process when it declared via
circular that the per pulse billing scheme shall be the default.
On January 21, 2011, Globe and two other telecom carriers, filed their respective Motions for Partial
Reconsideration on the pronouncement that “the Per Pulse Billing Scheme shall be the default”. The petitioners
and the NTC filed their respective MRs, which were all denied by the CA on January 19, 2012.
On March 12, 2012, Globe and Innove elevated to the SC the questioned portions of the decision and resolution
of the CA dated December 28, 2010 and its resolution dated January 19, 2012. The other service providers, as
well as the NTC, filed their own petitions for review. The adverse parties have filed their comments on each
other’s petitions, as well as their replies to each other’s comments. Parties were required to file their respective
Memoranda and Globe filed its Memorandum on May 25, 2018. The case is now submitted for resolution.

Right of Innove to Render Services and Build Telecommunications Infrastructure in BGC

PLDTand its affiliate, Bonifacio Communications Corporation (“BCC”) and Innove and Globe are in litigation
over the right of Innove to render services and build telecommunications infrastructure in BGC. In the case filed
by Innove before the NTC against BCC, PLDT and FBDC, the NTC has issued a Cease and Desist Order
preventing BCC from performing further acts to interfere with Innove’s installations in the BGC.
On January 21, 2011, BCC and PLDT filed with the CA a Petition for Certiorari and Prohibition against the NTC,
et al. seeking to annul the order of the NTC dated October 28, 2008 directing BCC, PLDT and FBDC to comply
with the provisions of NTC MC No. 05-05-02 and to cease and desist from performing further acts that will
prevent Innove from implementing and providing telecommunications services in the Fort Bonifacio Global City
pursuant to the authorization granted by the NTC. On April 25, 2011, Innove filed its comment on the petition.
On August 16, 2011, the CA ruled that the petition against Innove and that the NTC lacked merit, holding that
neither BCC nor PLDT could claim the exclusive right to install telecommunications infrastructure and providing
telecommunications services within the BGC. Thus, the CA denied the petition and dismissed the case. PLDT
and BCC filed their motions for reconsideration thereto, which the CA denied.

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On July 6, 2012, PLDT and BCC assailed the CA’s rulings via a petition for review on certiorari with the SC.
Innove and Globe filed their comment on said petition on January 14, 2013, to which said petitioners filed their
reply on May 21, 2013. The case remains pending with the SC.
In a case filed by BCC against FBDC, Globe, and Innove before the RTC of Pasig, which case sought to enjoin
Innove from making any further installations in BGC and claimed damages from all the parties for the breach
of the exclusivity of BCC in the area, the court did not issue a TRO and has instead scheduled several hearings
on the case. The defendants filed their respective motions to dismiss the complaint on the grounds of forum
shopping and lack of jurisdiction, among others. On March 30, 2012, the RTC of Pasig, as prayed for, dismissed
the complaint on the aforesaid grounds. The motion for reconsideration filed by BCC on July 20, 2012 remains
pending with the trial court.

Acquisition by Globe Telecom and PLDT of the Entire Issued and Outstanding Shares of VTI
In a letter dated June 7, 2016 issued by PCC to Globe, PLDT, SMC and VTI regarding the Joint Notice filed by
the aforementioned parties on May 30, 2016, disclosing the acquisition by Globe and PLDT of the entire issued
and outstanding shares of VTI, the PCC claims that the Joint Notice was deficient in form and substance and
concludes that the acquisition cannot be claimed to be deemed approved.
On June 10, 2016, Globe formally responded to the letter reiterating that the Joint Notice, which sets forth the
salient terms and conditions of the transaction, was filed pursuant to and in accordance with Memorandum
Circular No. 16-002 issued by the PCC. PCC MC No. 16-002 provides that before the implementing rules and
regulations for the Philippine Competition Act of 2015 come into full force and effect, upon filing with the PCC
of a notice in which the salient terms and conditions of an acquisition are set forth, the transaction is deemed
approved by the PCC and as such, it may no longer be challenged. Further, Globe clarified in its letter that the
supposed deficiency in form and substance of the Joint Notice is not a ground to prevent the transaction from
being deemed approved. The only exception to the rule that a transaction is deemed approved is when a notice
contains false material information. In this regard, Globe stated that the Joint Notice does not contain any false
information.
On June 17, 2016, Globe received a copy of the second letter issued by PCC stating that notwithstanding the
position of Globe, it was ruling that the transaction was still subject for review.
On July 12, 2016, Globe asked the CA to stop the government's anti-trust body from reviewing the acquisition
of SMC's telecommunications business. Globe Telecom maintains the position that the deal was approved after
Globe notified the PCC of the transaction and that the anti-trust body violated its own rules by insisting on a
review. On the same day, Globe filed a Petition for Mandamus, Certiorari and Prohibition against the PCC,
docketed as CA-G.R. SP No. 146538. On July 25, 2016, the CA, through its 6th Division issued a resolution
denying Globe’s application for TRO and injunction against PCC’s review of the transaction. In the same
resolution, however, the CA required the PCC to comment on Globe's petition for certiorari and mandamus
within 10 days from receipt thereof. The PCC filed said comment on August 8, 2016. In said comment, the PCC
prayed that the ₱70 billion deal between PLDT-Globe and SMC be declared void for PLDT and Globe’s alleged
failure to comply with the requirements of the PCA. The PCC also prayed that the CA direct Globe to: cease
and desist from further implementing its co-acquisition of the SMC telecommunications assets; undo all acts
consummated pursuant to said acquisition; and pay the appropriate administrative penalties that may be
imposed by the PCC under the PCA for the illegal consummation of the subject acquisition. The case remains
pending with the CA.
Meanwhile, PLDT filed a similar petition with the CA, docketed as CA G.R. SP No. 146528, which was raffled
off to its 12th Division. On August 26, 2016, PLDT secured a TRO from said court. Thereafter, Globe’s petition
was consolidated with that of PLDT, before the 12th Division. The consolidation effectively extended the benefit
of PLDT’s TRO to Globe. The parties were required to submit their respective memoranda, after which, the
case shall be deemed submitted for resolution.
On February 17, 2017, the CA issued a Resolution denying PCC’s MR dated September 14, 2016 for lack of
merit. In the same resolution, the Court granted PLDT’s Urgent Motion for the Issuance of a Gag Order and
ordered the PCC to remove the offending publication from its website and also to obey the sub judice rule and
refrain from making any further public pronouncements regarding the transaction while the case remains
pending. The court also reminded the other parties, PLDT and Globe, to likewise observe the sub judice rule.

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For this purpose, the court issued its gag order admonishing all the parties to refrain, cease and desist from
issuing public comments and statements that would violate the sub judice rule and subject them to indirect
contempt of court. The parties were also required to comment within ten (10) days from receipt of the
Resolution, on the Motion for Leave to Intervene, and Admit the Petition-in Intervention dated February 7, 2017
filed by Citizenwatch, a non-stock and non-profit association.
On April 18, 2017, PCC filed a petition before the SC docketed as G.R. No. 230798, to lift the CA's order that
has prevented the review of the sale of SMC's telecommunications unit to PLDT and Globe. On April 25, 2017,
Globe filed before the SC a Motion for Intervention with Motion to Dismiss the petition filed by the PCC.
As of June 30, 2017, the SC did not issue any TRO on the PCC's petition to lift the injunction issued by the CA.
Hence, the PCC remains barred from reviewing the SMC deal.
On July 26, 2017, Globe received the SC En Banc resolution granting Globe's Extremely Urgent Motion to
Intervene. In the same Resolution, the SC treated as Comment, Globe's Motion to Dismiss with Opposition Ad
Cautelam to PCC's Application for the Issuance of a Writ of Preliminary Injunction and/or TRO.
On August 31, 2017, Globe received another Resolution of the SC En Banc, requiring the PCC to file a
Consolidated Reply to the Comments respectively filed by Globe and PLDT, within ten (10) days from notice.
Globe has yet to receive the Consolidated Reply of PCC since the latter requested for extension of time to file
the same.
In the meantime, in a Decision dated October 18, 2017, the CA, in CA-G.R. SP No. 146528 and CA-G.R. SP
No. 146538, granted Globe and PLDT’s Petition to permanently enjoin and prohibiting PCC from reviewing the
acquisition and compelling the PCC to recognize the same as deemed approved. PCC elevated the case to
the SC via Petition for Review on Certiorari.

Co-use of frequencies by PLDT/Smart and Globe Telecom as a result of the acquisition of controlling
shares in in VTI
On January 21, 2019, Globe filed its Comment to a petition filed by lawyers Joseph Lemuel Baligod and
Ferdinand Tecson before the SC against the NTC, PCC, Liberty Broadcasting Network, Inc. (“LBNI”), BellTel,
Globe, PLDT and Smart which was docketed as G.R. No. 242353. The Petition sough to, among others,
enjoin PLDT/Smart and Globe from co-using the frequencies assigned to LBII and BellTel in view of alleged
irregularities in NTC’s assignment of these frequencies to these entities. In its Comment, Globe argued that
the frequencies were assigned in accordance with existing procedures prescribed by law and that to prevent
the use of the frequencies will only result to its being idle and unutilized. Moreover, in view of the substantial
investments made by Globe, for the use of these frequencies, enjoining its use will cause grave and irreparable
injury not only to Globe but to subscribers who will be deprived of the benefits of fast and reliable
telecommunications services. The other respondents have likewise filed their respective Comments to the
Petition.

MANILA WATER CO., INC.

MWC is involved in the following cases as of June 30, 2019:

1. Manila Water Company, Inc. vs. The Republic of the Philippines In the Matter of the Notice of
Arbitration to the Republic of the Philippines Arbitration under the United Nations Commission
on International Trade Law (“UNCITRAL”) Rules (1976)

On April 23, 2015, MWC served on the Government, through the Department of Finance (“DOF”),
its Notice of Claim of even date demanding that the Government indemnify MWC in accordance with
the indemnity clauses in Government’s Letter Undertaking dated July 31, 1997 and Letter Undertaking
dated October 19, 2009.

At present, the arbitration case remains pending.

2. Manila Water Company, Inc. and Maynilad Water Services, Inc. vs. Hon. Borbe, et al. (CBAA
Case No. L-69)

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This is an appeal from the denial by the Local Board of Assessment Appeals (“LBAA”) of the Bulacan
Province of MWC’s (and Maynilad) appeal from the Notice of Assessment and Notice of Demand for
Payment of Real Property Tax in the amount of ₱357,110,945 made by the Municipal Assessor of
Norzagaray, Bulacan. MWC is being assessed for half of the amount.

In a letter dated April 3, 2008, the Municipal Treasurer of Norzagaray and the Provincial Treasurer of
the Province of Bulacan, informed MWC and Maynilad (collectively, the “Concessionaires”) that their
total real property tax accountabilities have reached ₱648,777,944.60 as of December 31, 2007. This
amount, if paid by the Concessionaires, will ultimately be charged to the customers as part of the
water tariff rate. The Concessionaires (and the MWSS, which intervened as a party in the case) are
thus contesting the legality of the tax on a number of grounds, including the fact that the properties
subject of the assessment are owned by MWSS, which is both a government-owned and controlled
corporation and an instrumentality of the National Government exempt from taxation under the Local
Government Code.

The CBAA conducted a hearing on June 25, 2009. In the said hearing, the parties were given the
opportunity and time to exchange pleadings regarding a motion for reconsideration filed by the
Municipality of Norzagaray, Bulacan to have the case remanded to and heard by the LBAA rather
than by the Central Board of Assessment Appeals (“CBAA”).

MWC and Maynilad have already concluded presentation of their respective evidence and witnesses,
while MWSS waived its right to present evidence.

On August 12, 2015, the newly-constituted members of the CBAA’s Panel conducted an ocular
inspection of the subject properties. On September 17, 2015, the Province of Bulacan presented its
first witness, Ms. Gloria P. Sta. Maria, the former Municipal Assessor of Norzagaray, Bulacan. MWC,
Maynilad and MWSS have completed their cross-examination of Ms. Sta. Maria.

In an Order dated July 15, 2016, the CBAA denied the motion for reconsideration of the Municipality
of Norzagaray, Bulacan for which it filed a Petition for Certiorari with the Court of Tax Appeals (“CTA”)
on August 24, 2016. In compliance with the directive of the CTA, MWC filed a Comment dated
January 3, 2017. MWSS and Maynilad have likewise filed their respective Comments.

On January 31, 2017, the CTA requested the parties to file their respective memoranda. MWC filed
its Memorandum on March 27, 2017. Maynilad filed its Memorandum dated March 16, 2017 while
the OSG filed its Memorandum last March 29, 2017.

On May 10, 2018, the CTA rendered a Decision denying the Petition for Certiorari finding that there
was no grave abuse of discretion on the part of the CBAA.

At present, MWC has not received any motion for reconsideration or appeal from the Municipality of
Norzagaray, Bulacan of the said Decision.

To date, this case remains pending.

3. Manila Water Company, Inc. vs. The Regional Director, Environmental Management Bureau-
National Capital Region, et al. (G.R. No. 206823)

This case arose from a complaint filed by the OIC Regional Director Roberto D. Sheen of the EMB -
National Capital Region (“NCR”) before the Pollution Adjudication Board (“PAB”) against MWC,
Maynilad and the MWSS for alleged violation of the Clean Water Act, particularly the five-year
deadline imposed in Section 8 thereof for connecting the existing sewage line found in all
subdivisions, condominiums, commercial centers, hotels, sports and recreational facilities, hospitals,
market places, public buildings, industrial complex and other similar establishments including

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households, to an available sewerage system. Two (2) similar complaints against Maynilad and
MWSS were consolidated with this case.

On April 22, 2009, the PAB, through the DENR Secretary and Chair Jose L. Atienza, Jr., issued a
Notice of Violation finding MWC, Maynilad and MWSS to have committed the aforesaid violation of
the Clean Water Act. Subsequently, a Technical Conference was scheduled on May 5, 2009. In the
said Technical Conference, MWC, MWSS and Maynilad explained to the PAB their respective
positions and it was established that DENR has a great role to play to compel people to connect to
existing sewage lines and those that are yet to be established by MWC and Maynilad.

In addition to the explanations made by MWC during the Technical Conference, MWC together with
MWSS and Maynilad wrote a letter dated May 25, 2009 and addressed to the respondent DENR
Secretary where they outlined their position on the matter.

In response to the May 25, 2009 letter, the OIC Regional Director for NCR, the Regional Director of
Region IV-A and the Regional Director of EMB Region III submitted their respective Comments. MWC
thereafter submitted its letter dated July 13, 2009 to the PAB where it detailed its compliance with the
provisions of the Clean Water Act and reiterated its position that the continuing compliance should
be within the context of MWC’s Concession Agreement with MWSS. Despite the explanations of
MWC, the DENR Secretary issued an Order dated October 7, 2009 which found MWC, Maynilad and
MWSS to have violated the Clean Water Act and imposed fines in the amount of ₱29,400,000.00
jointly and solidarily against MWC, Maynilad, and MWSS covering the period starting from May 7,
2009, the lapse of the 5th year from effectivity of the Clean Water Act, to September 30, 2009. In
addition, the DENR Secretary imposed a fine of ₱200,000.00 per day against petitioners until such
time that petitioners have fully complied with the Clean Water Act (Note: Under the Clean Water Act,
the daily fine is subject to further 10% increase every 2 years). MWC filed its MR dated October 22,
2009 which the PAB denied in an Order dated December 2, 2009. Hence, MWC filed its Petition for
Review dated December 21, 2009 with the CA. MWC thereafter filed an amended Petition for Review
dated January 25, 2010.

In a Decision dated August 14, 2012, the CA denied MWC’s Petition for Review and on September
26, 2012, MWC filed a MR of the CA’s Decision.

On April 29, 2013, MWC received the Resolution dated April 11, 2013 of the CA, denying its MR.

MWC has filed its appeal from the Decision and Resolution of the CA in the form of a Petition for
Review on Certiorari with the SC on May 29, 2013. In this Petition, MWC reinforced its argument that
it did not violate Section 8 of the Clean Water Act as it was able to connect existing sewage lines to
available sewage facilities, contrary to the findings of the CA. This case was consolidated with other
cases of similar nature that involved the MWSS and Maynilad. In compliance with the resolution of
the SC dated April 4, 2017, MWC filed on June 5, 2017 a report on the status of its compliance with
the Clean Water Act and its implementing regulations.

On September 17, 2019, MWC received the SC decision dated August 6, 2019 which ordered MWC,
jointly and severally with MWSS, to pay ₱921.46 million in fines for its non-compliance with the Clean
Water Act. In addition to said amount, MWSS and MWC are jointly and severally liable to pay a fine
in the amount of ₱322,102.00 per day subject to further 10% increase every two (2) years until full
compliance with Section 8 of the Clean Water Act. MWC is currently studying the SC decision, and
will exercise all legal options, including the filing of a motion with the SC, within the period provided
by law, asking for a reconsideration of the decision.

4. The Consolidated Cases in relation to the Concession Agreements

A. Waterwatch Coalition, Inc. et al. vs. Ramon Alikpala,

MWSS, et al., (G.R. No. 207444) (The Waterwatch Petition)

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On June 25, 2013, MWC received a copy of the Petition for Certiorari and Mandamus with Prayer for the
Issuance of a Temporary Restraining Order dated June 20, 2013 filed by the Waterwatch Coalition, Inc.
(“Waterwatch”). The issues raised in the Petition are as follows:

(a) The Concession Agreements are unconstitutional for granting inherent sovereign powers to the
Concessionaires which insist they are private entities and mere agents of the MWSS;
(b) The Concessionaires are public utilities;
(c) The Concession system of MWSS, MWC and Maynilad is in a state of regulatory capture;
(d) The Concession Agreements are state contracts and cannot invoke the non-impairment clause in the
1987 Philippine Constitution;
(e) The Concessionaires have no vested property rights; and
(f) MWSS is in a state of regulatory capture.

B. Water for All Refund Movement vs. MWSS, et al.

(G.R. No. 208207) (The WARM Petition)

On August 14, 2013, MWC received a copy of a Petition for Certiorari, Prohibition and Mandamus dated
August 5, 2013 filed by the Water for All Refund Movement (“WARM”). The issues raised in the WARM
Petition are as follows:

(a) The Concession Agreements unduly grant to the Concessionaires the exercise of governmental
powers even without the benefit of legislation or, at the very least, a franchise for such purpose;
(b) Concessionaires are performing public service and are therefore, governed by the Public Service
Law, and subject to the 12% rate of return cap;
(c) Concessionaires are public utilities, not mere agents or contractors of the MWSS;
(d) Public utility or not, Concessionaires may not pass on their income taxes to the water consumers as
expenditures; and
(e) The Concession Agreements cannot cause the creation of a Regulatory Office, a public office
performing public functions, or even source its funding from the Concessionaires, which are the very
same entities it is supposed to regulate.

C. Javier vs. MWSS, et al. (G.R. No. 210147)

(The Javier Petition)

On January 3, 2014, MWC received a copy of a Petition for Certiorari, Prohibition and Mandamus dated
December 13, 2013 filed by the Virginia S. Javier, et.al, who were suing in their capacity as
consumers/customers of the Concessionaires. The issues raised in the Javier Petition are as follows:

(a) The Concession Agreements are unconstitutional and/or ultra vires for being delegations of sovereign
power without the consent of Congress;
(b) The Concessionaires are public utilities;
(c) Respondents have improperly implemented return on rate base (RORB) calculations for purposes of
establishing tariffs;
(d) The Concession Agreements are not protected by the non-impairment clause;
(e) Respondents should be enjoined from proceeding with arbitration; and
(f) MWSS is in a state of regulatory capture.

On February 4, 2014, MWC received a copy of the SC’s Resolution dated January 14, 2014 consolidating
the three (3) cases. MWC filed a Consolidated Comment on the aforesaid Petitions. The arguments raised
by MWC in response to the Petitions are as follows:

(a) The Concession Agreements are valid, legal and constitutional as these have statutory basis and do
not involve any grant or delegation of the “inherent sovereign powers of police power, eminent domain
and taxation”;
(b) The Concessionaires are not public utilities in themselves but are mere agents and contractors of a
public utility (i.e., MWSS);

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(c) The Concession Agreements are protected by the non-impairment clause. Petitioners cannot invoke
police power for courts to nullify, modify, alter or supplant the Concession Agreements. Police power
is exercised by Congress, through the enactment of laws for the general welfare. No such law or
enactment is involved in this case. If and when Congress passes a law affecting the Concession
Agreements, only then will it be proper to examine the interplay between police power vis-à-vis due
process and the non-impairment clause;
(d) The rates set under the Concession Agreements are compliant with the 12% rate of return cap in the
MWSS Charter. Not being public utilities but mere agents of the MWSS, the Concessionaires are not
subject to audit by the Commission on Audit; and
(e) The Concessionaires are authorized to pass on corporate income taxes to water consumers.

D. ABAKADA Guro Party List vs. MWSS, et al.

(G.R. No. 213227) (The ABAKADA-Guro Petition)

On September 22, 2014, MWC received another Petition for Certiorari and Prohibition filed by the
ABAKADA-Guro Party List, represented by Atty. Florante B. Legaspi, Jr. This Petition was likewise
consolidated with the Waterwatch, WARM and Javier Petitions due to similarities in the issues raised.

In particular, the Petition questions the constitutionality of the Concession Agreements entered into by
MWSS with the Concessionaires and the extension of the Concession Agreements for another fifteen
(15) years from year 2022. The Petition also seeks to nullify the arbitration proceedings between MWSS
and the Concessionaires. MWC has filed its Comment on the Petition.

In its Resolution dated April 21, 2015, the SC directed the parties to file their respective memoranda
within thirty (30) days from notice thereof. After moving for the extension of the deadline on several
occasions, on September 18, 2015, MWC filed its Memorandum.

Maynilad, MWSS and Waterwatch have likewise filed their respective Memoranda. Petitioners WARM,
ABAKADA-Guro and Javier, et al. have manifested that they would adopt their respective Petitions as
their Memoranda.

E. Neri Colmenares and Carlos Isagani Zarate,

Representatives of Bayan Muna Partylist vs. Cesar V.
Purisima, in his capacity as the Secretary of Finance, et al.
(G.R. No. 219362) (The Colmenares Petition)

This case is a Petition for Certiorari and Prohibition [with Application for the Issuance of a Temporary
Restraining Order and/or Writ of Preliminary Injunction] dated August 6, 2015 filed by petitioners Neri
Colmenares and Carlos Isagani Zarate, representatives of Bayan Muna Partylist. The Petition was filed
primarily for the following purposes:

(a) To nullify, supposedly for being unconstitutional, the Arbitration Clause contained in the Concession
Agreements entered into by MWSS with MWC and Maynilad, respectively;
(b) To nullify, supposedly for being unconstitutional, the Sovereign Guarantee contained in the
Undertaking Letters executed by the Government in favor of the Concessionaires; and
(c) To declare that the Concessionaires’ payments for corporate income taxes cannot be deducted as
part of their operational expenditures; and
(d) To prevent Secretary Cesar V. Purisima and President Benigno Simeon C. Aquino III from processing
the Concessionaires’ claims under the Sovereign Guarantee.

On November 16, 2015, the SC issued a Resolution consolidating the Colmenares Petition with the
Waterwatch, WARM, Javier, and ABAKADA-Guro Petitions and directing the respondents to file their
respective Comments. On November 23, 2015, MWC filed its Comment/Opposition (Re: Petition for
Certiorari and Prohibition [with Application for the Issuance of a Temporary Restraining Order and/or Writ
of Preliminary Injunction] dated August 6, 2015). On November 13, 2015, the MWSS and MWSS-
Regulatory Office filed their Comment. On November 28, 2015, Maynilad filed its Comment with

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Opposition (To the Application for the Issuance of a Temporary Restraining Order and/or Writ of
Preliminary Injunction).

On March 10, 2016, MWC received the Manifestation dated March 7, 2016 of the OSG requesting that
the DOF and the said office be excused from filing a Comment on the instant Petition in view of the
pendency of the arbitration proceedings related to the Undertaking Letters.

On May 26, 2016, MWC received Maynilad’s Counter-Manifestation and Motions dated May 17, 2016,
praying that the OSG be required to comment on the instant Petition. Maynilad also prayed that the instant
case be set for oral arguments in accordance with the Rules of Court.

In its Resolution dated March 15, 2016, the SC noted and granted the Manifestation dated March 7, 2016
of the OSG and excused the same from filing a Comment on the instant Petition. On June 16, 2016, MWC
received Maynilad’s MR dated June 7, 2016 praying that the SC reconsider its Resolution dated March
15, 2016.

On July 25, 2016, MWC filed its Manifestation and Motion of even dated, where MWC joined Maynilad in
seeking a reconsideration of the SC’s Resolution dated March 15, 2016 and moved to set the
consolidated cases for oral arguments. The aforementioned Manifestation and Motion of MWC was noted
in the SC’s Resolution dated August 2, 2016.

On August 15, 2016, MWC received the Manifestation dated August 10, 2016 of the Secretary of Finance
Carlos G. Dominguez III, represented by the OSG, stating that he is adopting the position taken by his
predecessor in office as stated in the Manifestation dated March 7, 2016, that the Secretary of Finance
and the OSG be excused from filing a comment on the instant Petition.

The Manifestation and Motion filed by MWC, as well as the Manifestation dated August 10, 2016 filed by
Secretary of Finance Carlos G. Dominguez III, were noted in the SC’s Resolution dated August 23, 2016.

In a Resolution dated September 19, 2017, the SC denied Maynilad’s MR. Maynilad again filed another
MR dated November 6, 2017 to apprise the SC that in the interim, the arbitration between the Government
and Maynilad had been resolved by the issuance of an award in favor of Maynilad. Thus, according to
Maynilad, the OSG can no longer use said arbitration proceeding as an excuse from filing its comment.
Last December 12, 2017, MWC filed a Manifestation and Comment in support of Maynilad’s Motion.

In a Resolution dated March 6, 2018, the SC granted the MR dated November 6, 2017 filed by Maynilad
and the Motion for Leave to File Manifestation and Comment dated December 12, 2017 by MWC.

On July 31, 2018, MWC received MWSS' Comment dated July 18, 2018 on the Petition.

To date, the foregoing cases remain pending.

5. Allan Mendoza et al. vs. Manila Water Company, Inc.

Special Civil Action No. R-QZN-14-04863-SC, RTC QC Branch 77

On May 23, 2014, Allan Mendoza, et al. filed a Petition for Mandamus under Rule 65 of the Rules of
Court praying that MWC and its President, Mr. Gerardo C. Ablaza, Jr. be commanded to: (a)
reinstitute the Welfare Fund, under terms and conditions which are no less favorable than those
provided in the MWSS Employees Savings and Welfare Plan; to make an accounting, and reimburse
and/or return to the MWC Welfare Fund the employer’s share as of December 2005 which was
diverted to the MWC Retirement Plan; and to implement the progressive employer share from the
time the Welfare Fund was dissolved in 2005 up to the time when the Welfare Fund is finally
reinstituted for the petitioners who are still employed, and up to the end of employment for those who
are already separated on account of resignation, retirement, termination, etc.; (b) to implement
correctly the benefits of petitioners which are guaranteed against non-diminution, as indicated in
Exhibit “F” of the Concession Agreement; (c) to allow petitioners to accumulate their paid leaves of

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fifteen (15) days of vacation leave and fifteen (15) days of sick leave annually; and (d) to pay interest
on the foregoing at 12% per annum.

In an Order dated June 11, 2014, MWC and Mr. Ablaza were directed to file their Comment. On June
27, 2014, MWC and Mr. Ablaza filed their Comment and argued as follows: (a) the court has no
jurisdiction over the subject matter of the instant Petition; being essentially an action for payment of
employee benefits, the Labor Arbiters under the National Labor Relations Commission (“NLRC”) have
original and exclusive jurisdiction over this case; (b) petitioners have resorted to mandamus in order
to avoid payment of filing fees for a collection case; thus, the court has not acquired jurisdiction over
the case for failure of the petitioners to pay the prescribed docket fees as set forth in Rule 141 of the
Rules of Court; (c) petitioners are not entitled to a writ of mandamus; (d) there was a plain, speedy
and adequate remedy available to the petitioners; (e) the case should not be treated as a class suit;
(f) the claims of petitioners have prescribed; (g) the Complaint should be dismissed because
petitioners’ alleged cause of action is barred by laches; and (h) petitioners have received benefits no
less favorable than those granted to such employees by the MWSS at the time of their separation
from MWSS.

In an Order dated July 28, 2014, the court set the presentation of petitioners’ evidence on September
10, 2014 and October 8, 2014. However, the September 10, 2014 hearing was cancelled because
the branch clerk of court, the clerk-in-charge of civil cases, the court interpreter and the court aide of
the branch were attending a seminar for the e-Court system.

Thereafter, petitioners filed a Motion to Cancel (the October 8, 2014) Hearing and to Allow Parties to
Submit Memoranda. In their Motion, petitioners claimed that the issues for resolution in the instant
case are legal questions and prayed that the parties be required to submit Memoranda in lieu of
presentation of evidence.

On October 1, 2014, MWC and Mr. Ablaza filed a Comment on the Motion and stated that they do
not entirely agree with petitioners’ statement as they have made factual allegations in their Petition
that would need to be proven in a full-blown trial. These allegations include, among others, that the
employees have suffered diminution of benefits and that MWC had allegedly used part of the Welfare
Fund as seed money for the Retirement Fund.

However, MWC and Mr. Ablaza proposed that the following legal issues be initially disposed of by
way of simultaneous Memoranda to be submitted by the parties, namely, whether or not: (a) the court
has jurisdiction over the subject matter of the Petition being essentially an action for payment of
employee benefits; (b) the court has acquired jurisdiction over the case considering the failure of the
petitioners to pay the prescribed docket fees as set forth in Rule 141 of the Rules of Court; (c) the
petitioners are entitled to a writ of mandamus; (d) there was a plain, speedy and adequate remedy
available to the petitioners; (e) this case should be treated as a class suit; (f) the claims of petitioners
have prescribed; and (g) the Petition should be dismissed because petitioners’ alleged cause of
action is barred by laches.

On October 8, 2014, the scheduled hearing for the initial presentation of petitioners’ evidence was
cancelled reset to March 5, 2015 due to the absence of the presiding judge. At the March 5, 2015
hearing, petitioners reiterated their prayer that the parties be required to submit Memoranda in lieu
of presentation of evidence considering that only legal questions are involved. MWC and Mr. Ablaza
again countered that petitioners have made factual allegations in their Petition that would need to be
proven in a full-blown trial.

The presiding judge stated that the proceedings for a petition for mandamus are summary in
nature. Thus, he directed the parties to simultaneously submit their respective Memoranda within
sixty days, or by May 5, 2015. He directed the parties to address all legal issues and if there are
factual issues, to attach judicial affidavits of witnesses. Upon submission of the Memoranda, he will
determine if a party would be allowed to cross-examine the other’s witnesses or if he would still
conduct oral arguments.

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The parties subsequently filed their respective Memoranda.

In an Order dated September 14, 2015, the parties were directed to manifest whether they would be
submitting the case on the basis of their respective Memoranda or if they would request for a trial on
the merits. At the October 12, 2015 hearing before the clerk of court, MWC and Mr. Ablaza, through
counsel, reiterated that they would prefer if the issues on jurisdiction and other grounds for dismissal
be resolved first before deciding whether or not the case should go to trial. The clerk of court noted
this manifestation for discussion with the presiding judge.

The trial court thereafter set the case for initial trial on March 30, 2016. During the hearing, both
parties stated that their respective positions are already set forth in the Memorandum each submitted.
The issues on jurisdiction and other grounds for dismissal were submitted for resolution. In an Order
dated April 1, 2016, the trial court dismissed the case, without prejudice, on the ground that the
Petition filed by Mr. Mendoza failed to state a cause of action for mandamus. In an Order dated July
14, 2016, the trial court denied the MR of the petitioners.

Mr. Allan M. Mendoza proceeded to file a Petition for Certiorari with the CA. On October 24, 2016,
the CA ordered the counsel of Mr. Mendoza to submit an Amended Petition, this time impleading the
names of the other petitioners, stating their actual addresses, and appending copies of their Special
Powers of Attorney. On December 1, 2016, the Amended Petition was filed.

In a Resolution dated January 19, 2017, the CA directed the counsel for the petitioners to submit the
addresses of some of the co-petitioners and to implead one additional petitioner. On February 21,
2017, MWC received a Second Amended Petition filed by petitioners supposedly to comply with the
directive of the court.

In a Resolution dated September 8, 2017, the CA directed MWC to comment on the Amended
Petition. MWC filed its Comment on October 30, 2017.

The CA thereafter referred the parties to compulsory mediation, which however failed. In a Resolution
dated March 6, 2018, the parties were directed to file their respective Memoranda. MWC filed its
Memorandum on May 24, 2018.

In a Resolution dated July 31, 2018, the CA admitted the Memorandum filed by MWC. However, the
Memorandum filed by the petitioners was deemed not filed, as their Motion for Extension of Time to
file the same was unsigned. The petitioners were directed to show cause why their Memorandum
should be admitted despite being filed late. In a Compliance with Manifestation and Motion to Admit,
petitioners’ counsel explained that late filing was an oversight caused by counsel’s recent surgery
and the medications prescribed, and prayed that petitioners’ Memorandum be admitted.

To date, this case remains pending.

6. WARM vs. MWSS, et al. (G.R. No. 212581)

This is a Petition for the Issuance of Writ of Kalikasan with prayer for issuance of TRO against the
operation of the current sewerage and sanitation system operated by respondents. Petitioners
alleged that the current sewerage and sanitation system is currently causing environmental damage
of such magnitude as to cause prejudice to life, health or property of the inhabitants of Metro Manila.
According to petitioners, the current sewer system is dumping highly toxic raw sewerage into the
neutral body of water.

In its July 26, 2013 Resolution, the CA denied the Petition on the ground that it is not sufficient in
form and substance. The dismissal, however, “without prejudice to the filing of any appropriate civil,
criminal or administrative remedies warranted by the relevant circumstance.” Subsequently,
petitioners filed a MR dated August 22, 2013 and a Supplemental Motion for Reconsideration dated

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October 1, 2013. On October 17, 2013, MWC filed its Comment/Opposition Ad Cautelam (Re: Motion
for Reconsideration dated August 22, 2013). On November 13, 2013, MWC filed its Motion to
Expunge with Comment Ad Cautelam (Re: Supplemental Motion for Reconsideration dated October
1, 2013). On May 12, 2014, the CA denied the MR and Supplemental Motion for Reconsideration.

Subsequently, on June 4, 2014, WARM filed a Petition for Review on Certiorari with the SC assailing
the Decision and Resolution of the CA. MWC has filed its Comment on the Petition, arguing that (a)
petitioner failed to show how the installation of a combined sewerage-drainage system could cause
environmental damage of such magnitude as to prejudice the life, health or property of inhabitants in
two or more cities or provinces; (b) petitioner misapplied the precautionary principle; (c) petitioner
failed to show how the installation of a combined sewerage-drainage system is unlawful; (d) petitioner
failed to allege how the MWC could have violated the SC’s Writ of Continuing Mandamus; (e)
petitioner did not implead indispensable government agencies’ neither did petitioner comply with the
rule on exhaustion of administrative remedies; and (f) the relief sought by petitioner would do more
harm than good to the environment.

The SC has directed the respondents to file their respective comments on the Petition. MWC has
filed its Comment on the Petition. The Petition remains pending.

In a Resolution dated July 11, 2017, the SC resolved to consolidate this case with the following cases
(as discussed in item 3 of the discussion for MWC under this section on Legal Proceedings):

(a) G.R. No. 202897 (Maynilad Water Services, Inc. vs. Secretary of the Department of
Environmental and Natural Resources, et. al.);
(b) G.R. No. 206823 (Manila Water Company, Inc. vs. The Regional Director-Environmental
Management Bureau-National Capital Region, et al.);
(c) G.R. No. 207969 (Metropolitan Waterworks and Sewerage System vs. Pollution Adjudication
Board and Environmental Management Bureau).

7. Padilla et al. vs. Lapid et al. (C-C-19-0054), Office of the Ombudsman

This case before the Office of the Ombudsman was filed on May 8, 2018 by Mr. Rod Padilla and Mr.
Roberto Gelito in their capacities as concerned citizens against Senator Mark A. Villar, the Tourism
Infrastructure and Enterprise Zone Authority or TIEZA, formerly the PTA, the former and current
TIEZA board members and officers, Mr. Virgilio C. Rivera, Jr., as officer of MWC, and incorporator of
Boracay Island Water Company or BIWC and the incorporators of BIWC, namely, Mr. Luis Mr. Juan
B. Oreta, Mr. Frank Beaumont and Mr. Jose Rene D. Almendras for their alleged violation of Section
3(e) and (g) of Republic Act No. 3019 or the Anti-Graft and Corrupt Practices Act.

The complainants alleged, among others, that unwarranted benefits, advantage or preference through
manifest partiality in the selection was granted (a) to MWC as TIEZA’s (then PTA’s) joint venture
partner for the development, financing, design, engineering, construction, upgrade, testing,
commissioning, operation management and maintenance of the Boracay Waterworks and Sewerage
System facilities and the operation and maintenance of drainage facilities, and (b) to BIWC when the
sole and exclusive right to operate and manage the Boracay Waterworks and Sewerage System
notwithstanding the constitutional prohibition on the exclusivity of franchises under Article XII, Section
11 of the 1987 Philippine Constitution. Further, the complainants alleged that undue injury was caused
to the government when it entered into the joint venture agreement and concession agreement with
BIWC, which terms were alleged to be manifestly and grossly disadvantageous to the government.

On May 29, 2019, MWC and BIWC received a copy of the Order of the Ombudsman dated 10 May
2019 directing the respondents, including, Mr. Rivera of MWCI, Jr. and Mr. Oreta, Mr. Beaumont and
Mr. Almendras of BIWC, to file, within 10 days from receipt of said Order, their counter-affidavit/s,
affidavit/s of their witness/es and supporting documents. Mr. Rivera, Mr. Oreta, Mr. Beaumont and Mr.
Almendras have filed their respective manifestations and counter-affidavits.

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To date, this case is still pending before the Ombudsman.

BANK OF THE PHILIPPINE ISLANDS

As at June 30, 2019, BPI does not have any material pending legal proceedings to which the registrant
or any of its subsidiaries or affiliates is a party or of which any of their property is the subject.

INTEGRATED MICRO-ELECTRONICS, INC.

As of June 30, 2019, IMI is not involved in any litigation it considers material. In any event, below are
the legal proceedings involving IMI that may be significant.

Certain employees have filed illegal dismissal cases before the NLRC against IMI when the latter
terminated their services due to violation of company rules and regulations such as acts of dishonesty,
and excessive unauthorized absences. These cases are at various stages including appeal.

IMI has also filed criminal cases against certain individuals who circumvented the procedures, rules, and
regulations set by IMI to pilfer materials (i.e., copper wire, solder dross, etc.) and parts. Most of these
cases were withdrawn after compromise agreements were entered into.

IMI vs. Standard Insurance (Civil Case No. 11-315)

This is an action for specific performance filed by IMI against Standard Insurance (“Standard”) seeking to
collect Standard’s share in the loss incurred by IMI consisting in damage to production equipment and
machineries as a result of the 24 May 2009 fire at IMI’s Cebu facility which IMI claims to be covered by
Standard’s “Industrial All Risks Material Damage with Machinery Breakdown and Business Interruption”
policy. The share of Standard in the loss is 22% or US$1,117,056.84 after payment by all of its co-insurers.

IMI had to resort to court action after Standard denied its claim on the ground that this is an excepted
peril.

Standard filed a Motion to Dismiss on the ground of improper service of summons, prescription, and no
cause of action. On 9 November 2011, the RTC of Makati City denied the Motion to Dismiss. Standard
filed a MR, which was denied by the RTC on 13 February 2012.

Standard elevated this to the CA. The CA in a Decision promulgated on 26 March 2013, dismissed the
complaint on the ground that it has prescribed. On 19 April 2013, IMI filed a MR which was denied on 13
December 2013.

IMI filed a Verified Petition for Review on Certiorari dated January 23, 2014 with the Supreme Court which
is still pending.

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 REGULATORY FRAMEWORK
The statements herein are based on the laws in force as of the date of this Prospectus and are subject to
any changes in law occurring after such date, which changes could be made on a retroactive basis. The
following summary does not purport to be a comprehensive description of all of the regulatory and
environmental considerations that may be relevant to the Company and/or its subsidiaries or the offering.

Nationality Restrictions

Land Ownership

The ownership of land by foreign nationals is subject to restrictions provided under the Philippine
constitution and related statutes. Under Section 7, Article XII of the Philippine Constitution, in relation to
Section 2, Article XII thereof, and Chapter 5 of Commonwealth Act No. 141, private land shall not be
transferred or conveyed except to Filipino nationals or to corporations or associations organized under the
law of the Philippines and whose capital is least 60% owned by Filipino nationals.

Natural Resources

The Philippine Constitution provides that the exploration, development and utilization of natural resources
(such as minerals and petroleum) shall be under the full control and supervision of the State. The State
may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least 60% of whose capital is owned
by Filipino citizens. However, for large-scale exploration, development and utilization of minerals, petroleum
and other mineral oils, the President may enter into agreements with foreign-owned corporations involving
technical or financial assistance.

Property Registration

The Philippines has adopted the Torrens System of land registration which conclusively confirms land
ownership, which is binding on all persons, including the Government. Once registered, title to registered
land becomes indefeasible after one year from the date of entry of the decree of registration except with
respect to claims noted on the certificate of title. Title to registered lands cannot be lost through adverse
possession or prescription. Presidential Decree No. 1529, as amended, codified the laws relative to land
registration and is based on the generally accepted principles underlying the Torrens System.

After proper surveying, application, publication, service of notice and hearing, unregistered land may be
brought under the system by virtue of judicial or administrative proceedings. In a judicial proceeding, the
Regional Trial Court within whose jurisdiction the land is situated confirms title to the land. Persons
opposing the registration may appeal the judgment to the CA within 15 days from receiving notice of
judgment. After the lapse of the period of appeal, the Register of Deeds may issue an Original Certificate
of Title. The decree of registration may be annulled on the ground of actual fraud within one year from the
date of entry of the decree of registration. Similarly, in an administrative proceeding, the land is granted to
the applicant by the DENR by issuance of a patent and the patent becomes the basis for issuance of the
Original Certificate of Title by the Register of Deeds. All land patents (i.e. homestead, sales and free patent)
must be registered with the appropriate registry of deeds since the conveyance of the title to the land
covered thereby takes effect only upon such registration.

Any subsequent transfer of encumbrance of the land must be registered in the system in order to bind third
persons. Subsequent registration and a new Transfer Certificate of Title in the name of the transferee will
be granted upon presentation of certain documents and payment of fees and taxes.

All documents evidencing conveyances of subdivision and condominium units should also be registered
with the Register of Deeds. Title to the subdivision or condominium unit must be delivered to the purchaser
upon full payment of the purchase price. Any mortgage existing thereon must be released within six months
Regulatory Framework

from the delivery of title. To evidence ownership of condominium units, a Condominium Certificate of Title
is issued by the Register of Deeds.

While the Philippine Constitution prescribes nationality restrictions on land ownership, there is generally no
prohibition against foreigners owning buildings and other permanent structures. However, with respect to
condominium developments, the foreign ownership of units in such developments is limited to 40%.

The ownership of private lands in the Philippines is reserved for Philippine citizens and Philippine
corporations at least 60% of whose capital stock is owned by Philippine citizens. The prohibition is rooted
in Sections 2, 3 and 7 of Article XII of the 1987 Philippine Constitution, which states that, save in cases of
hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations
or associations qualified to acquire or hold lands of the public domain. In turn, the nationality restriction on
the ownership of private lands is further underscored by Commonwealth Act No. 141 which provides that
no private land shall be transferred or conveyed except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least 60% of whose capital is owned by such
citizens.

While aliens or foreign nationals are prohibited from owning private lands and lands of public domain, they
are allowed to lease private lands (but not lands of public domain). A foreigner may acquire private land in
the Philippines through hereditary succession if he or she is a legal or natural heir.

Any natural born Filipino citizen who has lost his or her Philippine citizenship and who has the legal capacity
to enter into a contract under Philippine Laws may be a transferee of a private land up to a maximum area
of 5,000 sq.m. in case of urban land or three hectares in case of rural land to be used by him for business
or other purposes. In case the transferee already owns urban or rural land for business or other purposes,
he or she is entitled to be a transferee of additional urban or rural land for business or other purposes which
when added to those already owned by him or her must not exceed the maximum area fixed by law.

A transferee may acquire not more than two lots which should be situated in different municipalities or cities
anywhere in the Philippines, but the total land area thereof must not exceed 5,000 sq.m. in case of urban
land or three hectares in case of rural land for use by him or her for business or other purposes. A transferee
who has already acquired urban land will be disqualified from acquiring rural land and vice versa.

Any corporation that is owned 100% by a foreign firm may establish a condominium corporation under
Republic Act No. 4726, or the Condominium Act, provided that land on which the building is erected is held
only under lease arrangement. The Condominium Act defines a condominium as an interest in real property
consisting of separate interest in a unit in a residential, industrial or commercial building and an undivided
interest in common, directly or indirectly, in the land on which it is located and in other common areas of
the building. A condominium may include, in addition, a separate interest in other portions of such real
property. Title to the common areas, including the land, or the appurtenant interests in such areas, may be
held by a corporation specially formed for the purpose (condominium corporation) in which the holders of
separate interest shall automatically be members or shareholders, to the exclusion of others, in proportion
to the appurtenant interest of their respective units in the common areas.

Any transfer or conveyance of a unit or an apartment, office or store or other space therein, shall include
the transfer or conveyance of the undivided interests in the common areas or, in a proper case, the
membership or shareholdings in the condominium corporation. Where the common areas in the
condominium project are owned by the owners of separate units as co-owners thereof, no condominium
unit may be transferred to foreigners or corporations with foreign ownership of more than 40% of the capital
stock. The transfer to aliens of units in a condominium project may be made only up to the point where the
concomitant transfer of membership or stockholding in the condominium corporation would not cause the
alien interest in such corporation to exceed 40% of its entire capital stock.

A foreign national or corporation may enter into a lease agreement with Filipino landowners for an initial
period of up to 50 years, and renewable for another 25 years. Ownership of houses or buildings is allowed,
provided that the foreigner does not own the land on which the house is built.

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Regulatory Framework

Infrastructure

As provided in the Eleventh Regular Foreign Investment Negative List promulgated on October 29, 2018
(in relation to Commonwealth Act No. 541, Letter of Instruction No. 630), contracts for the construction and
repair of locally funded public works shall be undertaken by Filipino individuals, or corporations,
partnerships or associations, the capital of which is 60% owned by citizens of the Philippines, except
(a) infrastructure or development projects covered in R.A. No. 7718 (which amended R.A. No. 6957 or the
Build-Operate-Transfer (BOT) Law); and (b) projects that are foreign funded or assisted and required to
undergo international competitive bidding (Section 2(a) of R.A. No. 7718).

The Implementing Rules and Regulations of the Government Procurement Reform Act also provides that
only Philippine corporations, the shareholding interests of which are at least 75% owned by citizens of the
Philippines, shall be allowed to bid for infrastructure projects, subject to the relevant exceptions.

Foreign Investments Act of 1991

The Foreign Investments Act of 1991 (“FIA”) liberalized the entry of foreign investment into the Philippines.
Under the FIA, foreigners can own as much as 100% equity in domestic market enterprises, except in areas
specified in the Foreign Investment Negative List. This Negative List enumerates industries and activities
which have foreign ownership limitations under the FIA and other existing laws.

In connection with the ownership of private land, however, the Philippine Constitution states that no private
land shall be transferred or conveyed except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least 60% of whose capital is owned by such citizens.

For the purpose of complying with nationality laws, the term “Philippine National” is defined under the FIA
as any of the following:

• a citizen of the Philippines;

• a domestic partnership or association wholly owned by citizens of the Philippines;

• a corporation organized under the laws of the Philippines of which at least 60% of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines;

• a corporation organized abroad and registered to do business in the Philippines under the Revised
Corporation Code of the Philippines, of which 100% of the capital stock outstanding and entitled to
vote is wholly owned by Filipinos; or

• a trustee of funds for pension or other employee retirement or separation benefits, where the
trustee is a Philippine National and at least 60% of the fund will accrue to the benefit of Philippine
Nationals.

For as long as the percentage of Filipino ownership of the capital stock of the corporation is at least 60%
of the total shares outstanding and voting, the corporation shall be considered as a 100% Filipino-owned
corporation. A corporation with more than 40% foreign equity may be allowed to lease private land for a
period of 25 years, renewable for another 25 years.

Foreign Currency and Foreign Investments

Registration of Foreign Investments and Exchange Controls

Under current BSP regulations, an investment in Philippine securities (such as the Offer Shares) must be
registered with the BSP if the foreign exchange needed to service the repatriation of capital and/or the

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remittance of dividends, profits and earnings derived from such shares is to be sourced from the Philippine
banking system. If the foreign exchange required to service capital repatriation or dividend remittance will
be sourced outside the Philippine banking system, registration with the BSP is not required. BSP Circular
No. 471 issued on January 24, 2005 subjects foreign exchange dealers and money changers to RA No.
9160 (the Anti-Money Laundering Act of 2001, as amended) and requires these non-bank sources of foreign
exchange to require foreign exchange buyers to submit supporting documents in connection with their
application to purchase foreign exchange for purposes of capital repatriation and remittance of dividends.

Registration of Philippine securities listed in the PSE may be done directly with a custodian bank duly
designated by the foreign investor. A custodian bank may be a universal or commercial bank or an offshore
banking unit registered with the BSP to act as such and appointed by the investor to register the investment,
hold shares for the investor, and represent the investor in all necessary actions in connection with his
investments in the Philippines. Applications for registration must be accompanied by: (a) purchase invoice,
subscription agreement and proof of listing on the PSE (either or both); (b) original certificate of inward
remittance of foreign exchange and its conversion into Philippine Pesos through an authorized agent bank
in the prescribed format; and (c) authority to disclose (“Authority to Disclose”) in the prescribed format. The
Authority to Disclose allows the custodian bank to disclose to the BSP any information that may be required
to comply with post-audit requirements for the registration of Peso-denominated investments.

Upon registration of the investment, proceeds of divestments, or dividends of registered investments are
repatriable or remittable immediately and in full through the Philippine banking system, net of applicable
tax, without need of BSP approval. Capital repatriation of investments in listed securities is permitted upon
presentation of the BSP registration document (“BSRD”) or BSRD Letter-Advice from the registering
custodian bank and the broker’s sales invoice, at the exchange rate prevailing at the time of purchase of
the foreign exchange from the banking system. Remittance of dividends is permitted upon presentation of:
(a) the BSRD or BSRD Letter-Advice; (b) the cash dividends notice from the PSE and the Philippine
Depository and Trust Corporation (formerly the Philippine Central Depository) showing a printout of cash
dividend payment or computation of interest earned; (c) the copy of the corporate secretary’s sworn
statement attesting to the board resolution covering the dividend declaration and (d) the detailed
computation of the amount applied for in the format prescribed by the BSP. For direct foreign equity
investments, the latest audited financial statements or interim financial statements of the investee firm
covering the dividend declaration period need to be presented in addition to the documents enumerated
above. Pending reinvestment or repatriation, divestment proceeds, as well as dividends of registered
investments, may be lodged temporarily in interest-bearing deposit accounts. Interest earned thereon, net
of taxes, may also be remitted in full. Remittance of divestment proceeds or dividends of registered
investments may be reinvested in the Philippines if the investments are registered with the BSP or the
investor’s custodian bank.

The foregoing is subject to the power of the BSP, with the approval of the President of the Philippines, to
suspend temporarily or restrict the availability of foreign exchange, require licensing of foreign exchange
transactions or require delivery of foreign exchange to the BSP or its designee during a foreign exchange
crisis, when an exchange crisis is imminent, or in times of national emergency. Furthermore, there can be
no assurance that the foreign exchange regulations issued by the BSP will not be made more restrictive in
the future.

The registration with the BSP of all foreign investments in the Offer Shares shall be the responsibility of the
foreign investor.

Board of Investments

Under the Omnibus Investments Code, a BOI-registered enterprise may enjoy certain incentives provided
such enterprise invests in preferred areas of investment enumerated in the Investment Priorities Plan
annually prepared by the Government. However, prior to registration with the BOI, the enterprise must first
satisfy the minimum equity required to finance the project applied equivalent to 25% of the estimated project
cost, or as may be prescribed by the BOI. Such incentives may include: (a) income tax holiday; (b) additional
deduction for labor expenses; (c) tax exemption on imported capital equipment; (d) tax credit on domestic

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capital equipment; (e) exemption from contractor’s tax; (f) simplification of customs procedure; (g)
unrestricted use of consigned equipment; (h) employment of foreign nationals; (i) tax exemption on imported
spare parts; and (j) exemption from wharfage dues and export duties and fees.

Retail Trade Liberalization Act

Republic Act No. 8762, otherwise known as the Retail Trade Liberalization Act of 2000 (“R.A. 8762”), was
enacted into law on March 7, 2000. R.A. 8762 liberalized the Philippine retail industry to encourage Filipino
and foreign investors to forge an efficient and competitive retail trade sector in the interest of empowering
the Filipino consumer through lower prices, high quality goods, better services, and wider choices. Prior to
the passage of R.A. 8762, retail trade was limited to Filipino citizens or corporations that are 100% Filipino-
owned.

“Retail Trade” is defined by R.A. 8762 to cover any act, occupation, or calling of habitually selling direct to
the general public any merchandise, commodities, or goods for consumption. The law provides that foreign-
owned partnerships, associations and corporations formed and organized under the laws of the Philippines
may, upon registration with the SEC and the DTI or in case of foreign- owned single proprietorships, with
the DTI, engage or invest in the retail trade business, in accordance with the following categories:

• Category A — Enterprises with paid-up capital of the equivalent in Philippine Pesos of less than
US$2.5 million shall be reserved exclusively for Filipino citizens and corporations wholly owned by
Filipino citizens

• Category B — Enterprises with a minimum paid-up capital of the equivalent in Philippine Pesos of
US$2.5 million but less than US$7.5 million may be wholly owned by foreigners except for the first
two years after the effectiveness of R.A. 8762 wherein foreign participation shall be limited to not
more than 60% of total equity.

• Category C — Enterprises with a paid-up capital of the equivalent in Philippine Pesos of US$7.5
million or more may be wholly owned by foreigners, provided, that in no case shall the investments
for establishing a store in Categories B and C be less than the equivalent in Philippine Pesos of
US$830,000;6 and

• Category D — Enterprises specializing in high-end or luxury products with a paid-up capital of the
equivalent in Philippine Pesos of US$250,000 per store may be wholly owned by foreigners.

No foreign retailer is allowed to engage in retail trade in the Philippines unless all the following qualifications
are met:

• A minimum of US$200 million net worth in its parent corporation for categories B and C, and US$50
million net worth in its parent corporation for category D;

• Five retail branches or franchises in operation anywhere around the world unless such retailers has
at least one store capitalized at a minimum of US$25 million;

• Five-year track record in retail; and

• Only nationals from, or judicial entities formed or incorporated in, countries which allow the entry of
Filipino retailers, shall be allowed to engage in retail trade in the Philippines.

The implementing rules of R.A. 8762 define a foreign retailer as an individual who is not a Filipino citizen,
or a corporation, partnership, association, or entity that is not wholly owned by Filipinos, engaged in retail

6 Category C ceased to be available as a permitted category with effect from March 25, 2002

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trade. The DTI is authorized to pre-qualify all foreign retailers, subject to the provisions of R.A. 8762, before
they are allowed to conduct business in the Philippines.

Environmental Laws

Development projects that are classified by law as environmentally critical or projects within statutorily
defined environmentally critical areas are required to obtain an ECC prior to commencement. The DENR,
through its regional offices or through the Environmental Management Bureau (the “EMB”), determines
whether a project is environmentally critical or located in an environmentally critical area. As a requirement
for the issuance of an ECC, an environmentally critical project must submit an EIS to the EMB while a
project in an environmentally critical area is generally required to submit an Initial Environmental
Examination (“IEE”) to the proper EMB regional office. In the case of an environmentally critical project
within an environmentally critical area, an EIS is mandatory. The construction of major roads and bridges
are considered environmentally critical projects for which EIS and ECC are mandatory. Presidential
Proclamation No. 2146 also classified petroleum and petro-chemical industries as environmentally critical
projects.

The EIS refers to both the document and the study of a project’s environmental impact, including a
discussion of the scoping agreement identifying critical issues and concerns as validated by the EMB,
environmental risk assessment if determined necessary by the EMB during the scoping, environmental
management program, direct and indirect consequences to human welfare and the ecological as well as
environmental integrity. The IEE refers to the document and the study describing the environmental impact,
including mitigation and enhancement measures, for projects in environmentally critical areas.

While the terms and conditions of an EIS or an IEE may vary from project to project, as a minimum it
contains all relevant information regarding the project’s environmental effects. The entire process of
organization, administration and assessment of the effects of any project on the quality of the physical,
biological and socio-economic environment as well as the design of appropriate preventive, mitigating and
enhancement measures is known as the EIS System. The EIS System successfully culminates in the
issuance of an ECC. The issuance of an ECC is a Philippine government certification that the proposed
project or undertaking will not cause a significant negative environmental impact; that the proponent has
complied with all the requirements of the EIS System; and that the proponent is committed to implementing
its approved Environmental Management Plan in the EIS or, if an IEE was required, that it shall comply
with the mitigation measures provided therein before or during the operations of the project and in some
cases, during the project’s abandonment phase.

Project proponents that prepare an EIS are required to establish an Environmental Guarantee Fund when
the ECC is issued for projects determined by the DENR to pose a significant public risk to life, health,
property and the environment or where the project requires rehabilitation or restoration. The Environmental
Guarantee Fund is intended to meet any damage caused by such a project as well as any rehabilitation
and restoration measures. Project proponents that prepare an EIS are required to include a commitment to
establish an Environmental Monitoring Fund when an ECC is eventually issued. In any case, the
establishment of an Environmental Monitoring Fund must not occur later than the initial construction phase
of the project. The Environmental Monitoring Fund must be used to support the activities of a multi-partite
monitoring team, which will be organized to monitor compliance with the ECC and applicable laws, rules
and regulations.

In addition to the requirement for the issuance of an ECC, all public and private proponents of subdivision
development projects, housing projects and other land development and infrastructure projects are required
to undertake an Engineering Geological and Geohazard Assessment (“EGGA”). The EGGA is undertaken
in order that project proponents can adequately and comprehensively address and mitigate the possible
effects/impacts of geologic hazards. To comply with this requirement, the proponent causes the preparation
of an Engineering Geological and Geohazard Assessment Report (“EGGAR”) which includes the results of
all engineering geological, structural geological and geohazard assessment and geotechnical tests, with
any other specialised studies and tests undertaken, as prescribed by the DENR-Mines and Geosciences
Bureau (“MGB”). The EGGAR shall be subject to review/verification by DENR-MGB and for appropriate

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transmittal or endorsement to the DENR-EMB and other concerned government Agencies. The EGGAR is
used as an institutional planning tool to safeguard development projects from the hazards caused by
geological phenomena.

Philippine Clean Air Act of 1999

Republic Act No. 8749, otherwise known as the “Philippine Clean Air Act”, provides more stringent fuel
specifications over a period of time to reduce emission that pollutes the air. The Philippine Clean Air Act
specifies the allowable sulfur and benzene content for gasoline and automotive diesel. Under the law, oil
firms are mandated to lower the sulfur content of automotive diesel oils to 0.05% by weight by January 1,
2004 nationwide. The law also prohibits a manufacturer, processor or trader of any fuel or additive to import,
sell, offer for sale, or introduce into commerce such fuel or fuel additive unless these have been registered
with the DOE. All the requirements of the said law have been implemented, starting with the phase-out of
leaded gasoline in Metro Manila in April 2000 and all over the country in December 2000.

The Technical Committee on Petroleum Products and Additives sets the standards for all types of fuel and
fuel related products, to improve fuel consumption for increased efficiency and reduced emissions. The
committee is guided by strict time-bound and quality-specific targets under the mandate of the Philippine
Clean Air Act and the DOE initiative on alternative fuels.

Philippine Clean Water Act of 2004

In 2004, Republic Act No. 9275, or the “Philippine Clean Water Act”, was enacted to streamline processes
and procedures in the prevention, control, and abatement of pollution in the country’s water resources and
provide for a comprehensive water pollution management program focused on pollution prevention. The
law primarily applies to the abatement and control of water pollution from land based

sources. The EMB, in partnership with other Philippine government agencies and the respective local
government units, is tasked by the Implementing Rules of the Philippine Clean Water Act to identify existing
sources of water pollutants and strictly monitor pollution sources which are not in compliance with the
effluent standards provided in the law. The Philippine Clean Water Act also authorizes the DENR to
formulate water quality criteria and standards for oil and gas exploration which encounter re-injection
constraints.

Ecological Solid Waste Management Act

The Ecological Solid Waste Management Act of 2000 (Republic Act No. 9003) provides for the proper
management of solid waste which includes discarded commercial waste and non-hazardous institutional
and industrial waste. The said law prohibits, among others, the transporting and dumping of collected solid
wastes in areas other than prescribed centers and facilities. The same law mandates all, especially, the
local government units, to adopt a systematic, comprehensive and ecological solid waste management
program which shall ensure protection of public health and environment, utilize environmentally sound
methods, set targets and guidelines for solid waste avoidance and reduction, and ensure proper
segregation, collection, transport and storage of solid waste.

The National Solid Waste Management Commission, together with other government agencies and the
different local government units, are responsible for the implementation and enforcement of the said law.

Toxic Substances and Hazardous and Nuclear Wastes Control Act

Republic Act No. 6969 or “The Hazardous Wastes Act” governs the program for the control and
management of the importation, manufacture, processing, all other actions involving toxic substances and
hazardous and nuclear tastes.

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New chemicals are listed in the Philippine Inventory of Chemicals and Chemical Substances (“PICCS”).
The PICCS is a list of existing industrial chemicals and chemical substances used, sold, distributed,
imported, processed, manufactured, stored, exported, treated, or transported in the Philippines.

Once a chemical is listed in the PICCS, it may be manufactured or imported with no control, provided it is
not included in the Priority Chemicals List (“PCL”) or subject to a Chemical Control Order (“CCO”).

A CCO prohibits, limits or regulates the use, manufacture, import, export, transport, processing, storage,
possession and wholesale of priority chemicals that are determined to be regulated, phased- out, or banned
because of the serious risks they pose to public health, the work place and the environment. The objective
of a CCO is to ensure the proper management of the chemicals so that danger to human health and the
environment is reduced.

Violations of this Act are punishable by fine and/or imprisonment and possible administrative fines.

Intellectual Property

Intellectual Property Code

Under the Intellectual Property Code of the Philippines, the rights to a trademark are acquired through the
registration with the Bureau of Trademarks of the Intellectual Property Office, which is the principal
government agency involved in the registration of brand names, trademarks, patents and other registrable
intellectual property materials.

Upon registration, the Intellectual Property Office shall issue a certificate of registration to the owner of the
mark, which shall confer the right to prevent all third parties not having the owner’s consent from using in
the course of trade identical or similar signs or containers for goods or services which are identical or similar
to those in respect of which the mark is registered. The said certificate of registration shall also serve as
prima facie evidence of the validity of registration and the registrant’s ownership of the mark. A certificate
of registration shall remain in force for an initial period of ten (10) years and may be renewed for periods of
ten (10) years at its expiration.

Consumer Protection

Consumer Act of the Philippines

Republic Act No. 7394, otherwise known as the Consumer Act of the Philippines (“Consumer Act”), the
provisions of which are principally enforced by the DTI, seeks to: (a) protect consumers against hazards to
health and safety, (b) protect consumers against deceptive, unfair and unconscionable sales acts and
practices; (c) provide information and education to facilitate sound choice and the proper exercise of rights
by the consumer; (d) provide adequate rights and means of redress; and (e) involve consumer
representatives in the formulation of social and economic policies.

This law imposes rules to regulate such matters as: (a) consumer product quality and safety; (b) the
production, sale, distribution and advertisement of food, drugs, cosmetics and devices as well as
substances hazardous to the consumer’s health and safety; (c) fair, honest consumer transactions and
consumer protection against deceptive, unfair and unconscionable sales acts or practices; (d) practices
relative to the use of weights and measures; (e) consumer product and service warranties; (f) compulsory
labeling and fair packaging; (g) liabilities for defective products and services; (h) consumer protection
against misleading advertisements and fraudulent sales promotion practices; and (i) consumer credit
transactions.

The Consumer Act establishes quality and safety standards with respect to the composition, contents,
packaging, labeling and advertisement of products and prohibits the manufacture for sale, offer for sale,
distribution, or importation of products which are not in conformity with applicable consumer product quality
or safety standards promulgated thereunder.

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The minimum labeling requirements for consumer products sold in the Philippines are: (a) the correct and
registered trade name or brand name; (b) the duly registered trademark; (c) the duly registered business
name; (d) the address of the manufacturer, importer, repacker of the consumer product in the Philippines;
(e) the general make or active ingredients; (f) the net quantity of contents, in terms of weight, measure or
numerical count rounded off to at least the nearest tenths in the metric system; (g) the country of
manufacture, if imported; and (h) if a consumer product is manufactured, refilled or repacked under license
from a principal, the label shall so state the fact.

Local Government Code

The Local Government Code (“LGC”) establishes the system and powers of provincial, city, municipal, and
barangay governments in the country. The LGC general welfare clause states that every LGU shall
exercise the powers expressly granted, those necessarily implied, as well as powers necessary,
appropriate, or incidental for its efficient and effective governance, and those which are essential to the
promotion of the general welfare.

LGUs exercise police power through their respective legislative bodies. Specifically, the LGU, through its
legislative body, has the authority to enact such ordinances as it may deem necessary and proper for
sanitation and safety, the furtherance of the prosperity, and the promotion of the morality, peace, good
order, comfort, convenience, and general welfare of the locality and its inhabitants. Ordinances can
reclassify land, order the closure of business establishments, and require permits and licenses from
businesses operating within the territorial jurisdiction of the LGU.

Labor

Labor Code of the Philippines

The Department of Labor and Employment or DOLE is the Philippine government agency mandated to
formulate policies, implement programs and services, and serves as the policy-coordinating arm of the
Executive Branch in the field of labor and employment. The DOLE has exclusive authority in the
administration and enforcement of labor and employment laws such as the Labor Code of the Philippines
(“Labor Code”) and the Occupational Safety and Health Standards, as amended, and such other laws as
specifically assigned to it or to the Secretary of the DOLE.

On March 15, 2017, Department Order No. 174 (2017) (“D.O. 174”) was issued by the DOLE providing for
the guidelines on contracting and subcontracting, as provided for under the Labor Code. It has reiterated
the policy that Labor-only Contracting is absolutely prohibited where: (a) (i) the contractor or subcontractor
does not have substantial capital, or does not have investments in the form of tools, equipment,
machineries, supervision, work premises, among others; and (ii) the contractor’s or subcontractor’s
employees recruited and placed are performing activities which are directly related to the main business
operation of the principal; or (b) the contractor or subcontractor does not exercise the right to control over
the performance of the work of the employee. Subsequently, DOLE issued Department Circular No. 1
(2017) clarifying that the prohibition under D.O. 174 does not apply to business process outsourcing,
knowledge process outsourcing, legal process outsourcing, IT Infrastructure outsourcing, application
development, hardware and/or software support, medical transcription, animation services, and back office
operations or support.

Occupational Safety and Health Standards Law

On August 17, 2018, Republic Act No. 11058 or the Occupational Safety and Health Standards Law was
signed into law. It mandates employers, contractors or subcontractors and any person who manages,
controls or supervises the work, to furnish the workers a place of employment free from hazardous
conditions that are causing or are likely to cause death, illness or physical harm to the workers. It also
requires to give complete job safety instructions or orientation and to inform the workers of all hazards

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associated with their work, health risks involved or to which they are exposed, preventive measures to
eliminate or minimize the risks and steps to be taken in cases of emergency.

An employer, contractor or subcontractor who willfully fails or refuses to comply with the Occupational
Safety and Health Standards shall be administratively liable for a fine. Further, the liability of the employer,
project owner, general contractor, contractor or subcontractor, if any, and any person who manages,
controls or supervises the work, shall be solidary.

Social Security System, PhilHealth and the Pag-IBIG Fund

An employer or any person who uses the services of another person in business, trade, industry or any
undertaking is required under Republic Act No. 8282 to ensure coverage of employees following procedures
set out by the law and the Social Security System (“SSS”). Under the said law, social security coverage is
compulsory for all employees under 60 years of age. An employer must deduct and withhold from its
compulsorily covered employees their monthly contributions based on a given schedule, pay its share of
contribution and remit these to the SSS within a period set by law and/or SSS regulations.

Employers are likewise required to ensure enrollment of its employees in a National Health Program
administered by the Philippine Health Insurance Corporation, a government corporation attached to the
DOH tasked with ensuring sustainable, affordable and progressive social health insurance pursuant to the
provisions of the National Health Insurance Act of 1995, as amended by the Republic Act No. 11223,
otherwise known as the Universal Health Care Act. The registration, accurate and timely deductions and
remittance of contributions to the Philippine Health Insurance Corporation is mandatory as long as there is
employer-employee relationship.

Under the Home Development Mutual Fund Law of 2009, all employees who are covered by the Social
Security Act of 1997 must also be registered with and covered by the Home Development Mutual Fund,
more commonly referred to as the Pag-IBIG Fund. It is a national savings program as well as a fund to
provide affordable shelter financing to Filipino employees. The employer is likewise mandated to deduct
and withhold, pay and remit to the Pag-IBIG Fund the respective contributions of the employees under the
prescribed schedule.

Labor Code Provision on Retirement Pay

The Philippine Labor Code provides that, in the absence of a retirement plan provided by their employers,
private sector employees who have reached 60 years of age or more, but not beyond 65 years of age, the
compulsory retirement age for private-sector employees without a retirement plan, and who have rendered
at least five years of service in an establishment, may retire and receive a minimum retirement pay
equivalent to one-half month's salary for every year of service, with a fraction of at least six months being
considered as one whole year.

For the purpose of computing the retirement pay, “one-half month's salary” shall include all of the following:
15 days salary based on the latest salary rate; in addition, one-twelfth (1/12) of the thirteenth month pay
and the cash equivalent of five (5) days of service incentive leave pay. Other benefits may be included in
the computation of the retirement pay upon agreement of the employer and the employee or if provided in
a collective bargaining agreement.

DOLE Mandated Work-Related Programs

Under the Comprehensive Dangerous Drugs Act, a national drug abuse prevention program implemented
by the DOLE must be adopted by private companies with ten (10) or more employees. For this purpose,
employers must adopt and establish company policies and programs against drug use in the workplace in
close consultation and coordination with the DOLE, labor and employer organizations, human resource
development managers and other such private sector organizations. DOLE Department Order No. 053-03
sets out the guidelines for the implementation of Drug-Free Workplace policies and programs for the private
sector.

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The employer or the head of the work-related, educational or training environment or institution, also has
the duty to prevent or deter the commission of acts of sexual harassment and to provide the procedures for
the resolution, settlement or prosecution of such cases. Under the Anti-Sexual Harassment Act, the
employer will be solidarily liable for damages arising from the acts of sexual harassment committed in the
workplace if the employer is informed of such acts by the offended party and no immediate action is taken.
Notwithstanding this, the victim of sexual harassment is not precluded from instituting a separate and
independent action for damages and other affirmative relief. Any person who violates the provisions of this
law shall, upon conviction, be penalized by imprisonment of not less than one (1) month nor more than (6)
six months, or a fine of not less than Ten Thousand Pesos (P 10,000) nor more than Twenty Thousand
Pesos (₱20,000), or both such fine and imprisonment, at the discretion of the court. Any action arising from
the violation of the provisions of this law shall prescribe in three (3) years.

Moreover, Department Order No. 102-10 requires all private workplaces to have a policy on HIV and AIDS
and to implement a workplace program in accordance with the Philippines AIDS Prevention and Control
Act. The workplace policies aim to manage sensitive issues, such as confidentiality of medical information
and continuation of employment for HIV-positive staff, and to avoid the discrimination of any employee due
to HIV/AIDS. Any HIV/AIDS-related information of workers should be kept strictly confidential and kept only
on medical files, whereby access to it is strictly limited to medical personnel.

All private workplaces are also required to establish policies and programs on solo parenting, Hepatitis B,
and tuberculosis prevention and control.

Data Privacy Laws

Data Privacy Act

RA No. 10173, otherwise known as the Data Privacy Act of 2012 or DPA, was signed into law on August 15,
2012, to govern the processing of all types of personal information (i.e., personal, sensitive, and privileged
information) in the hands of the government or private natural or juridical person through the use of
Information and Communications System or ICT, which refers to a system for generating, sending,
receiving, storing or otherwise processing electronic data messages or electronic documents and includes
the computer system or other similar device by or which data is recorded, transmitted or stored and any
procedure related to the recording, transmission or storage of electronic data, electronic message, or
electronic document. While the law expressly provides that it does not apply to certain types of information,
including those necessary for banks and other financial institutions under the jurisdiction of BSP to comply
with the AMLA and other applicable laws, the said law applies to all other personal information obtained by
banks for other purposes.

It mandated the creation of a National Privacy Commission, which shall administer and implement the
provisions of the DPA and ensure compliance of the Philippines with international standards set for data
protection. The Philippines recognizes the need to protect the fundamental human right of privacy and of
communication, while ensuring free flow of information to promote innovation and growth. It also identifies
the vital role of information and communications technology in nation building and its inherent obligation to
ensure that personal information in ICT in the government and in the private sector are secured and
protected.

The DPA seeks to protect the confidentiality of “personal information”, which is defined as “any information,
whether recorded in material form or not, from which the identity of an individual is apparent or can be
reasonably and directly ascertained by the entity holding the information, or when put together with other
information would directly and certainly identify an individual.” The law provides for certain rights of a data
subject or an individual whose personal information is being processed. The law imposes certain
obligations on “personal information controllers” and “personal information processors”. It also provides for
penal and monetary sanctions for violations of its provisions.

Anti-Trust Laws

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The Philippine Competition Act

Republic Act No. 10667 or the PCA authorizes the Philippine Competition Commission or the PCC to review
mergers and acquisitions to ensure compliance with the PCA. The PCA, its Implementing Rules and
Regulations, as amended, and the Rules on Merger Procedure (collectively, the “Merger Rules”) provides
for mandatory notification to the PCC of any merger or acquisition within thirty (30) days of signing any
definitive agreement relating to the transaction, where the transaction value exceeds ₱2.2 billion; and where
the size of the ultimate parent entity of either party exceeds ₱5.6 billion. Parties may not consummate a
notifiable transaction prior to receiving PCC approval or the lapse of the period stated in the Merger Rules.
A merger or acquisition that meets the thresholds under the Merger Rules but was not notified to the PCC,
or notified but consummated, in whole or in part, prior to the expiration of the waiting period, is considered
void and will subject the parties to a fine ranging from one percent (1%) to five percent (5%) of the value of
the transaction. Anti-competitive agreements, as defined under the law, are subject to penalties that include:
(a) a fine of not less than ₱50 million but not more than ₱250 million; and (b) imprisonment for two (2) to
seven (7) years for directors and management personnel who knowingly and willfully participate in such
criminal offenses. Administrative fines of ₱100 million to ₱250 million may be imposed on entities that
engage in anti-competitive agreements, abuse their dominant position and conclude prohibited mergers
and acquisitions. Treble damages may be imposed where the violation involves the trade or movement of
basic necessities and prime commodities.

Corporate Law

Revised Corporation Code of the Philippines

Republic Act No. 11232, or the Revised Corporation Code, was signed into law on 20 February 2019 and
became effective on March 8, 2019. Among the salient features of the Revised Corporation Code are:

1. corporations are granted perpetual existence, unless the articles of incorporation provide
otherwise. Perpetual existence shall also benefit corporations whose certificates of incorporation
were issued before the effectivity of the Code, unless a corporation, upon a vote of majority of the
stockholders of the outstanding capital stock notifies the Philippine SEC that it elects to retain its
specific corporate term under its current Articles of Incorporation.

2. the Code allows the creation of a “One Person Corporation” (“OPC”), which is a corporation
composed of a single stockholder, provided that, only natural person, trust or an estate may form
such. No minimum authorized capital stock is also required for an OPC, unless provided for under
special laws.

3. material contracts between the Corporation and its own directors, trustees, officers, or their
spouses and relatives within the fourth civil degree of consanguinity or affinity must be approved
by at least two-thirds (2/3) of the entire membership of the Board, with at least a majority of the
independent directors voting to approve the same.

4. the right of stockholders to vote in the election of directors or trustees, or in shareholders meetings,
may now be done through remote communication or in absentia if authorized by the corporate by-
laws. However, as to corporations vested with public interest, these votes are deemed available,
even if not expressly stated in the corporate by-laws. The shareholders who participate through
remote communication or in absentia are deemed present for purposes of quorum. When
attendance, participation and voting are allowed by remote communication or in absentia, the notice
of meetings to the stockholders must state the requirements and procedures to be followed when
a stockholder or member elects either option; and

5. in case of transfer of shares of listed companies, the Commission may require that these
corporations whose securities are traded in trading markets and which can reasonably demonstrate

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their capability to do so, to issue their securities or shares of stock in uncertificated or scripless
form in accordance with the Rules of the Commission.

The Revised Corporation Code refers to the Philippine Competition Act in case of covered transactions
under said law involving the sale, lease, exchange, mortgage, pledge, or disposition of properties or assets;
increase or decrease in the capital stock, incurring creating or increasing bonded indebtedness; or mergers
or consolidations covered by the PCA thresholds.

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 MARKET PRICE OF AND DIVIDENDS ON THE ISSUER’S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
SHAREHOLDERS

Members of the Zobel de Ayala family, individually and through their control of Mermac, Inc., a private
holding company incorporated in the Philippines, are the majority shareholders of and effectively control
Ayala. Mermac, Inc. holds or owns 47.28% of the outstanding common shares and 86.39% of the
outstanding voting preferred shares of the Company as of June 30, 2019. Members of the Zobel de
Ayala family have been involved in Ayala’s business since its establishment in 1834.

As of June 30, 2019, 52.10% of Ayala’s common shares were owned by the public.

The following are the top 20 registered holders of the Company’s securities as of June 30, 2019:

Common Shares

No. of common Percentage

Stockholder name Nationality
shares (of common shares)
1. Mermac, Inc. Filipino 296,625,706 47.2826%
2. PCD Nominee Corporation (Non-Filipino) Various 174,705,845 27.8484%
3. PCD Nominee Corporation (Filipino) Filipino 96,496,237 15.3817%
4. Mitsubishi Corporation Japanese 37,771,896 6.0209%
5. Shoemart, Inc. Filipino 7,529,203 1.2002%
6. Sysmart Corporation Filipino 1,500,912 0.2392%
7. SM Investment Corporation Filipino 1,418,610 0.2261%
8. Philippine Remnants Co., Inc. American 823,046 0.1312%
9. ESOWN Administrator 2019 Filipino 515,904 0.0822%
10. ESOWN Administrator 2018 Filipino 492,431 0.0785%
11. ESOWN Administrator 2016 Filipino 491,428 0.0783%
12. ESOWN Administrator 2017 Filipino 448,426 0.0715%
13. ESOWN Administrator 2015 Filipino 439,092 0.0700%
14. Mitsubishi Logistics Corporation Japanese 360,512 0.0575%
15. ESOWN Administrator 2012 Filipino 315,963 0.0504%
16. ESOWN Administrator 2014 Filipino 299,010 0.0477%
17. Telengtan Brothers & Sons, Inc. Filipino 136,857 0.0218%
18. Lucio Yan Filipino 127,996 0.0204%
19. Xavier P. Loinaz Filipino 126,052 0.0201%
20. Era Management & Development Corp. Filipino 106,118 0.0169%

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Preferred “B” Series 1 Shares

No. of Preferred Percentage of

Stockholder name Nationality
“B” shares Preferred “B” shares
1. PCD Nominee Corp – Filipino Filipino 19,820,260 99.1012%
2. PCD Nominee Corp – Non Filipino Various 92,680 0.4634%
3. Insigne Fortuna Holdings Inc. Filipino 19,320 0.0966%
4. One Point Contact, Inc. Filipino 18,000 0.0900%
5. Mariano Vicente Lim Tan or Katherine Tan or Filipino 8,000 0.0400%
Elena Lim Tan
6. Santos, Leonel A. and/or Santos, Alicia Filipino 7,000 0.0350%
7. Tan, Ben Cuevo and/or Tan, Imelda Toralba Filipino 6,000 0.0300%
8. Chan, Raymond O. or Chan Lynette Filipino 5,000 0.0250%
9. Chavez, Felix B. or Aida T. Chavez or Irene Filipino 5,000
T. Chavez 0.0250%
10. Philippine British Assurance Company, Inc. Filipino 4,000 0.0200%
11. Zalamea, Enriquez M. Jr. Filipino 4,000 0.0200%
12. Jose Maximillan F. Lumawig or Grace T. Filipino 4,000
Lumawig 0.0200%
13. Henry Dy Tan and or Sherly G. Tan Filipino 3,400 0.0170%
14. Macabuhay, Melchor T. Filipino 1,540 0.0077%
15. Bautista, Feliciano M. and or Bautista, Elisa Filipino 1,000
D. 0.0050%
16. Lim, Iris Veronica Go Filipino 600 0.0030%
17. GD Tan and Company Filipino 200 0.0010%

Preferred “B” Series 2 Shares

No. of Preferred Percentage of

Stockholder name Nationality
“B” shares Preferred “B” shares
1. PCD Nominee Corp – Filipino Filipino 26,883,560 99.5747%
2. PCD Nominee Corp – Non Filipino Various 56,920 0.2048%
3. First Life Financial Co., Inc. Filipino 40,000 0.1481%
4. Jayme Alba or Elizabeth Alba Filipino 7,520 0.0279%
5. Manalo Marwin Roman Tadeo and Ma.
Dorothy Teodora Modomo Filipino 4,000 0.0148%
6. Ramon, Carmen Paz C. Filipino 4,000 0.0148%
7. Teh, Alfonso S. Filipino 2,000 0.0074%
8. Luna, Reynaldo H. Filipino 1,000 0.0037%
9. Leoncio, Hipolito A. Filipino 1,000 0.0037%

Voting Preferred Shares

No. of voting Percentage of voting

Stockholder name
Nationality preferred shares preferred shares
1. Mermac, Inc. Filipino 172,778,760 86.3894%
2. Mitsubishi Corporation Japanese 19,545,678 9.7728%
Market Price of and Dividends on the Issuer’s Common Equity and Related Stockholder
Matters
Deutsche Bank AG Manila OBO UBS 1,561,478 0.7807%
3. HK A/C 12105904001 Hongkong
4. Fernando Zobel de Ayala Filipino 554,983 0.2775%
5. Jaime Augusto Zobel de Ayala Filipino 543,802 0.2719%
6. CBNA MLA OBO AC 6002079755 Filipino 364,810 0.1824%
7. Delfin L. Lazaro Filipino 258,297 0.1291%
8. Britel Fund Trustees Limited Filipino 170,064 0.0850%
9. HSBC Manila OBO A/C 000-808154-573 Filipino 169,803 0.0849%
10. Deutsche Regis Partners, Inc. A/C Clients Filipino 137,372 0.0687%
11. BDO Securities Corporation Filipino 115,794 0.0579%
12. AB Capital Securities Inc. Filipino 113,164 0.0566%
13. Deutsche Bank AG, Manila Branch Filipino 111,385 0.0557%
14. Mercedita S. Nolledo Filipino 84,996 0.0425%
15. Ariston Dela Rosa Estrada, Jr. Filipino 84,396 0.0422%
16. Asiasec Equities Inc. Filipino 78,007 0.0390%
17. HSBC Manila OBO A/C 000-083766-550 Filipino 73,272 0.0366%
18. HSBC Manila OBO A/C 000-171512-575 Filipino 72,884 0.0364%
19. Papa Securities Corporation Filipino 69,646 0.0348%
20. Ansaldo Godinez & Company Inc. Filipino 65,977 0.7807%

As of June 30, 2019, 45.65% of the total outstanding shares of the Company or 326,828,224 common
shares, 19,980,000 preferred “B” series 1 shares, 26,600,000 preferred “B” series 2 shares, and 25,739,768
voting preferred shares are owned by the public. The Company is 27.20% foreign-owned and 72.80%
Filipino-owned.

Dividends and Dividend Policy

As a holding company, Ayala’s policy is to provide a fixed-rate, semi-annual cash dividend on common
shares. For voting preferred shares, the rate is 1.875% per annum. For non-voting Preferred B Series 1
and 2 shares, the dividends are given 5.25% and 5.575% per annum, respectively.

Dividend Declarations and Payments

On Common Shares

Stock Dividends
Percent Record Date Payment Date
20% May 22, 2007 June 18, 2007
20% April 24, 2008 May 21, 2008
20% July 5, 2011 July 29, 2011

Cash Dividends
Year Payment Date Rate (PhP Record Date
2017 July 22, 2017 3.46/share July 7, 2017
December 31, 2017 3.46/share December 15, 2017
2018 July 22, 2018 3.46/share July 6, 2018
January 5, 2019 3.46/share December 20, 2018
2019 August 15, 2019 4.15/share July 30, 2019

On Preferred B Series 1 Shares

Cash Dividends

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Market Price of and Dividends on the Issuer’s Common Equity and Related Stockholder
Matters
Year Payment Date Rate (PhP Record Date
2017 February 15, 2017 ¼ of 5.2500% January 20, 2017
May 15, 2017 per annum, or April 18, 2017
August 15, 2017 6.56250/per July 20, 2017
November 15, 2017 share October 18, 2017
2018 February 15, 2018 May ¼ of 5.2500% January 22, 2018
15, 2018 August 15, per annum, or April 18, 2018
2018 November 15, 6.56250/per July 20, 2018
2018 share October 18, 2018
2019 February 15, 2019 May ¼ of 5.2500% January 22, 2019
15, 2019 August 15, per annum, or April 16, 2019
2019 November 15, 6.56250/per July 22, 2019
2019 share October 21, 2019

On Preferred B Series 2 Shares

Cash Dividends
Year Payment Date Rate (PhP Record Date
2017 February 5, 2017 ¼ of 5.5750% January 11, 2017
May 5, 2017 per annum, or April 6, 2017
August 5, 2017 6.96875/per July 12, 2017
November 5, 2017 share October 9, 2017
2018 February 5, 2018 ¼ of 5.5750% January 10, 2018
May 5, 2018 per annum, or April 10, 2018
August 5, 2018 6.96875/per July 11, 2018
November 5, 2018 share October 8, 2018
2019 February 5, 2019 ¼ of 5.5750% January 10, 2019
May 5, 2019 per annum, or April 4, 2019
August 5, 2019 6.96875/per July 10, 2019
November 5, 2019 share October 9, 2019

On Voting Preferred Shares

Cash Dividends
Year Payment Date Rate (PhP Record Date
2017 May 20, 2017 0.03695/share April 25, 2017
2018 May 20, 2018 0.03695/share April 24, 2018
2019 May 20, 2019 0.03695/share April 23, 2019

Dividends Declared by Subsidiaries

See “Dividend Policy” on page [•] of this Prospectus.

Market Price of the Issuer’s Equity

The following table shows the high and low prices (in PHP) of Ayala’s shares in the Philippine Stock
Exchange for the year 2019, 2018 and 2017:

2019 2018 2017

High Low High Low High Low

1st qtr 1,000 900 1,095.00 916.00 834.00 727.00
2nd qtr 931 838 990.00 876.00 894.00 840.00
3rd qtr n.a. n.a. 1,020.00 885.00 980.00 850,00
4th qtr n.a. n.a. 970.50 882.00 1116.00 970.00

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Market Price of and Dividends on the Issuer’s Common Equity and Related Stockholder
Matters
Source: Bloomberg

The market capitalization of the Company’s common shares as of end-June 2019, based on the closing
price of ₱894.00/share, was approximately ₱560.8 billion.

The price information of Ayala common, preferred B series 1 and preferred B series 2 shares as of the
close of the latest practicable trading date is ₱900.00 (as of September 19, 2019), ₱505.50 (as of
September 18, 2019), and ₱500.50 (as of September 18, 2019), respectively.

Recent Sales of Unregistered or Exempt Securities Including Recent Issuances of Securities

Constituting an Exempt Transaction

The following shares were issued to/subscribed by the Company’s executives as a result of the ESOP and
the ESOWN plans:

No. of shares
Year ESOP ESOWN*
2017 169,035 957,850
2018 8,636 518,681
As of June 8,273 515,904
2019
*Net of cancelled subscriptions.

The above shares formed part of the 8,864,000 ESOP and ESOWN shares subject of the Commission’s
resolution dated January 12, 2006 confirming the issuance of such shares as exempt transactions pursuant
to Section 10.2 of the Securities Regulation Code.

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 MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
This section should be read in conjunction with the Company’s consolidated financial statements and related notes.
See the cautionary statement regarding forward-looking statements on page [●] of this Prospectus for a description
of important factors that could cause actual results to differ from expected results.

This section includes financial and operating data with respect to Ayala’s subsidiaries (Ayala Land, Inc., Integrated
Micro-Electronics, Inc., and Manila Water Company, Inc.), Associate (Bank of the Philippine Islands) and Joint
Venture (Globe Telecom, Inc.). This section should be read in conjunction with the financial highlights of these
Subsidiaries, Associates and Joint Ventures. The financial highlights as contained in their respective June 30, 2019
SEC 17Q and December 31, 2018, 2017 and 2016 SEC 17A reports of these Subsidiaries, Associates and Joint
Ventures are available for viewing at the office of the Philippine Securities and Exchange Commission located at
the Secretariat Building, PICC Complex, Roxas Boulevard, Pasay City, or at these companies’ respective principal
places of business.

[Please refer to introduction in the Summary Financial Information portion of this Prospectus on the discussion of
restatements made on the Group’s financial statements namely: a) Consolidated Statements of Financial Position
and Consolidated Statements of Changes in Equity as of December 31, 2018; and b) Consolidated Statements of
Income, and Consolidated Statements of Comprehensive Income for the six-month period ending June 30, 2019.]

This section also includes discussion of financial ratios. These financial ratios are unaudited and are not
measurements of profitability in accordance with Philippine Financial Reporting Standards (“PFRS”) and should not
be considered as an alternative to net income or any other measure of performance which are in accordance with
PFRS.

Ayala Corporation’s net income expanded twofold in the first half of the year to ₱37.8 billion from a year
ago, driven by the solid growth of its banking, telecommunications, and real estate units combined with
gains from value realization exercises in its emerging businesses. This includes the downward impact of
the Group’s adoption of new accounting standard PFRS 16 on leases amounting to ₱133 million.

Consolidated Sales of Goods and Services

Sale of goods and rendering services rose two percent to ₱137.5 billion on higher revenues from Ayala
Land’s middle-income residential and leasing groups, increments from Manila Water, AC Energy, AC
Health, and AC Education. This was partly offset by lower sales volume of AC Industrials during the period.

Real Estate

Ayala Land recorded a net income of ₱15.2 billion, a 12 percent expansion from its year-ago level on robust
growth performance of its commercial leasing as well as the sale of offices and commercial and industrial
lots.

Ayala Land’s revenues from its property development business reached ₱58.9 billion, mainly driven by the
office-for-sale segment, which doubled to ₱10.1 billion. This was bolstered by the completion progress and
new bookings from Alveo Financial Tower, High Street South Corporate Plaza, and Park Triangle Corporate
Plaza.

Meanwhile, revenues from Ayala Land’s commercial leasing segment expanded 16 percent to ₱18.6 billion,
lifted by higher contributions of newly opened malls, offices, and hotels. Total mall revenues grew 12
percent to ₱10.3 billion, supported by an 11 percent growth in same mall revenues. Office revenues, on the
other hand, surged 25 percent to reach ₱4.6 billion as newly opened offices in Ayala North Exchange,
Vertis North, and Circuit Makati further gained traction. Finally, hotels and resorts revenues expanded 17
percent to ₱3.7 billion, boosted by Seda hotels in Ayala Center Cebu and Lio.
Management’s Discussion and Analysis of Results of Operations and Financial
Condition

At the end of the first semester, Ayala Land’s mall gross leasable area stood at 1.9 million square meters,
with 719,000 square meters under construction. Malls average occupancy was at 88 percent. Office GLA,
meanwhile, stood at 1.1 million square meters, with 406,000 square meters under construction. Office
average occupancy was at 92 percent, with stable developments at 96 percent.

Ayala Land continues to achieve a more diversified net income mix. In terms of location, new estates and
established estates (Makati, Bonifacio Global City, Nuvali, Alabang, and Cebu) contributed 52 percent and
48 percent of its net income, respectively. In terms of business line, Ayala Land’s development income
(property sales and construction) accounted for 64 percent, while recurring income (commercial leasing,
hotels and resorts, property management, and new leasing formats) contributed 36 percent to its net profits
in the first half.

In the first semester, Ayala Land spent ₱49.5 billion in capital expenditures, comprising 38 percent of its
budget for the year. To date, Ayala Land has a landbank of 11,624 hectares, positioned in key growth areas
across the country. Eighty-seven percent of the landbank is located in Central Luzon, CALABARZON and
Mega Manila where more than 60 percent of the country’s gross domestic product is created.

Water

Metro Manila’s water supply challenges continued to weigh on Manila Water’s results in the first semester.
Higher operating expenses and lower billed volume resulting from the water shortage dragged Manila
Water’s net profits, which reached ₱2.9 billion, 18 percent lower from the previous year.

Manila Water’s total revenues climbed seven percent to ₱10.5 billion on contribution of its domestic and
overseas platforms.

The water supply shortage in Metro Manila that started in late March resulted in a 25 percent decline in the
Manila Concession’s first-half net income to ₱2.5 billion. This is attributed to higher operating expenses,
which climbed 36 percent to ₱2.9 billion, primarily driven by the provision for the financial penalty imposed
by the Metropolitan Waterworks and Sewerage System and other expenses related to the water supply
shortage.

Outside the Manila concession, MWPV’s net income climbed 31 percent to ₱303 million. This was bolstered
by Estate Water and Laguna Water, whose net earnings expanded twofold to ₱186 million and 20 percent
to ₱200 million, respectively.

Overseas, Manila Water Asia Pacific’s net earnings grew 2 percent year-on-year to ₱196 million on strong
contribution of East Water in Thailand. Billed volume grew 18 percent to 334.4 mcm in the first six months
of the year.

In July, Manila Water was granted the original proponent status by the local government of Marikina City
following its submission of an unsolicited proposal to build and operate an integrated waste management
facility to treat and process the city’s solid waste.

Power

AC Energy’s net profits reached ₱23.2 billion in the first half of the year, lifted by the recovery of costs
incurred from adjustments in the construction and operations of its power plants as well as net gains from
the partial divestment of its thermal assets of ₱22.7 billion.

As part of its strategy to rebalance its generation portfolio as it aims to grow its renewable energy assets
with a target of achieving at least 5GW of attributable renewable energy capacity by 2025, AC Energy
signed last month a binding agreement with Power Partners for the transfer of AC Energy’s indirect
ownership interest in the 4x135MW coal-fired power project in GNPower Kauswagan in Lanao del Norte in
favor of Power Partners. Power Partners is AC Energy's existing developer-partner in the GNPK Project.

333 | P a g e
Management’s Discussion and Analysis of Results of Operations and Financial
Condition

The transfer will be implemented in tranches, with the final transfer price to be agreed upon by the parties
at a later date after taking into account agreed adjustments. The completion of the transfer is subject to
satisfaction of certain conditions precedent, including approvals by the PCC and the lenders of the GNPK
Project.

In June, AC Energy completed the acquisition of a 51.5 percent stake in PHINMA Energy Corporation. The
entity, which would be renamed to AC Energy Philippines, will serve as the platform for the company’s
domestic growth. The PHINMA Energy platform has significant operating and developmental renewable
energy assets, and its large diesel capacity will complement the scaling-up of AC Energy’s renewable
projects. As a result, AC Energy will now have 1,600MW of attributable capacity in operation and under
construction. The company aspires to exceed 5 GW of attributable capacity and generate at least fifty
percent of its energy output from renewables by 2025.

Industrial Technologies

Macropolitical risks, sectoral headwinds, and component supply tightness dragged AC Industrials’
performance in the first half to a net loss of ₱510 million.

In electronics manufacturing services, the first-half performance of Integrated Micro-Electronics was

affected by the global slowdown in the automotive industry, persistent component shortages, and ongoing
geopolitical risks in China and the UK. It ended the first semester with a net income of US$5.8 million, lower
than the previous year’s US$31.6 million. The reported net income includes non-operating gain of US$3.7
million on the reversal of the contingent consideration related to STI acquisition. Excluding the gain, IMI’s
net income dropped 84 percent during the period.

IMI’s automotive segment recorded revenues of US$305 million, 11 percent higher from the previous year.
Its aerospace segment posted a two percent growth in revenues to US$25.9 million during the period.

IMI’s subsidiaries VIA and Surface Technology International Enterprises Limited posted revenues of
US$130 million, a 16 percent decline year-on-year. The demand for VIA’s optical bonding services suffered
a temporary slowdown because of the delay in the rollout of next generation computer chips. Meanwhile,
uncertainties from Brexit continued to push back Surface Technology International Enterprises Limited’s
business as the region evaluates the effects on tariff structures between the UK and the rest of Europe.

In Philippine vehicle distribution, AC Motors registered a net loss of ₱158 million on weaker sales across
the existing Honda, Isuzu, and Volkswagen brands, which continue to navigate tightening competition and
the automotive industry’s product cycles.

AC Motors further scaled its portfolio by launching the Maxus commercial vehicle brand in June, building
on the startup of the Kia distributorship business earlier in the year. These two new businesses are
envisioned to strengthen and diversify the overall group in both the medium and short term. In its first five
months of operations, AC Motors’s Kia operations doubled the brand’s sales from a year ago, resulting in
a net income of ₱42 million in the first half of the year.

On the two-wheel side, KTM continues to expand. AC Industrials’ pioneer two-wheel business now has a
domestic network of 104 stores nationwide, while export sales accounting for 63 percent of volumes.

Share in Net Profits of Associates and Joint Ventures

Share of profits of associates and joint ventures expanded 11 percent to ₱11.1 billion, largely driven by
higher revenues of Globe and BPI, but partly tempered by lower earnings of AC Energy’s investee
companies.

Banking

334 | P a g e
Management’s Discussion and Analysis of Results of Operations and Financial
Condition

Sustained margin expansion supported by a growing fee-income business and moderated operating
expenses lifted BPI’s net income in the first half of the year, growing 25 percent to ₱13.7 billion year-on-
year.
This robust performance was underpinned by a 23 percent improvement in BPI’s total revenues to ₱45.9
billion. Net interest income jumped 24 percent to ₱32.4 billion as net interest margin widened 38 basis
points on higher asset yields, which rose 103 basis points. This was, however, partially offset by higher cost
of funds.
Meanwhile, BPI’s non-interest income in the first semester, grew 21 percent to ₱13.5 billion, boosted by
securities trading gains and fee-based income across a broad range of businesses, including credit cards,
deposit products, insurance, transaction banking, leasing, retail loans, and electronic channels.
In the first semester, BPI’s total loans climbed 11 percent to ₱1.4 trillion boosted by the growth of corporate
loans and consumer loans, which went up 12 percent and 10 percent, respectively. The consumer segment
continued to improve, with credit card loans rising 26 percent in the first semester. Meanwhile, the bank’s
total deposits increased 8 percent to reach ₱1.7 trillion. The CASA ratio stood at 68.3 percent, while the
loan-to-deposit ratio was at 81.7 percent.

BPI’s operating expenses totaled ₱24 billion, 14 percent higher from a year ago on continued technology-
related spending, buildout of microfinance branches, and one-time manpower expenses related to the
recently concluded collective bargaining agreements. Focused spending led to an improved cost-to-income
ratio of 52.9 percent from 57 percent of the same period last year.

The provision for losses, which included specific reserves for Hanjin exposure, was at ₱3.5 billion. The
bank’s non-performing loans ratio was steady at 1.86 percent.

The bank’s total assets stood at ₱2.13 trillion, up 12.3 percent, with return on assets at 1.3 percent. Total
equity reached ₱259.9 billion, providing a strong capital position to deliver future growth.

Telco

As it continues to reap the benefits of a modernized 4G/LTE network rollout, Globe sustained its robust
performance, with net income expanding 21 percent to ₱12 billion in the first half of the year.

Continued strong demand for data-related services across its product segments boosted Globe’s topline
growth, with consolidated service revenues climbing 13 percent to ₱72.9 billion. Total data revenues
accounted for 70 percent of service revenues compared to 58 percent from a year ago.

In the first semester, mobile revenues reached ₱54.6 billion, 11 percent higher year-on-year, primarily
driven by the prepaid segment. Mobile data revenues grew 45 percent to ₱34 billion, fueled by the higher
data usage on the popularity of online gaming, streaming, and on-demand video content. Similarly, mobile
data traffic nearly doubled to 764 petabytes from 390 petabytes a year ago. The strong mobile data
revenues compensated for the softness in mobile voice and mobile SMS revenues, which declined 17
percent and 24 percent, respectively.

Meanwhile, broadband revenues improved 21 percent to ₱10.6 billion on subscriber expansion in fixed
wireless solution and strong demand for the Home Prepaid Wifi. To further increase its footprint in this
segment, Globe launched the At Home Air Fiber 5G wireless broadband services in June, making the
Philippines the first country in Southeast Asia to experience commercial 5G wireless broadband.

On the corporate data segment, revenues posted a double-digit growth of 15 percent to ₱6.3 billion on
increased usage and strong take-up of connectivity solutions.

The strong topline growth supported by lower operating expenses supported the 18 percent growth in
Globe’s EBITDA, which reached ₱38.6 billion in the first half. EBITDA margin remained healthy at 53

335 | P a g e
Management’s Discussion and Analysis of Results of Operations and Financial
Condition

percent. Globe deployed ₱19 billion in capital expenditures in the first half of the year to support the growing
subscriber base and demand for data services.

Last week, Globe created a new corporate incubator, 917 Ventures, which will develop, own, and operate
digital companies that leverage on the telco’s existing strengths and assets. Globe envisions the new
venture to develop technological ideas and spur the company to reach new vertical markets.

Costs and Expenses

General and administrative expenses reached ₱16 billion, a 16 percent increase from a year ago, driven
by Manila Water’s accrual of penalty in connection with the water shortage in the Manila Concession, which
amounted to ₱534 million. In addition, higher costs from the consolidation of new business units in AC
Industrials, AC Infrastructure, and AC Health as well as AC Energy’s higher business taxes and manpower
costs contributed to the increase.

Balance Sheet Highlights

At the end of June-2019, Ayala’s total assets stood at ₱1.3 trillion. Investments in properties expanded
eight percent to ₱246.9 billion, lifted by the expansion of Ayala Land’s mall and office segments.

Total debt at the consolidated level stood at ₱442.2 billion, seven percent higher on the back of AC Energy’s
issued US$408 million green bond, offset by maturity of Ayala’s US$300 million exchangeable bond.

As of the first half of the year, parent level cash stood at ₱18.1 billion, with net debt at ₱71.1 billion. Improved
ratios from reduced debt following the conversion of Ayala’s US$300 million exchangeable bond as well as
higher investment values helped Ayala’s balance sheet to undertake investments and cover its dividend
and debt obligations. Ayala’s parent net debt-to-equity and consolidated net debt-to-equity ratios stood at
0.53 and 0.66 from 0.81 and 0.74 at end of 2018, respectively. Meanwhile, the conglomerate’s loan-to-
value ratio, the ratio of its parent net debt to the total value of its assets, was at 7.6 percent at the end of
the first-half, an improvement from the 11.8 percent recorded at the end of 2018. Its peso-dollar debt split
ended at 77:23 as of end-June. Ayala’s dollar denominated debts are fully covered by foreign currency
assets.

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Management’s Discussion and Analysis of Results of Operations and Financial
Condition

Key Performance indicators:

The Group maintains healthy financial ratios driven by strong operating performance of major subsidiaries
and investees.

The key performance indicators (consolidated figures) that the Group monitors are the following:

June 2019 December 2018

Ratio Formula (Unaudited) (Audited)

Cash/ Cash equivalents + Short-term cash

0.32 0.20
Liquidity Ratio investments
Current Liabilities

Current ratio Current assets 1.50 1.25

Current liabilities

After-Tax Net Profit + (Depreciation +

0.06 0.03 *
Solvency Ratio Amortization)+ Provision for Bad Debts
Total Liabilities

Debt-to-Equity Ratio Long-term Loans + Short Term Loans 0.83 0.88

(Total SHE) Total Stockholders' Equity

Assets- to-Equity Ratio Total Assets 3.83 4.12

Equity Attributable to Owners of the Parent

Interest Expense Coverage Ratio EBITDA 7.35 5.70 *

Interest Expense

Return on Equity Net Income to Owners of the Parent 12.0% 6.1% *

Equity Attributable to Owners of the Parent
(Average)

Net Income to Owners of the Parent Less

12.8% 6.5% *
Return on Common Equity Dividends on Preferred Shares
Common Equity Attributable to Owners of the
Parent (Average)

Return on Assets Net Income 4.3% 2.5% *

Total Assets

* Based on Unaudited June 30, 2018.

2.1 Any known trends or any known demands, commitments, events or uncertainties that will result in or
that are reasonably likely to result in the registrant’s liquidity increasing or decreasing in any material
way. The following conditions shall be indicated: whether or not the registrant is having or anticipates
having within the next 12 months any cash flow or liquidity problems; whether or not the registrant is
in default or breach of any note, loan, lease or other indebtedness or financing arrangement requiring
it to make payments; whether or not a significant amount of the registrant’s trade payables have not
been paid within the stated trade terms.

The Group does not expect any liquidity problems and is not in default of any financial obligations. The
Group complied with the existing loan covenants and restrictions as of June 30, 2019.

337 | P a g e
Management’s Discussion and Analysis of Results of Operations and Financial
Condition

2.2 Any events that will trigger direct or contingent financial obligation that is material to the Company,
including any default or acceleration of an obligation:

None

2.3 Any material off-balance sheet transactions, arrangements, obligations (including contingent
obligations), and other relationships of the company with unconsolidated entities or other persons
created during the reporting period:

None

2.4 Any material commitments for capital expenditures, the general purpose of such commitments, and the
expected sources of funds for such expenditures.

For 2019, Ayala group’s capital expenditure budget is higher than last year amounting to ₱262 billion.

Parent Company
As of the six-month period, 67% of the ₱22.6 billion has been deployed largely to fund the expansion
of our emerging businesses: AC Energy, AC Industrials, AC Infra, AC Education and AC Health.

ALI
ALI spent ₱49.5 billion in capital expenditures to support the aggressive completion of new projects
both for residential projects and commercial projects, land acquisition, development of estates and
other investments.

MWC
The MWC Group ended the first half of 2019 with total capital expenditures of P = 3.7 biillion. The Manila
Concession took the biggest allocation and spent a total of P = 2.9 billion (inclusive of concession fee
payments) for capital expenditures in the first half of 2019. Of the total amount, majority was spent on
wastewater expansion, network reliability, and water supply projects, while the balance was accounted
for by concession fees paid to MWSS.

Meanwhile, total capital expenditures of the domestic subsidiaries amounted to P = 728 million. This
includes allocation for Laguna Water, Boracay Water and Tagum Water for water network expansion.
Estate Water spent for its greenfield and brownfield projects, with the balance being taken on by the
remaining subsidiaries for its various projects.

IMI
For the first half of 2019, IMI spent $22 million of capital expenditures related to new programs and
capacity expansions.

AC Energy
As of the six-month period, AC Energy’s capital expenditures amounted to ₱28 billion, mainly for
investments in AYC Finance, ACE PH and GNPK.

BPI
BPI budgeted ₱6.0 billion for its capital expenditures for the whole year.

Globe
Total cash capital expenditures as of end-June 2019 stood at about ₱19.0 billion, 17% lower than last
year’s level of ₱22.9 billion. About 75% of total capex for the period was spent on data network.

338 | P a g e
Management’s Discussion and Analysis of Results of Operations and Financial
Condition

2.5 Any known trends, events or uncertainties that have had or that are reasonably expected to have a
material favorable or unfavorable impact on net sales or revenues or income from continuing operations
should be described.

The Company’s and its subsidiaries’ performance will continue to hinge on the overall economic
performance of the Philippines and other countries where its subsidiaries operate. Key economic
indicators, interest rate and foreign exchange rate movements will continue to impact the performance
of the real estate, financial services, telecommunications, water, industrial technologies, power,
infrastructure, healthcare, and education groups, including the parent Company.

2.6 Any significant elements of income or loss that did not arise from the registrant's continuing operations

None

2.7 There were no material changes in estimates of amounts reported in prior interim period of the current
financial year and interim period of the prior financial year, respectively.

None

2.8 Causes for any material variances

(Increase or decrease of 5% or more in the financial statements)

The June 30, 2019 and December 31, 2018 consolidated financial statements show several significant
increases in Balance Sheet and Income Statement accounts relating to two (2) key factors:

1. Acquisitions made by subsidiaries as follows (also see Note [3] to the Company’s unaudited
June 30, 2019 consolidated financial statements included in this Prospectus):
a. AC Health’s increase of ownership share in Generika Group from 50% in December 2018 to
52.5% in June 2019.
b. AC Energy’s increase of ownership share in SLTEC from 35% in December 2018 to 80% in
June 2019

2. Adoption of new accounting standard PFRS 16 (Leases) which give rise to new accounts in
the balance sheet namely Right-of-use Assets and Lease Liabilities. The impact to income
statement is shown in the depreciation (classified under cost of sales and general &
administrative expenses) and interest expenses of the Group (see Note 2 to the Company’s
unaudited June 30, 2019 consolidated financial statements included in this Prospectus).

Balance Sheet Items

As of June 30, 2019 (Unaudited) vs. December 31, 2018 (Audited)

The June 30, 2019 and December 31, 2018 consolidated financial statements show several significant
increases in Balance Sheet and Income Statement accounts relating to two (2) key factors:

1. Acquisitions made by subsidiaries as follows (also see Note [3] to the Company’s unaudited June 30,
2019 consolidated financial statements included in this Prospectus):
a. AC Health’s increase of ownership share in Generika Group from 50% in December 2018 to
52.5% in June 2019.
b. AC Energy’s increase of ownership share in SLTEC from 35% in December 2018 to 80% in June
2019

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Condition

2. Adoption of new accounting standard PFRS 16 (Leases) which give rise to new accounts in the balance
sheet namely Right-of-use Assets and Lease Liabilities. The impact to income statement is shown in
the depreciation (classified under cost of sales and general & administrative expenses) and interest
expenses of the Group (see Note [2] to the Company’s unaudited June 30, 2019 consolidated financial
statements included in this Prospectus).

Cash and cash equivalents – 41% increase from ₱60,624 million to ₱85,779 million
Increase due to AC’s proceeds from loans and dividends received, partly offset by acquisition of common
treasury shares; and AC Energy’s proceeds from sale of AA Thermal shares, from Green bonds and
dividends received, partly offset by acquisition of Phinma Energy. Use of cash includes ALI’s funding for
land acquisitions, real estate expansion projects and property acquisitions; and MWC’s payment of loans.
This account is at 7% and 5% of the total assets as of June 30, 2019 and December 31, 2018, respectively.

Short-term investments – 62% decrease from ₱5,956 million to ₱2,244 million

Decrease due to ALI’s and AYC’s short-term placements maturity. This account is at less than 1% of the
total assets as of June 30, 2019 and December 31, 2018.

Contract assets (current) – 24% decrease from ₱52,209 million to ₱39,667 million
Decrease resulting from lower contract assets of ALI, IMI and MWC. This account is at 3% and 4% of the
total assets as of June 30, 2019 and December 31, 2018, respectively.

Inventories – 10% decrease from ₱120,560 million to ₱109,083 million

Decrease due to ALI’s higher sales amidst new project launches and IMI’s recoveries of backlogs; partly
offset by higher inventories of AC Industrials and AC Health’s consolidation of Generika and FamDoc
related expansions. This account is at 9% and 10% of the total assets as of June 30, 2019 and December
31, 2018, respectively.

Other current assets – 10% increase from ₱67,890 million to ₱74,986 million
Increase pertains to: higher creditable withholding tax, input tax, prepayments in ALI, IMI, AC Industrials’
and MWC’s; BHL’s additional infusion in certain FVOCI investments and impact of forex translation; partly
offset by completed transactions of assets held for sale by AC Energy and AC Education. This account is
at 6% of the total assets as of June 30, 2019 and December 31, 2018.

Accounts and notes receivable (noncurrent) – 367% increase from ₱6,366 million to ₱29,720 million
Increase due to ALI’s lower bookings from residential and leasing groups. This account is at 2% and less
than 1% of the total assets as of June 30, 2019 and December 31, 2018.

Contract assets (noncurrent) – 47% decrease from ₱35,930 million to ₱19,219 million
Decrease resulting from lower balances of contract assets of ALI and MWC. This account is at 1% and 3%
of the total assets as of June 30, 2019 and December 31, 2018.

Investments in associates and joint ventures (AJVs) – 5% increase from ₱240,141 million to ₱251,307
million
The increase is mainly due to merger of iPeople and AC Education with iPeople as the surviving entity and
now an AJV entity of AC from previously consolidated subsidiary. Also, contributed to the increase is the
higher equity in net earnings of BPI and Globe; AC Infra’s additional investment in LRMHI; partly offset by
consolidation of SLTEC previously classified as AJV entity. This account is at 20% of the total assets as of
June 30, 2019 and December 31, 2018.

Investment Properties – 8% increase from ₱227,646 million to ₱246,854 million

The increase relates to ALI group’s expansion projects mainly on malls and office buildings. This account
is at 19% of the total assets as of June 30, 2019 and December 31, 2018.

Property, plant and equipment – 25% increase from ₱104,492 million to ₱130,297 million

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Increase coming from AC Energy’s construction of power plants for GNPKauswagan's (GNPK) coal unit
plus impact of forex translation adjustment; ALI MCT’s, IMI’s and MWC’s expansion projects. This account
is at 10% and 9% of the total assets as of June 30, 2019 and December 31, 2018, respectively.

Right-of-use assets – amounted to ₱16,017 million in June 2019 (new)

Account is in relation to adoption of PFRS 16 Leases which consists of balances from ALI, IMI, AC
Industrials, AC Health, AC Energy and MWC groups. This account is at 1% of the total assets as of June
30, 2019.

Other noncurrent assets – 31% increase from ₱40,088 million to ₱52,336 million
Increase pertains to: ALI’s higher project advances and deferred tax; and AYCFL’s hold-out cash for a loan
availed by AC now with a balance of P1.6B. The account also includes the Group’s pension asset
amounting to ₱99 million and ₱82 million in June 30, 2019 and December 31, 2018, respectively. 7 This
account is at 4% and 3% of the total assets as of June 30, 2019 and December 31, 2018, respectively.

Short-term debt – 12% decrease from ₱39,518 million to ₱34,610 million

Decrease due to settlements made by MWC, IMI and AC Energy as well as AC Industrials’ lower borrowing;
partly offset by ALI’s subsidiaries borrowings. This account is at 5% of the total liabilities as of June 30,
2019 and December 31, 2018.

Accounts payable and accrued expenses – 13% decrease from ₱204,758 million to ₱178,059 million
Decrease mainly due to ALI’s trend in development and project costs of residential and commercial
business groups coupled with IMI’s lower China and Europe operations; partly offset by AC Energy’s higher
trade payables; and MWC’s increase in Estate Water operations, higher income tax plus penalty accruals
for water shortage incident. This account is at 23% and 28% of the total liabilities as of June 30, 2019 and
December 31, 2018, respectively.

Contract liabilities – 71% decrease from ₱21,989 million to ₱6,299 million

Decrease mainly arising from movements in ALI’s accounts. This account is at 1% and 3% of the total
liabilities as of June 30, 2019 and December 31, 2018, respectively.

Income tax payable – 25% increase from ₱3,407 million to ₱4,256 million
Increase mainly arising from higher tax payable of ALI group. This account is less than 1% of the total
liabilities as of June 30, 2019 and December 31, 2018.

Other current liabilities – 166% increase from ₱11,129 million to ₱29,626 million
Increase due to ALI’s higher customer deposits. This account is at 4% and 2% of the total liabilities as of
June 30, 2019 and December 31, 2018, respectively.

Long-term debt (current) – 52% decrease from ₱48,481 million to ₱23,400 million
Decrease due to loans maturity of ALI and AYC’s actual exchange of its bonds into ALI shares. This account
is at 3% and 7% of the total liabilities as of June 30, 2019 and December 31, 2018, respectively.

Service concession obligation (current) – 19% decrease from ₱821 million to ₱667 million
Decrease was due to periodic payments made by MWC. This account is at less than 1% of the total liabilities
as of June 30, 2019 and December 31, 2018.

7
The Parent Company's pension fund is known as the AC Employees Welfare and Retirement Fund (ACEWRF). ACEWRF is a legal
entity separate and distinct from the Parent Company, governed by a board of trustees appointed under a Trust Agreement between
the Parent Company and the initial trustees. It holds common and preferred shares of the Parent Company in its portfolio. All such
shares have voting rights under certain conditions, pursuant to law. ACEWRF's portfolio is managed by a committee appointed by
the fund's trustees for that purpose. The members of the committee include the Parent Company’s Chief Finance Officer, Group Head
of Corporate Governance, General Counsel, Corporate Secretary and Compliance Officer, Head for Strategic Human Resources,
Treasurer and Comptroller. ACEWRF has not exercised voting rights over any shares of the Parent Company that it owns.

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Long-term debt (noncurrent) – 18% increase from ₱324,263 million to ₱384,157 million
Increase coming from AC Energy’s issuance of Green bonds, ALI’s, IMI’s and MWC’s additional borrowings;
partly offset by loan settlement of AYC. This account is at 52% and 44% of the total liabilities as of June
30, 2019 and December 31, 2018, respectively.

Contract liabilities (noncurrent) – 10% decrease from ₱8,630 million to ₱8,432 million
Decrease pertains to ALI’s contract liabilities. This account is at 1% of the total liabilities as of June 30,
2019 and December 31, 2018.

Service concession obligation (noncurrent) – 5% decrease from ₱7,018 million to ₱7,719 million
Decrease related to MWC’s service concession obligation. This account is at 1% of the total liabilities as of
June 30, 2019 and December 31, 2018.

Lease liabilities (current and noncurrent) – amounted to ₱17,290 million in June 2019
Account is in relation to adoption of PFRS 16 Leases which is mainly coming from ALI, IMI, AC Industrials,
AC Health and MWC groups. This account is at 1% of the total liabilities as of June 30, 2019.

Pension liabilities – 6% increase from ₱2,590 million to ₱2,734 million

Net increase coming from AC, ALI, AC Energ; partly offset by decrease in AC Industrials’ pension liability.
This account is at less than 1% of the total liabilities as of June 30, 2019 and December 31, 2018,
respectively.

Other noncurrent liabilities – 19% increase from ₱45,214 million to ₱53,734 million
Increase primarily due to ALI’s higher customer deposits and retentions payable. This account is at 7% and
6% of the total liabilities as of June 30, 2019 and December 31, 2018, respectively.

Fair value reserve of financial assets at fair value through other comprehensive income (FVOCI) – 177%
increase from negative ₱545 million to positive ₱417 million
Increase attributable to higher market value of securities held by BPI group. This account is at less than
1% of the total equity as of June 30, 2019 and December 31, 2018.

Cumulative translation adjustments – 78% decrease from ₱2,277 million to ₱498 million
Decrease due to decline in foreign accounts of most investments particularly AC Energy, IMI, Bestfull, ALI
and Globe. Forex of PhP vs USD amounted to ₱51.24 in June 2019 vs. ₱52.58 in December 2018. This
account is at less than 1% of the total equity as of June 30, 2019 and December 31, 2018.

Equity reserve and Equity conversion option (total) – 117% increase from ₱11,959 million to ₱25,907 million
Increase due to gain on sale of ALI shares in relation to AYC’s exchangeable bonds conversions and
consolidation of PHEN. This account is at 5% and 3% of the total equity as of June 30, 2019 and December
31, 2018, respectively.

Retained Earnings – 19% increase from ₱196,915 million to ₱234,892 million

Increase due to overall growth in net income of the group. This account is 44% and 42% of the total equity
as of June 30, 2019 and December 31, 2018.

Treasury stock – 139% increase from ₱2,300 million to ₱5,492 million

Increase due to AC parent’s purchase of common treasury shares (see Note [17] to the Company’s
unaudited June 30, 2019 consolidated financial statements included in this Prospectus). This account is
1% and below 1% of the total equity as of June 30, 2019 and December 31, 2018.

Non-controlling interests – 9% increase from ₱178,501 million to ₱195,216 million

Increase due to overall growth in net income, consolidation of PHEN partly offset by dividends. This account
is 37% and 38% of the total equity as of June 30, 2019 and December 31, 2018.

As of December 31, 2018 (Audited) vs. December 31, 2017 (Audited)

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The December 31, 2018 and December 31, 2017 consolidated financial statements show several significant
increases in Balance Sheet and Income Statement accounts relating to two (2) key factors:

1. Major acquisitions made by subsidiaries as follows:

In year 2018
a. Ayala Land, Inc.’s (ALI’s) increase of ownership share in MCT Berhard (MCT) from 33% in
December 2017 to 72.31% in February 2018.

In year 2017
b. AC Energy, Inc.’s (ACEI’s) acquisition of 100% ownership of Visayas Renewable Corp. (VRC)
(formerly Bronzeoak Clean Energy), AC Energy Development, Inc. (AEDI) (formerly AC Energy
Devco, Inc.), and 66% in Manapla Sun Power Development Corp. (MSPDC) in March 2017; 100%
ownership in SCC Bulk Water Supply, Inc. (SCC) and Solienda, Inc. (Solienda) in December 2017.
c. Integrated Micro-Electronic’s (IMI’s) acquisition of 80% stake in Surface Technology International
Enterprises Limited (STI) in April 2017.
d. AC Industrial Technology Holdings, Inc.’s (AITHI’s/ACI’s) acquisition through AC Industrials
(Singapore) Ptd. Ltd. of 94.9% ownership of MT Technologies Gmbh (MT) in July 2017.

2. Adoption of three major accounting standards – PFRS 9 (Financial Instruments) and 15 (Revenue from
Contracts with Customers) and PIC Q&A (Advances to Contractors and Land Classification) give rise
to new accounts in the balance sheet plus certain reclassifications within the balance sheet (contract
assets and contract liabilities). The summarized impact of these new standards in the balance sheet
are shown below. The impact to income statement is shown in the discussion of income statement
variances.

IMPACT OF PFRS 15 & 9; and PIC Q&A

December 31, 2018 December 31, 2017 Inc (dec)
(in million pesos) As reported PFRS Adj* PIC Adj Pre - PFRS As reported PIC Adj Pre - PFRS Pre - PFRS
ASSETS
Cash 60,624 - - 60,624 64,259 - 64,259 (3,635) -6%
Short-term investment 5,956 - - 5,956 5,400 - 5,400 556 10%
Accounts & notes receivable 105,519 48,871 23,866 178,256 100,243 23,866 124,109 54,147 44%
Contract assets 52,209 (52,209) - - - - - -
Inventories 120,560 2,971 (28,653) 94,878 105,196 (28,653) 76,543 18,335 24%
Other current assets 67,890 - (16,530) 51,361 61,854 (16,530) 45,325 6,036 13%
Noncurrent accts & notes receivable 6,366 35,671 - 42,037 45,774 - 45,774 (3,737) -8%
Noncurrent contract assets 35,930 (35,930) - - - - - -
Invest. in assoc & JVs 240,141 (1,605) - 238,535 202,649 - 202,649 35,886 18%
Investment properties 227,646 - 28,653 256,299 202,873 28,653 231,527 24,772 11%
Property, plant and equipment 104,492 - - 104,492 85,431 - 85,431 19,062 22%
Other noncurrent assets 40,088 259 (7,337) 33,010 27,390 (7,337) 20,054 12,956 65%
Service concession assets 98,404 - - 98,404 91,050 - 91,050 7,355 8%
Deferred tax assets - net 15,546 - - 15,546 12,721 - 12,721 2,825 22%
Others ** 16,553 - - 16,553 16,705 - 16,705 (152) -1%
Total Assets 1,197,926 (1,972) 0 1,195,953 1,021,546 0 1,021,546 174,407 17%

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Condition

IMPACT OF PFRS 15 & 9; and PIC Q&A

December 31, 2018 December 31, 2017 Inc (dec)
(in million pesos) As reported PFRS Adj* PIC Adj Pre - PFRS As reported PIC Adj Pre - PFRS Pre - PFRS
LIABILITIES AND EQUITY
Liabilities
Short-term debt 39,518 39,518 29,905 - 29,905 9,614 32%
Accts payable & accr expenses 204,758 204,758 169,653 - 169,653 35,106 21%
Income tax payable 3,407 3,407 1,710 - 1,710 1,697 99%
Long-term debt - current 48,481 48,481 13,732 - 13,732 34,749 253%
Contract liabilities 21,989 (21,989) - - - - - -
Other current liabilities 11,129 30,523 - 41,652 25,984 - 25,984 15,668 60%
Service concession obligation 7,839 7,839 8,552 - 8,552 (713) -8%
Long-term debt - net of current portion 324,263 324,263 306,975 - 306,975 17,288 6%
Deferred tax liabilities - net 10,999 10,999 8,108 - 8,108 2,891 36%
Noncurrent contract liabilities 8,630 (8,630) - - - - - -
Noncurrent liabilities - others ** 47,804 46 - 47,849 45,835 - 45,835 2,015 4%
Total Liabilities 728,817 (51) - 728,767 610,453 - 610,453 118,313 19%
Equity
Paid-in capital 83,362 83,362 75,001 - 75,001 8,361 11%
Cumulative translation adj 2,277 27 2,304 2,794 - 2,794 (491) -18%
Non-controlling interests 178,501 (154) 178,347 154,745 - 154,745 23,603 15%
FV reserver on FVOCI (545) (1,261) - (1,806) (1,108) - (1,108) (698) -63%
Retained earnings 196,915 (534) - 196,381 170,302 - 170,302 26,079 15%
Equity reserve 10,872 - 10,872 11,600 - 11,600 (728) -6%
Equity - others ** (2,273) - - (2,273) (2,242) 0 (2,242) (31) 1%
Total Equity 469,108 (1,922) - 467,187 411,092 0 411,092 56,094 14%
* includes impact of PFRS 15 and 9 **accounts with individual variance of below 5%

Given the above, the discussion of variances below will focus on comparison of pre-PFRS/ PIC
balances.

Cash and cash equivalents – 6% decrease from ₱64,259 million to ₱60,624 million
Slight decline due to group’s advances for/acquisition of Merlin Solar and ACEI’s investments; AITHI/ACI’s
lower sales; Bestfull Holdings, Ltd.’s (BHL’s) additional FVPL investments; AC’s new loans were used to
fund Bank of the Philippine Islands (BPI) stock rights offer (SRO) and additional capital infusion in existing
subsidiaries. Sources of cash during the year: ACEI’s dividends from investment and loan drawdowns;
ALI’s loan proceeds and consolidation of MCT; IMI’s proceeds from SRO; and Manila Water Company,
Inc.’s (MWC’s) revenue collections and loan proceeds were used to fund new investments in Thailand by
MWC and project expansions by ALI and ACEI. This account is at 5% and 6% of the total assets as of
December 31, 2018 and 2017, respectively.

Short-term investments – 10% increase from ₱5,400 million to ₱5,956 million

Increase due to AYC’s short-term placements partly offset by ALI’s placements maturity. This account is at
less than 1% of the total assets as of December 31, 2018 and 2017.

Accounts and notes receivable (current) – 44% increase from ₱124,109 million to ₱178,256 million
Increase resulting from ALI’s higher sales and impact of consolidation of MCT; higher sales of IMI; and
ACEI’s retail electricity supply (RES) business and advances for projects; partly offset by ALI’s sale of trade
accounts to banks; and AITHI/ACI’s decline due to lower sales. This account is at 15% and 12% of the total
assets as of December 31, 2018 and 2017, respectively.

Inventories – 24% increase from ₱76,545 million to 94,878 million

Increase pertains to AITHI/ACI’s increase in inventories resulting from lower sales in 2018. This account is
at 8% and 7% of the total assets as of December 31, 2018 and 2017.

Other current assets – 13% increase from ₱45,325 million to ₱51,361 million

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Increase pertains to: ALI’s consolidation of MCT; higher creditable withholding tax, input tax, prepayments
in ALI, IMI, AITHI/ACI’s and MWC’s; BHL’s additional infusion in certain FVPL investments and impact of
forex translation; partly offset by ACEI’s reclassification of deferred input taxes to noncurrent assets. The
account also included those assets held for sale such as: (1) AC Education, Inc. (AEI) (after consolidation
of National Teachers College (NTC)) and (2) ACEI’s net investment in GMCP and GN Power Dinginin Ltd.
Co. (GNPD). This account is at 4% of the total assets as of December 31, 2018 and 2017.

Accounts and notes receivable (non-current) – 8% decrease from ₱45,774 million to ₱42,037 million
Account decrease due to ALI’s sale of trade receivables partly offset by ACEI’s receivable from UPC
Renewables. This account is at less than 4% of the total assets as of December 31, 2018 and 2017.

Investments in associates & joint ventures – 18% increase from ₱202,649 million to ₱238,535 million
Increase attributable to AC’s subscription to BPI’s SRO; new investments of MWC (East Water – Thailand
and PT Sarana - Indonesia) and ACEI (UPC Renewables Australia and solar unit in Vietnam) and additional
infusion of AC Infrastructure Holdings, Inc. (AC Infra) for Light Rail Manila Holdings, Inc. (LRMHI); plus
equity in net earnings (less dividends) from BPI, Globe, and from existing investees of ALI, MWC and ACEI
groups. These were partly offset by ALI’s step-up acquisition of MCT as discussed in item 1 above; ACEI’s
reclassification of part of its coal investments to assets held for sale and AC Ventures Holding Corp.’s
(AVHC’s) share in equity losses in Zalora and Mynt. This account is at 20% of the total assets as of
December 31, 2018 and 2017.

Investment Properties – 11% increase from ₱231,527 million to ₱256,299 million

The increase relates to ALI group’s expansion projects mainly on malls and office buildings plus impact of
MCT consolidation. This account is at 21% and 23% of the total assets as of December 31, 2018 and 2017,
respectively.

Property, plant and equipment – 22% increase from ₱85,431 million to ₱104,492 million
Increase coming from ACEI’s construction of power plants for GN Power Kauswagan Ltd. Co.'s (GNPK’s)
coal unit plus impact of forex translation adjustment; ALI’s consolidation of MCT; IMI’s and MWC’s
expansion projects. This account is at 9% and 8% of the total assets as of December 31, 2018 and 2017,
respectively.

Service concession assets – 8% increase from ₱91,050 million to ₱98,404 million

Increase attributable to MWC’s additional service concession assets. This account is at 8% and 9% of the
total assets as of December 31, 2018 and 2017, respectively.

Deferred tax assets-net - 22% increase from ₱12,721 million to ₱15,546 million
Increase related to additional deferred tax assets of ALI’s leasing group. This account is at 1% of the total
assets as of December 31, 2018 and 2017.

Other noncurrent assets - 65% increase from ₱20,054 million to ₱33,010 million
Increase pertains to: ALI’s higher project advances, deferred tax and non-current prepaid expenses; MWC’s
higher FCDA; ACEI’s reclassification of deferred input tax and project development cost from other current
assets; AYC Finance Ltd.’s (AYC’s) hold-out cash for a loan availed by AC; and BHL’s additional FVOCI
investments. The account also includes the Group’s pension asset amounting to P = 82 million.8 This account
is at 3% and 2% of the total assets as of December 31, 2018 and 2017, respectively.

8
The Parent Company's pension fund is known as the AC Employees Welfare and Retirement Fund (ACEWRF). ACEWRF is a legal
entity separate and distinct from the Parent Company, governed by a board of trustees appointed under a Trust Agreement between
the Parent Company and the initial trustees. It holds common and preferred shares of the Parent Company in its portfolio. All such
shares have voting rights under certain conditions, pursuant to law. ACEWRF's portfolio is managed by a committee appointed by
the fund's trustees for that purpose. The members of the committee include the Parent Company’s Chief Finance Officer, Group Head
of Corporate Governance, General Counsel, Corporate Secretary and Compliance Officer, Head for Strategic Human Resources,
Treasurer and Comptroller. ACEWRF has not exercised voting rights over any shares of the Parent Company that it owns.

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Short-term debt – 32% increase from ₱29,905 million to ₱39,518 million

Increase in loans due to additional borrowings of MWC and ACEI partly offset by ALI’s net payments and
AITHI/ACI’s lower borrowing due to lower vehicle purchases. This account is at 5% of the total liabilities as
of December 31, 2018 and 2017.

Accounts payable and accrued expenses – 21% increase from ₱169,653 million to ₱204,759 million
Increase mainly coming from ALI’s trade payables, accrued project and manpower costs; IMI’s increase in
sales volume driving the vendors payable; and MWC’s increase arising from acceleration of projects and
accrual of expenses. These were partly offset by AITHI/ACI’s and ACEI’s lower trade payables. This
account is at 28% of the total liabilities as of December 31, 2018 and 2017.

Income tax payable – 99% increase from ₱1,710 million to ₱3,407 million
Increase mainly arising from higher tax payable of ALI group. This account is less than 1% of the total
liabilities as of December 31, 2017 and 2016.

Other current liabilities – 60% increase from ₱25,984 million to ₱41,652 million
Excluding the PFRS reclassification, account increase due to ALI’s higher customer deposits. This account
is at 6% and 4% of the total liabilities as of December 31, 2018 and 2017, respectively.

Long-term debt (current) – 253% increase from ₱13,732 million to ₱48,481 million
Increase in loans due to ALI’s additional borrowings for expansion projects and effect of consolidation of
MCT; AYC’s reclassification of noncurrent long-term debt to current portion and impact of forex translation
on outstanding USD debt; and IMI’s increase for working capital requirements. These were partly offset by
AC’s payment of maturing loans. This account is at 7% and 2% of the total liabilities as of December 31,
2018 and 2017, respectively.

Long-term debt (noncurrent) – 6% increase from ₱306,975 million to ₱324,263 million

Increase in loans due to additional borrowings of AC to fund subscription to BPI and IMI SRO and infusions
to subsidiaries; ACEI’s additional drawdowns for GNPK project and new investments, including impact of
forex translation; and MWC’s new debt to fund various capital expenditures and projects. These were partly
offset by IMI’s and ALI’s debt payments and AYC’s reclassification of noncurrent long-term debt to current
portion. This account is at 44% and 50% of the total liabilities as of December 31, 2018 and 2017,
respectively.

Service concession obligation (total) – 8% decrease from ₱8,552 million to ₱7,839 million
Decrease was due to periodic payments made by MWC as well as to the reclassification of noncurrent to
current account. This account is at 1% of the total liabilities as of December 31, 2018 and 2017.

Deferred tax liabilities – 36% increase from ₱8,108 million to ₱10,999 million
Increase attributable to increase in deferred tax liabilities of ALI. This account is at 2% and 1% of the total
liabilities as of December 31, 2018 and 2017, respectively.

Other noncurrent liabilities – 4% increase from ₱45,835 million to ₱47,849 million

Increase primarily due to ALI’s higher customer deposits and MWC’s higher retentions payable and
customer guaranty deposits. This account is at 6% and 7% of the total liabilities as of December 31, 2018
and 2017.

Paid-in capital – 11% increase from ₱75,001 million to ₱83,362 million

Increase attributable to the issuance of common shares to a single long-term institutional investor (see Note
[21] to the Company’s audited December 31, 2018 consolidated financial statements included in this
Prospectus). This account is at 18% of the total equity as of December 31, 2018 and 2017.

Fair value reserve of financial assets at fair value through other comprehensive income (FVOCI) – 63%
decrease from negative ₱1,108 million to negative ₱1,806 million

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Condition

Decrease attributable to decline in market value of securities held by BPI group. This account is at less
than 1% of the total equity as of December 31, 2018 and 2017.

Cumulative translation adjustments - 18% decrease from ₱2,794 million to ₱2,304 million
Decrease due to higher foreign liabilities of ACEI, AC International Finance Ltd. (ACIFL) and AYC; partly
offset by upward impact of higher net asset of BHL, MWC and investment in Globe. Forex of PhP = vs US$
amounted to P = 52.58 in December 2018 vs. P = 49.93 in December 2017. This account is at 1% of the total
equity as of December 31, 2018 and 2017.

Equity Reserve - 6% decrease from ₱11,600 million to ₱10,872 million

Decrease related to ALI’s equity transactions for additional investment in Prime Orion Philippines, Inc,
(POPI) and consolidation of MCT; plus impact of AEI’s acquisition of remaining minority interest in NTC.
This account is at 2% and 3% of the total equity as of December 31, 2018 and 2017, respectively.

Retained earnings – 15% increase from ₱170,302 million to ₱196,381 million

Increase represents share in group net income net of dividends declared. This account is at 42% and 41%
of the total equity as of December 31, 2018 and 2017, respectively.

Non-controlling interests – 15% increase from ₱154,745 million to ₱178,347 million

Higher amount represents share in group net income and other comprehensive income net of dividends
declared by subsidiaries to its non-controlling interests; plus impact of ALI’s consolidation of MCT. This
account is at 38% of the total equity as of December 31, 2018 and 2017.

As of December 31, 2017 (Audited) vs. December 31, 2016 (Audited)

The audited consolidated financial statements show several significant increases in Balance Sheet and
Income Statement accounts (vs. December 31, 2016 balances) relating to the following acquisitions of
certain subsidiaries:

1. AC Energy Inc.’s (ACEI’s) acquisition of 100% ownership of Visayas Renewable Corp. (VRC)
(formerly Bronzeoak Clean Energy), AC Energy DevCo Inc. (AEDCI) (formerly San Carlos Clean
Energy), SCC Bulk Water Supply, Inc. (SCC) and Solienda, Inc. (Solienda) and 66% in Manapla
Sun Power Development Corp. (MSPDC);
2. IMI’s acquisition of 80% stake in Surface Technology International Enterprises Limited (STI); and
3. AC Industrial’s acquisition of 94.9% ownership of MT Misslbeck Technologies Gmbh.

Cash and cash equivalents – 7% increase from ₱60,223 million to ₱64,259 million
Increase arising from: issuance of bonds by AC’s P10.0B and AYC’s USD 400M fixed for life (FFL) – both
used for pre-termination of more expensive loans, infusion into Energy projects and new investment
initiatives (Zalora & Mynt); ALI’s ₱7.0B Homestarter bonds and LT debt drawdowns to fund expansion
projects/ property acquisition and ST loan payments; MWC’s new loans to fund maturing loans, CAPEX
and expansion projects; ACI/Automotive’s higher sales; and IMI’s consolidation of a subsidiary. This
account is at 6% and 7% of the total assets as of December 31, 2017 and 2016, respectively.

Short-term investments – 435% increase from ₱1,009 million to ₱5,400 million

Increase due to increase in ALI’s investments partially offset by AYC’s maturity of short-term investments.
This account is at less than 1% of the total assets as of December 31, 2017 and 2016.

Accounts and notes receivable (current) – 6% increase from ₱116,842 million to ₱124,109 million
Increase resulting from surge in sales and impact of consolidation of new subsidiary of IMI; higher sales of
ACI/ Automotive; ACEHI’s impact of consolidation of new subsidiary and RES business; and higher sales
in ALI less sale of receivables to banks and reclassification of receivables to noncurrent; partially offset by
MWC’s decline due to provisions. This account is at 12% and 13% of the total assets as of December 31,
2017 and 2016, respectively.

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Other Current Assets – 35% increase from ₱33,638 million to ₱45,325 million
Increase pertains to ALI group’s higher input tax, prepayments and project costs; ACEHI’s and IMI’s higher
prepayments and input taxes; BHL’s additional infusion in certain FVPL investments; and reclassification
of AC Education’s total assets into other current assets held for sale following the announcement of a
potential merger transaction. This account is at 4% of the total assets as of December 31, 2017 and 2016.

Accounts and notes receivable (non-current) – 25% increase from ₱36,484 million to ₱45,774 million
Increase attributable to ALI’s growth in real estate sales, following the introduction of new longer payment
terms resulting to the reclassification of trade receivables from current accounts. This account is at 4% of
the total assets as of December 31, 2017 and 2016.

Investments in associates & joint ventures – 12% increase from ₱180,314 million to ₱202,649 million
Growth was attributable to new and additional investments of ACEHI (Chevron and UPC Sidrap units), AC
Ventures (Zalora and Mynt accounts) and ALI (Eton); plus share in net earnings from BPI, Globe, and from
existing investees of ALI, MWCI, ACEHI, Infra groups; partially offset by BHL’s partial disposal of
investments (Vinaphil/ CII). This account is at 20% of the total assets as of December 31, 2017 and 2016.

Investment Properties – 24% increase from ₱110,917 million to ₱137,658 million

Increase related to ALI group’s expansion projects mainly on malls, office properties and certain land
development. This account is at 13% and 12% of the total assets as of December 31, 2017 and 2016,
respectively.

Property, plant and equipment – 33% increase from ₱64,074 million to ₱85,431 million
Increase coming from ACEHI’s construction of power plants for GNP Kauswagan's coal investment; ALI’s
capital expenditures for its hotels and resorts operations; IMI’s new capex for Europe and Mexico sites; and
MWC’s expansion project; plus impact of consolidation of new subsidiaries of ACEHI, IMI and
ACI/Automotive. This account is at 8% and 7% of the total assets as of December 31, 2017 and 2016,
respectively.

Service concession assets – 10% increase from ₱82,422 million to ₱91,050 million
Increase attributable to MWC’s additional service concession assets. This account is at 9% of the total
assets as of December 31, 2017 and 2016.

Intangible assets – 72% increase from ₱9,716 million to ₱16,705 million

Higher balance pertains to goodwill arising from new investments: IMI’s Via and STI acquisitions (net of P =
2.9B), ACEHI’s acquisitions in VRC, AEDCI, SCC, Solienda and MSPDC (P = 2.2B), and BHL’s intangibles
= 0.6B); plus ALI’s incremental leasehold rights (P
(P = 0.9B). This account is at 2% and 1% of the total assets
as of December 31, 2017 and 2016, respectively.

Other noncurrent assets - 22% decrease from ₱25,847 million to ₱20,054 million
Decrease due to ALI’s decline in advances/project development costs; ACEHI’s use of cash deposit to fund
investment in an associate; BHL’s net disposal of investment; partially offset by MWC’s increase in relation
to deposit for land acquisition. The account also includes the Group’s pension asset amounting to P = 98
million.9 This account is at 2% and 3% of the total assets as of December 31, 2017 and 2016, respectively.

Income tax payable – 25% decrease from ₱2,270 million to ₱1,710 million

9
The Company's pension fund is known as the AC Employees Welfare and Retirement Fund (ACEWRF). ACEWRF is a legal entity
separate and distinct from the Company, governed by a board of trustees appointed under a Trust Agreement between the Company
and the initial trustees. It holds common and preferred shares of the Company in its portfolio. All such shares have voting rights
under certain conditions, pursuant to law. ACEWRF's portfolio is managed by a committee appointed by the fund's trustees for that
purpose. The members of the committee, all of whom are Managing Directors of the Company, are Jose Teodoro K. Limcaoco. (the
Company's Chief Finance Officer, Chief Risk Officer & Finance Group Head), Solomon M. Hermosura (the Company's Group Head
of Corporate Governance, General Counsel, Corporate Secretary & Compliance Officer), John Philip S. Orbeta (the Company’s Head
for Strategic Human Resources), Ma. Cecilia T. Cruzabra (the Company’s Treasurer), and Josephine G. de Asis (the Company’s
Comptroller). ACEWRF has not exercised voting rights over any shares of the Company that it owns.

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Decline mainly arising from lower tax payable of ALI group. This account is less than 1% of the total liabilities
as of December 31, 2017 and 2016.

Long-term debt (current) – 31% decrease from ₱19,793 million to ₱13,732 million
Decrease on account of AC’s settlement of bonds due 2017; partially offset by increase in loans due to
additional borrowings of ALI, MWC and ACEHI including impact of revaluation of certain foreign currency
denominated loans and reclassification from noncurrent account. This account is at 2% and 4% of the total
liabilities as of December 31, 2017 and 2016, respectively.

Service concession obligation (current) – 7% increase from ₱754 million to ₱804 million
Increase was due to MWCI’s higher computed and actual obligation due within one year. This account is
at less than1% of the total liabilities as of December 31, 2017 and 2016.

Other current liabilities – 48% increase from ₱17,523 million to ₱25,984 million
Increase due to ALI’s and ACI/ Automotive’s higher customer deposits; impact of consolidation of new
subsidiaries of IMI; and AC Ventures’ subscription payable for new investments. This account is at 4% and
3% of the total liabilities as of December 31, 2017 and 2016, respectively.

Long-term debt (noncurrent) – 25% increase from ₱245,203 million to ₱306,975 million
Increase contributed by bond issuance of AC, AYC and ALI including the latter’s long-term notes; plus long-
term borrowings for expansion projects of ALI, ACEHI and MWC. This account is at 50% and 45% of the
total liabilities as of December 31, 2017 and 2016, respectively.

Service concession obligation (non-current) – 14% increase from ₱6,823 million to ₱7,748 million
Increase was due to MWCI’s higher computed actual obligation. This account is at 1% of the total liabilities
as of December 31, 2017 and 2016.

Deferred tax liabilities – 15% decrease from ₱9,544 million to ₱8,108 million
Decrease attributable to ALI’s and MWC’s groups decrease in DTL. This account is at 1% and 2% of the
total liabilities as of December 31, 2017 and 2016, respectively.

Pension liabilities1 – 5% increase from ₱2,469 million to₱2,601 million

Increase due to net adjustment in deferred tax of ACI/Automotive and AC. This account is at less than 1%
of the total liabilities as of December 31, 2017 and 2016.

Other noncurrent liabilities – 6% increase from ₱40,870 million to ₱43,234 million

Increase primarily due to ALI’s higher real estate deposits; and IMI’s higher balances arising from
consolidation of new subsidiaries; partially offset by MWC’s reclassification of deposit to accounts payable
account. This account is at 7% and 8% of the total liabilities as of December 31, 2017 and 2016,
respectively.

Cost of share based payments – 50% decrease from ₱496 million to ₱248 million
Additions from exercise of stock ownership plans granted during the period was reduced by the adjustment
on cost of share based recognized in 2017 following the change on certain valuation assumptions to align
with same changes in the stock ownership plan of AC. This account is at less than 1% of the total equity as
of December 31, 2017 and 2016.

Remeasurement gains (losses) on defined benefit plan – 16% increase from negative ₱1,548 million to
negative ₱1,303 million
Increase attributable to the effect of PAS 19- immediate recognition of service cost and re-measurement of
unrealized actuarial gains/losses.

Net unrealized gains (losses) on available-for-sale financial assets – 137% decline from negative ₱467
million to negative ₱P
= 1,108 million

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Decline pertains mainly to realized gain recognized in P&L by BHL and AC upon disposal of certain AFS
investments; partially offset by increase in the market value of securities held by BPI group as AFS financial
assets. This account is at less than 1% of the total equity as of December 31, 2017 and 2016.

Cumulative translation adjustments - 98% increase from ₱1,415 million to ₱2,794 million
Increase due to upward impact of net foreign assets, significantly coming from ALI, IMI, ACI/Automotive
groups and ACIFL and BHL. Forex of PhP = vs US$ increased causing higher CTA figure (P = 49.93 in
December 2017 vs. P = 49.72 in December 2016). This account is at less than 1% of the total equity as of
December 31, 2017 and 2016.

Equity Reserve - 5% decrease from ₱12,211 million to ₱11,600 million

Decrease related to equity transactions for investments of ALI (POPI and CHI) and IMI (STI). This account
is at 3% of the total equity as of December 31, 2017 and 2016.

Retained earnings – 17% increase from ₱145,622 million to ₱170,302 million

Increase represents share in full year 2017 group net income net of dividends declared. This account is at
41% and 39% of the total equity as of December 31, 2017 and 2016, respectively.

Non-controlling interests – 10% increase from ₱140,073 million to ₱154,745 million

Higher amount represents share in full year 2017 group net income and OCI net of dividends declared by
subsidiaries to its non-controlling interests. This account is at 38% of the total equity as of December 31,
2017 and 2016.

As of December 31, 2016 (Audited) vs. December 31, 2015 (Audited)

Cash and cash equivalents – 27% decrease from ₱82,154 million to ₱60,223 million
Decline due to AC parent’s payment of loans and payable to DBS; AYC and MWC’s settlement of loans;
ALI’s expansion projects which were funded from new loan proceeds, including bonds offer of AC and ALI.
This account is at 7% and 10% of the total assets as of December 31, 2016 and 2015, respectively.

Short-term investments – 51% decrease from ₱2,052 million to ₱1,009 million

Decline due to maturity of short-term investments of AC used to settle loans. This account is at less than
1% of the total assets as of December 31, 2016 and 2015.

Accounts and notes receivable (current) – 41% increase from ₱82,596 million to ₱P = 116,842 million
Increase attributable to ALI group’s higher sales across brands as well as from leasing business plus
advances to various contractors; IMI and Automotive groups’ higher sales; and MWC’s higher sales and
advances to contractors. This account is at 13% and 10% of the total assets as of December 31, 2016 and
2015, respectively.

Inventories – 12% increase from ₱68,431 million to ₱76,753 million

Increase pertains to ALI group’s higher completed inventories for new and existing residential projects;
Auto’s higher vehicle inventories and IMI’s turnkey business. This account is at 8% and 9% of the total
assets as of December 31, 2016 and 2015, respectively.

Other Current Assets – 22% increase from ₱27,617 million to ₱33,638 million
Increase pertains to ALI group’s higher UITF placements, input tax, advances to contractors and materials
and supplies; plus higher input tax and prepaid loan transaction costs of ACEHI. This account is at 4% of
the total assets as of December 31, 2016 and 2015.

Accounts and notes receivable (non-current) – 13% decrease from ₱41,793 million to ₱36,484 million
Decrease attributable to ALI’s collection and reclassification of receivables to current. This account is at 4%
and 5% of the total assets as of December 31, 2016 and 2015, respectively.

Land and improvements – 9% increase from ₱P

= 92,895 million to ₱101,049 million

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Increase comprised of ALI group’s additional investments. This account is at 11% and 12% of the total
assets as of December 31, 2016 and December 31, 2015, respectively.

Investments in associates & joint ventures – 11% increase from ₱162,711 million to ₱180,314 million
Growth was attributable to additional investments of ALI (OCLP), higher share in net earnings from BPI and
Globe; plus additional infusion into Dinginin project and share in earnings from operating investees of
ACEHI group. This account is at 20% of the total assets as of December 31, 2016 and 2015.

Investment in bonds and other securities – 22% increase from ₱3,738 million to ₱4,565 million
Increase due to additional/ new investments of ALI and BHL. This account is less than 1% of the total assets
as of December 31, 2016 and 2015.

Investment properties – 33% increase from ₱83,669 million to ₱110,917 million

ALI group’s higher investment in developing various properties such as new estates/ communities, malls,
office buildings and new land acquisitions drove the increase in this account. This account is at 12% and
10% of the total assets as of December 31, 2016 and 2015, respectively.

Property, plant and equipment – 62% increase from ₱P = 39,644 million to ₱64,074 million
Increase coming from ACEHI’s construction of power plants for GNP Kauswagan's coal investment and
Monte Solar’s solar energy; IMI’s expansion mainly in Mexico/ China; and ALI’s new plants/machineries
and consolidation of acquired entities. This account is at 7% and 5% of the total assets as of December 31,
2016 and 2015, respectively.

Service concession assets – 5% increase from ₱78,829 million to ₱82,421 million

Increase caused by MWC's additions to its concession assets/ projects. This account is at 9% and 10% of
the total assets as of December 31, 2016 and 2015, respectively.

Intangible assets – 149% increase from ₱3,910 million to ₱9,716 million

Higher balance arising from IMI’s acquisition of a new subsidiary. This account is at 1% and less than 1%
of the total assets as of December 31, 2016 and 2015, respectively.

Deferred tax assets – 27% increase from ₱9,743 million to ₱12,415 million
Increase caused by ALI group’s higher deferred tax asset due to tax effect of temporary difference from
sale and collection of booked accounts. This account is at 1% of the total assets as of December 31, 2016
and 2015.

Pension and other noncurrent assets - 49% increase from ₱14,291 million to ₱21,282 million
Increase due to ALI’s leasehold rights from new investment properties; ACEHI’s various bid deposits; and
MWC’s higher balance of FCDA due to forex movements. The account also includes the Group’s pension
asset which has no significant movement for the period. 10 This account is at 2% of the total assets as of
December 31, 2016 and 2015.

Accounts payable and accrued expenses - 13% increase from ₱145,598 million to ₱164,601 million
Increase caused by higher trade payables and accruals of ALI group due to new project launched in 2016
and taxes payable; IMI higher sales and consolidation of a new subsidiary; ACEHI’s higher accruals and

10
The Company's pension fund is known as the AC Employees Welfare and Retirement Fund (ACEWRF). ACEWRF is a legal entity
separate and distinct from the Company, governed by a board of trustees appointed under a Trust Agreement between the Company
and the initial trustees. It holds common and preferred shares of the Company in its portfolio. All such shares have voting rights
under certain conditions, pursuant to law. ACEWRF's portfolio is managed by a committee appointed by the fund's trustees for that
purpose. The members of the committee, all of whom are Managing Directors of the Company, are Jose Teodoro K. Limcaoco. (the
Company's Chief Finance Officer, Chief Risk Officer & Finance Group Head), Solomon M. Hermosura (the Company's Group Head
of Corporate Governance, General Counsel, Corporate Secretary & Compliance Officer), John Philip S. Orbeta (the Company’s Head
for Strategic Human Resources), Ma. Cecilia T. Cruzabra (the Company’s Treasurer), and Josephine G. de Asis (the Company’s
Comptroller). ACEWRF has not exercised voting rights over any shares of the Company that it owns.

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interest payable; and Automotive group’s higher vehicle costs and inventories; offset by AC’s settlement of
accounts relating to acquisition of additional ADHI shares from DBS and MWC’s lower accruals. This
account is at 30% and 31% of the total liabilities as of December 31, 2016 and 2015, respectively.

Short-term debt – 26% increase from ₱24,387 million to ₱30,858 million

Mainly due to loan of ALI, IMI and Automotive groups partially offset by AC’s settlement of ST debt. This
account is at 6% and 5% of the total liabilities as of December 31, 2016 and 2015, respectively.

Income tax payable – 17% increase from ₱1,943 million to ₱2,270 million
Mainly due to higher tax payable of ALI, Automotive, IMI and MWC group. This account is less than 1% of
the total liabilities as of December 31, 2016 and 2015, respectively

Long-term debt (current) – 30% decrease from ₱28,154 million to ₱19,793 million
Decrease attributable to net settlement of loans of ALI, IMI, MWC and AYC groups partially offset by AC’s
and ALI bond offers. This account is at 4% and 6% of the total liabilities as of December 31, 2016 and
2015, respectively.

Service concession obligation (current) – 40% decrease from ₱1,256 million to ₱754 million
Decrease was due to MWC’s lower computed and actual obligation due within one year. This account is
at less than 1% of the total liabilities as of December 31, 2016 and 2015.

Other current liabilities – 278% increase from ₱4,630 million to ₱17,523 million
Primarily due to ALI group’s higher advances and deposits on projects and IMI’s consolidation of a new
subsidiary. This account is at 3% and 1% of the total liabilities as of December 31, 2016 and 2015,
respectively.

Long-term debt (noncurrent) – 16% increase from ₱210,800 million to ₱245,203 million
Increase due to loan availment and bond issuance of ALI; MWC, IMI and ACEHI’s additional loans partially
offset by AC’s settlement of loans. This account is at 45% of the total liabilities as of December 31, 2016
and 2015.

Service concession obligation (non-current) – 9% decrease from ₱7,538 million to ₱6,823 million
Decrease was due to MWC’s lower computed actual obligation. This account is at 1% and 2% of the total
liabilities as of December 31, 2016 and 2015, respectively.

Deferred tax liabilities – 48% increase from ₱6,440 million to ₱9,544 million
Increase resulting from ALI group’s revenue recognition. This account is at 2% and 1% of the total liabilities
as of December 31, 2016 and 2015.

Other noncurrent liabilities – 27% increase from ₱32,239 million to ₱40,870 million
Increase mainly due to customer deposits for various ALI projects as well as contribution from its leasing
group's increase in security deposits, reservations and advance rental deposits. This account is at 8% and
7% of the total liabilities as of December 31, 2016 and 2015, respectively.

Cumulative translation adjustments - 390% increase from ₱289 million to ₱1,415 million
Increase due to upward impact of net foreign assets and liabilities, significantly coming from ACEHI and
BHL groups. Forex of PhP vs US$ increased causing higher CTA figure (₱49.72 in December 2016 vs.
47.06 in December 2015).

Cost of share based payments – 13% decrease from ₱569 million to ₱496 million
Pertains to adjustments in stock options of AC employees.

Remeasurement gains on defined benefit plan – 24% decrease from negative ₱P

= 1,250 million to negative
₱1,548 million

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Decrease attributable to the effect of PAS 19- immediate recognition of service cost and re-measurement
of unrealized actuarial losses.

Net unrealized gain on available-for-sale financial assets – 16% improvement from negative ₱554 million
to negative ₱467 million
Pertains to increase in the market value of securities held by BPI group as available for sale financial assets
partially offset by realized gain in one of the Bestfull’s investments which was then recognized in P&L.

Retained earnings – 17% increase from ₱124,468 million to ₱145,622 million

Represents share in full year 2016 group net income partially offset by dividends declared.

Non-controlling Interests (NCI) – 17% increase from ₱119,887 million to ₱140,073 million
Represents share in full year 2016 group net income and the NCI component arising from consolidation of
ALI’s new subsidiary and higher investments in ACEHI’s projects; offset by dividends received.

Income Statement items

For the Period Ended June 30, 2019 (Unaudited) vs. June 30, 2018 (Unaudited)

Sale of goods and rendering services – 2% increase from ₱134,524 million to ₱137,511 million
Increase in sale of goods and rendering services coming from ALI’s higher revenues from core-mid and
mid-income residential and leasing segments; increments from MWCI, AC Energy’s RES unit and AC
Health partly offset by AC Industrials lower sales volume. As a percentage to total revenue, this account is
at 86% and 90% in June 30, 2019 and 2018, respectively.

Share in net profits of associates and joint ventures – 11% increase from ₱10,049 million to ₱11,146 million
Increase coming from Globe’s higher revenues and BPI’s higher interest and non-interest income; partly
offset by AC Energy’s investees lower earnings. As a percentage to total revenue, this account is at 7% in
June 30, 2019 and 2018.

Interest income – 47% increase from ₱3,556 million to ₱5,212 million

Increase attributable to interest income from ALI group. This account is at 3% and 2% of the total revenue
in June 30, 2019 and 2018, respectively.

General and administrative expenses – 16% increase from ₱13,826 million to ₱16,083 million
Increase mainly from MWC’s accrual of penalty for water shortage incident amounting to P = 534 million;
higher costs from consolidation of new business units: in latter part of 2018 by AC Infra (Entrego) and in
2019 by AC Health (Generika); and AC Energy’s higher business taxes and manpower costs including
professional fees and restructuring costs for sale of thermal assets. Factoring out impact of the new
consolidated units, GAE increased by 13.6% year-on year. GAE was also increased with the Group’s
adoption of PFRS 16 amounting to ₱32 million (also see Note [2] to the Company’s unaudited June 30,
2019 consolidated financial statements included in this Prospectus). As a percentage to total costs and
expenses, this account is at 14% and 13% in June 30, 2019 and 2018, respectively.

Other income – 185% increase from ₱10,874 million to ₱30,941 million

Increase pertains to AC Energy’s gain on the partial sale of AA Thermal, Inc. to Aboitiz Power Corporation
(see Note [3] to the Company’s unaudited June 30, 2019 consolidated financial statements included in this
Prospectus); partly offset by lower liquidated damages on delayed completion of GNPK plant and impact
of last year’s Sithe commission fees; and IMI’s impact of gain on China asset last year offset by gains on
put option and PPA adjustment from an acquisition.

Interest and other financing charges – 26% increase from ₱9,018 million to ₱11,347 million
Increase due to higher interest expenses of ALI, AC/AYC, MWC and AC Energy as a result of higher debt
balance level this year as compared to last year. The Group’s adoption of PFRS 16 also increased interest

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expense amounting to ₱296 million shown in the table below (see Note [2] to the Company’s unaudited
June 30, 2019 consolidated financial statements included in this Prospectus).

YTD June 2019

Post-PFRS PFRS 16 Pre-PFRS YTD June
Inc (Dec)
(in millions pesos) 16 impact 16 2018
Interest & other financing charges 11,347 292 11,055 9,018 23%

Other charges – 24% decrease from ₱4,792 million to ₱3,654 million

Decrease due to MWC’s lower rehabilitation works of service concession assets.

Income attributable to Owners of the parent – 135% increase from ₱16,068 million to ₱37,838 million
Increase resulting from better operating results of ALI and higher equity in net earnings of Globe and BPI
and on AC Energy’s gain from sale of AA Thermal.

For the Year Ended December 31, 2018 (Audited) vs. December 31, 2017 (Audited)

For 2018, the Group classified certain revenues from goods and rendering services to contract revenues,
in compliance with provisions of PFRS 15 (see Note [2] to the Company’s audited December 31, 2018
consolidated financial statements included in this Prospectus) summarized as follows. Prior years
consolidated statements of income have been re-presented for comparative purposes:

IMPACT OF PFRS 15
For the year 2018 For the year 2017 Inc (dec)
(in million pesos) As reported PFRS 15 Pre - PFRS As reported PFRS 15 Pre - PFRS Pre - PFRS
Sale of goods & services
Revenues from customer contracts
Real estate 129,415 (129,415) - 109,876 (109,876) -
Manufacturing services 69,731 (69,731) - 55,028 (55,028) -
Water and sewer services 19,836 (19,836) - 18,516 (18,516) -
Others 22,317 (22,317) - 30,176 (30,176) -
Rental income 33,582 (33,582) - 28,631 (28,631) -
Sale of goods - 200,766 200,766 - 178,676 178,676 22,090
Rendering of services - 73,254 73,254 - 63,552 63,552 9,702
274,881 (862) * 274,019 242,228 - 242,228 31,792 13%
*pertains to IMI's adjustment of revenues under PFRS 15.

Equity in net earnings of

20,460 (96) 20,364 18,494 - 18,494 1,869 10%
associates and joint venture

The discussion of variances focuses on pre-IFRS balances.

Sale of goods and rendering services – 13% increase from ₱242,228 million to ₱274,881 million
Increase in overall sale of goods and rendering services due to ALI’s higher sales coming from all segments;
IMI from its Europe, China, Philippines and Mexico units plus contribution of Via; MWC’s and ACEI’s service
revenues arising from consolidation of new subsidiary and its RES unit. As a percentage to total revenue,
this account is at 91% in December 31, 2018 and 2017.

Share of profit of associates and joint ventures – 11% increase from ₱18,494 million to ₱20,460 million, of
which P= 83.7 million or 4% was due to PFRS reclassification as discussed in item 2 above
Increase coming from Globe’s higher revenues; ACEI’s share in net earnings of GNPD, Salak-Darajat and
UPC Sidrap; MWC’s stable earnings from foreign investments; and BPI’s increase in NIAT coming from net
interest income. These were partly offset by decline in ALI due to consolidation of MCT (previously reported
as an associate) and AVHC’s share in net losses of Zalora and Mynt. As a percentage to total revenue,
this account is at 7% in December 31, 2018 and 2017.

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Interest income from real estate – 30% increase from ₱5,410 million to ₱7,042 million
Increase attributable to interest income from ALI group. This account is at 2% of the total revenue in
December 31, 2018 and 2017.

Dividend income – 84% decrease from ₱654 million to ₱107 million

Decrease in dividend income arising lower dividend income of AITHI/ACI and partly due to reclassification
of accounts by ACEI. This account is at less than 1% of the total revenue in December 31, 2018 and 2017.

Cost of sales and rendering services – 12% increase from ₱175,674 million to ₱196,608 million
Increase in the overall cost of sales and rendering services is aligned with the growth in revenues. As a
percentage to total costs and expenses, this account is at 87% in December 31, 2018 and 2017.

General and administrative expenses (GAE) – 18% increase from ₱25,213 million to ₱29,822 million of
which ₱2,283 million or 50% of the increase represent impact of consolidation of new subsidiaries
Increase mainly on combined increments in the group’s expenses specifically from: ALI (taxes, contracted
services and depreciation plus impact of consolidation of MCT), MWCI (management fees, manpower-
related, selling expenses, provision for doubtful accounts and taxes), AITHI/ACI (mainly impact of
consolidation of MT and Merlin), IMI (restructuring costs of Shenzen plant, consolidation of VIA and STI
and partial impairment of certain goodwill asset), and AC (higher business development, sustainability and
manpower costs. Without the effect of newly consolidated subsidiaries, GAE increased by ₱2,326 million
or 9% year on year. As a percentage to total costs and expenses, this account is at 13% in December 31,
2018 and 2017.

Interest income – 93% increase from ₱1,404 million to ₱2,706 million

Increase mainly coming from interest income from ACEI group.

Interest and other financing charges – 32% increase from ₱14,441 million to ₱19,101 million
Increase due to higher interest expenses of ALI, AC/AYC, IMI, MWC and ACEI as a result of higher debt
balance level this year as compared to last year.

Other charges – 17% decrease from ₱11,672 million to ₱9,662 million

Decrease due to MWC’s lower rehabilitation works of service concession assets.

Provision for income tax (current and deferred) – 23% increase from ₱12,260 million to ₱15,120 million
Increase primarily due to higher taxable income attributable mainly to ALI’s on account of better
sales/revenues and better operating results plus ACEI’s deferred income tax for GNPK investment.

Income attributable to Owners of the parent – 5% increase from ₱30,264 million to ₱31,818 million
Increase resulting from better operating results of most subsidiaries of the Group.

Income attributable to Non-controlling interests – 19% increase from ₱19,603 million to ₱23,247 million
Increase resulting from better operating results of most subsidiaries of the Group.

For the Year Ended December 31, 2017 (Audited) vs. December 31, 2016 (Audited)

In 2017, the Group changed the presentation of its consolidated statement of income from the single step
to the multiple step presentation. This presentation better reflects and distinguishes other income from
revenue and other charges from the operating expenses of the Group. Prior years consolidated statements
of income have been re-presented for comparative purposes. The change in presentation has no impact
on the consolidated net income, equity, cash flows and earnings per share of the Group in 2016 and 2015.

Sale of goods and rendering services – 22% increase from a total of ₱199,209 million to ₱242,228 million
Growth in sale of goods came primarily from higher sales of: ALI group (higher lot sales, all segment of
housing, residential and condo units); IMI group (consolidation of its new subsidiary and better output of its

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Condition

automotive electronics and industrial segments); and ACI/ Automotive group (vehicle sales across brands
plus notable sales for motorcycles). Higher revenues from rendering of services of ACEHI group primarily
coming from consolidation of new subsidiary and its RES unit; and higher revenues of IMI and MWCI. As
a percentage to total income, this account is at 84% in December 31, 2017 and 2016.

Dividend and other income – 64% increase from ₱13,146 million to P = 21,592 million
Increase due to MWC’s higher rehabilitation works (₱5.0B increase); ALI’s reversal of impairment provision
for a real estate property based on latest appraisal report, higher management, marketing fees and
investment related gain (₱1.7B increase); IMI’s forex gain and MTM valuation of certain investment account
(₱652M increase); BHL’s divestments gain (₱544M increase); ACEHI’s fee from services rendered that
marked the financial closing and construction of power project and higher dividend income (₱266M
increase). This account is at 7% and 6% of the total income in December 31, 2017 and 2016, respectively.

Cost of sales and rendering services – 24% increase from ₱141,350 million to ₱175,674 million
Increase resulting from higher sales of ALI arising from lot sales and residential units, and higher sales of
IMI and ACI/Automotive group and higher service revenues of ACEHI. As a percentage to total costs and
expenses, this account is at 77% in December 31, 2017 and 2016.

General and administrative expenses – 20% increase from ₱20,933 million to ₱25,213 million
Increase mainly on combined increments in the group’s expenses specifically from: ALI (contracted
services, professional fees, taxes, retirement and trainings), AC, ACEHI and MWC (manpower, insurance
costs, depreciation expenses plus AR provisions for MWCI), ACI/ Automotive (marketing and promo
expenses) and IMI (manpower costs, professional/ management fees) including impact of consolidation of
new subsidiaries of IMI and ACEHI. As a percentage to total costs and expenses, this account is at 11%
in both December 31, 2017 and 2016.

Other charges – 72% increase from ₱6,805 million to ₱11,672 million

Increase due to higher rehabilitation works costs of MWC. As a percentage to total costs and expenses,
this account is at 5% and 4% both in December 31, 2017 and 2016, respectively.

Provision for income tax (current and deferred) – 17% increase from ₱10,507 million to ₱12,260 million
Increase primarily due to higher taxable income of several subsidiaries significant portion is attributable to
ALI group on account of better sales and other operating results.

Income attributable to Owners of the parent – 16% increase from ₱26,011 million to ₱30,264 million
Increase resulting from better performance of most subsidiaries of the Group.

Income attributable to Non-controlling interests – 12% increase from ₱17,421 million to ₱19,603 million
Increase resulting from better operating results of most of the subsidiaries of the Group.

For the Year Ended December 31, 2016 (Audited) vs. December 31, 2015 (Audited)

Sale of goods and rendering services – 14% increase from a total of ₱174,035 million to ₱199,209 million
Growth in sale of goods came primarily from sustained growth in all segments of ALI, higher sales of
Automotive group across brands and IMI’s increase significantly from Europe plus contribution of its new
subsidiary. Higher revenues from rendering of service resulted from ALI’s overall growth significantly on
construction and leasing businesses, increments in MWC, IMI and ACEHI. As a percentage to total income,
this account is at 84% in both December 31, 2016 and 2015, respectively.

Share of profit of associates and joint ventures – 21% increase from ₱15,038 million to ₱18,154 million
Increase arising from significant contribution of BPI on gains from trading securities and increments in core
banking business, improved share in net earnings of AJVs of ALI, ACEHI and Infra. As a percentage to
total income, this account is at 8% and 7% in December 31, 2016 and 2015, respectively.

Interest income – 7% decrease from ₱7,297 million to ₱6,777 million

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Decline resulting from ALI’s and AYC’s lower investible funds. This account is at 3% and 4% of the total
income in December 31, 2016 and 2015, respectively.

Other income – 16% increase from ₱11,297 million to ₱13,146 million

Increase due to MWC’s higher rehabilitation works; transaction gains of ACEHI from partial divestment and
revaluation of investments; and increase in Automotive’s collateral business. This account is at 6% and
5% of the total income in December 31, 2016 and 2015, respectively.

Cost of sales and rendering services – 15% increase from ₱123,061 million to ₱141,350 million
Increase resulting from higher sales of ALI, IMI, Automotive, ACEHI and MWC groups. As a percentage to
total costs and expenses, this account is at 77% in both December 31, 2016 and 2015.

General and administrative expenses – 8% increase from ₱18,052 million to ₱19,412 million
Increase mainly on combined increments in the group’s expenses specifically from: ALI (contracted
services), AC (manpower costs), MWC (depreciation and management fees), Automotive (marketing and
selling expenses, manpower costs), IMI (professional fees) and ACEHI (project development, management
fees and depreciation). As a percentage to total costs and expenses, this account is at 11% in both
December 31, 2016 and 2015.

Interest expense and other financing charge – 7% increase from ₱13,276 million to ₱14,258 million
Increase attributable to higher loans of ALI group to fund new and expansion projects. As a percentage to
total costs and expenses, this account is at 8% in both December 31, 2016 and 2015.

Other charges – 39% increase from ₱5,970 million to ₱8,325million

Increase mainly on higher rehabilitation works costs of MWC and impairment provisions for certain
investments. As a percentage to total costs and expenses, this account is at 5% and 4% in December 31,
2016 and 2015, respectively.

Provision for income tax (current and deferred) – 17% increase from ₱9,011 million to ₱10,507 million
Primarily due to higher taxable income of several subsidiaries significant portion is attributable to ALI group
on account of better sales and other operating results.

Income attributable to Owners of the parent – 17% increase from ₱22,279 million to ₱26,011 million
Increase resulting from better performance of most subsidiaries and associates of the Group.

Income attributable to Non-controlling interests – 9% increase from ₱16,016 million to ₱17,421 million
Better operating results of most of the subsidiaries of the Group.

2.9 Any seasonal aspects that had a material effect on the financial condition or results of operations.

Ayala Corporation being a holding company has no seasonal aspects that will have any material effect
on its financial condition or operational results.

ALI’s leasing portfolio generates a fairly stable stream of revenues throughout the year, with higher
sales experienced in the fourth quarter from shopping centers due to holiday spending.

ALI's development operations do not show any seasonality. Projects are launched anytime of the year
depending on several factors such as completion of plans and permits and appropriate timing in terms
of market conditions and strategy. Development and construction work follow target completion dates
committed at the time of project launch.

MWC group does not have any significant seasonality or cyclicality in the interim operation, except for
the usually higher demand during the months of April and May and in the months of November to
December in the case of Globe group.

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BPI, IMI and other subsidiaries of the Group do not have seasonal aspects that will have any material
effect to their financials or operations.

3.0 Any material events subsequent to the end of the interim period that have not been reflected in the
financial statements for the interim period.

Refer to Note 23 of the Notes to Unaudited Interim Condensed Consolidated Financial Statements.

3.1 Other material events or transactions during the interim period.

Refer to Notes 3 and 10 of the Notes to Unaudited Interim Condensed Consolidated Financial
Statements.

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 MANAGEMENT

BOARD OF DIRECTORS

Ayala’s Board has seven members, all of whom are elected by Ayala’s stockholders holding shares with
voting rights at the stockholders’ annual meeting. The Directors hold office for one year and until their
successors are elected and qualified in accordance with Ayala’s By-Laws.

The Board regularly meets at least six times every calendar year. It ensures the presence and adequacy of
internal control mechanisms for good governance in accordance with the Company’s Revised Manual of
Corporate Governance. The minimum internal control mechanisms for the Board’s oversight responsibility
include, but are not limited to:

a. Ensuring the presence of organizational and procedural controls, supported by an effective

management information system and risk management reporting system;
b. Reviewing conflict-of-interest situations and providing appropriate remedial measures for the
same;
c. Appointing a CEO with the appropriate ability, integrity and experience to fill the role, as well as
defining the CEO’s duties and responsibilities;
d. Reviewing proposed senior management appointments;
e. Ensuring the selection, appointment and retention of qualified and competent management;
reviewing the Company’s personnel and human resources policies, compensation plan and the
management succession plan;
f. Institutionalizing the internal audit function; and
g. Ensuring the presence of, and regularly reviewing, the performance and quality of external audit.

On May 18, 2009, the SEC approved the amendment of the by- laws of the Company on the adoption of
the SRC Rule 38 (Requirements on Nomination and Election of Independent Directors). The Company
always undertakes to abide by SRC Rule 38 on the required number of independent directors subject to
any revision that may be prescribed by the SEC.

As of June 30, 2019, the composition of the Board and Executive Officers was as follows:

Board of Directors
Jaime Augusto Zobel de Ayala Chairman and Chief Executive Officer
Fernando Zobel de Ayala President and Chief Operating Officer
Delfin L. Lazaro Non-Executive Director
Keiichi Matsunaga Non-Executive Director
Ramon R. del Rosario, Jr. Independent Director
Xavier P. Loinaz Independent Director
Antonio Jose U. Periquet Independent Director

The write-ups below include positions held as of June 30, 2019 and in the past five years, and personal
data as of June 30, 2019, of the directors and executive officers.

Jaime Augusto Zobel de Ayala, Filipino, 60, Director of Ayala Corporation since May 1987. He is the
Chairman and CEO of Ayala Corporation since April 2006. He holds the following positions in publicly listed
companies: Chairman of Globe Telecom, Inc., Integrated Micro-Electronics, Inc. and Bank of the Philippine
Islands; and Vice Chairman of Ayala Land, Inc., Manila Water Company, Inc. and PHINMA Energy
Corporation. He is also the Chairman of Ayala Retirement Fund Holdings, Inc., AC Industrial Technology
Holdings, Inc., AC Ventures Holding Corp., AC Infrastructure Holdings Corporation and Asiacom Philippines,
Inc.; Co-Chairman of Ayala Foundation, Inc. and Ayala Group Club, Inc.; Director of Alabang Commercial
Corporation, Ayala International Pte. Ltd., AC Energy, Inc., Ayala Healthcare Holdings, Inc., Light Rail Manila
Holdings, Inc. and AG Holdings Ltd. Outside the Ayala group, he is a member of various business and socio-
civic organizations in the Philippines and abroad, including the JP Morgan International Council, JP Morgan
Asia Pacific Council, Mitsubishi Corporation International Advisory Council, and Council on Foreign
Management

Relations. He sits on the board of the Singapore Management University, the global advisory board of
University of Tokyo, and on various advisory boards of Harvard University, including the Global Advisory
Council, HBS Board of Dean’s Advisors, and HBS Asia-Pacific Advisory Board, which he chairs. He is
Chairman Emeritus of the Asia Business Council, Co-Vice Chairman of the Makati Business Club, Chairman
of Endeavor Philippines, and a board member of Eisenhower Fellowships. He was awarded the Presidential
Medal of Merit in 2009, the Philippine Legion of Honor with rank of Grand Commander in 2010, and the
Order of Mabini with rank of Commander in 2015 by the President of the Philippines in recognition of his
outstanding public service. In 2017, he was recognized as a United Nations Sustainable Development Goals
Pioneer for his work in sustainable business strategy and operations. The first recipient of the award from the
Philippines, he was one of 10 individuals recognized for championing sustainability and the pursuit of the 17
SDGs in business. He graduated with B.A. in Economics (Cum Laude) from Harvard College in 1981 and
obtained an MBA from the Harvard Graduate School of Business in 1987.

Fernando Zobel de Ayala, Filipino, 59, Director of Ayala Corporation since May 1994. He is the President
and Chief Operating Officer of Ayala Corporation since April 2006. He holds the following positions in publicly
listed companies: Chairman of Ayala Land, Inc., Manila Water Company, Inc., and PHINMA Energy
Corporation; and Director of Bank of the Philippine Islands, Globe Telecom, Inc. and Integrated Micro-
Electronics, Inc.; and Independent Director of Pilipinas Shell Petroleum Corporation. He is the Chairman of
AC International Finance Ltd., ALI Eton Property Development Corporation, Liontide Holdings, Inc., AC
Energy, Inc., Ayala Healthcare Holdings, Inc., Automobile Central Enterprise, Inc., Alabang Commercial
Corporation, Accendo Commercial Corp. and Hero Foundation, Inc.; Co- Chairman of Ayala Foundation,
Inc. and Ayala Group Club, Inc.; Vice-Chairman of AC Industrial Technology Holdings, Inc., Aurora
Properties Incorporated, Vesta Property Holdings, Inc., Ceci Realty Inc., Fort Bonifacio Development
Corporation, Bonifacio Land Corporation, Emerging City Holdings, Inc., Columbus Holdings, Inc., Berkshires
Holdings, Inc. AKL Properties, Inc., AC Ventures Holdings Corp., and Bonifacio Art Foundation, Inc.; Director
of LiveIt Investments, Ltd., AG Holdings Ltd., AC Infrastructure Holdings Corporation, Asiacom Philippines,
Inc., Ayala Retirement Fund Holdings, Inc., Honda Cars Philippines, Inc., Isuzu Philippines Corporation, and
Manila Peninsula; Member of the Board of INSEAD and Georgetown University; Member of the International
Advisory Board of Tikehau Capital; Vice Chairman of the Philippine-Singapore Business Council, member
of the World Presidents’ Organization and Chief Executives Organization; Chairman of Habitat for Humanity
International’s Asia-Pacific Capital Campaign Steering Committee; and Member of the Board of Trustees of
Caritas Manila, Pilipinas Shell Foundation, and the National Museum. He graduated with B.A. Liberal Arts
at Harvard College in 1982 and holds a CIM from INSEAD, France.

Delfin L. Lazaro, Filipino, 72, Non-Executive Director of Ayala Corporation since January 2007. He holds
the following positions in publicly listed companies: Director of Ayala Land, Inc., Integrated Micro-Electronics,
Inc., Manila Water Company, Inc., and Globe Telecom, Inc. His other significant positions include: Chairman
of Atlas Fertilizer & Chemicals Inc., Chairman and President of A.C.S.T. Business Holdings, Inc.; Vice
Chairman and President of Asiacom Philippines, Inc.; Director of AC Industrial Technology Holdings, Inc.,
AYC Holdings, Ltd.., AC International Finance, Ltd., Purefoods International Limited and Probe Productions,
Inc. He graduated with BS Metallurgical Engineering at the University of the Philippines in 1967 and took his
MBA (with Distinction) at Harvard Graduate School of Business in 1971.

Keiichi Matsunaga, Japanese, 54, has been a Director of Ayala Corporation since April 2017. He is the
General Manager of Mitsubishi Corporation Manila Branch. Currently, he is also the Chairman of
International Elevator & Equipment Inc.; President of MC Diamond Realty Investment Phils., MC Oranbo
Investment, MC Cavite Holdings, Inc., FMT Kalayaan, Inc.; and Director of Century City Development II
Corporation (CCDC II), Isuzu Philippines Corporation, Kepco Ilijan Corporation, Trans World Agro-Products
Corp., Portico Land Corp., Japanese Chamber of Commerce & Industry of the Philippines (JCCIPI) and The
Japanese Association Manila, Inc. (JAMI). He is not a director of any publicly listed company in the
Philippines other than Ayala Corporation. He entered Mitsubishi Corporation after graduating from the
Faculty of Law at Waseda University in 1988 and has since held various leadership positions.

Xavier P. Loinaz, Filipino, 75, Independent Director of Ayala Corporation since April 2009. He has been our
Lead Independent Director since April 2017. He is also an Independent Director of the Bank of the Philippine
Islands, a publicly listed company. He also holds the following positions: Independent Director of BPI Family
Savings Bank, Inc., and BPI/MS Insurance Corporation; Trustee of E. Zobel Foundation; Chairman of Alay

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Kapwa Kilusan Pangkalusugan and XPL Manitou Properties, Inc.; and Vice Chairman of XPL MTJL
Properties, Inc. He was formerly the President of the Bank of the Philippine Islands (BPI) from 1982 to 2004.
He was also the President of Bankers Association of the Philippines from 1989 to 1991. He graduated with
an AB Economics degree at Ateneo de Manila University in 1963 and took his MBA-Finance at Wharton
School, University of Pennsylvania in 1965.

Ramon R. del Rosario, Jr., Filipino, 74, Independent Director of Ayala since April 2010. He is President
and Chief Executive Officer of Phinma Corporation, President and Chief Executive Officer of Philippine
Investment Management, Inc.; Chairman of Araullo University, University of Iloilo, University of Pangasinan,
Cagayan de Oro College, Southwestern University, St. Jude College, United Pulp and Paper Co., Inc.,
PHINMA Microtel Hotels, Inc. and PHINMA Hospitality, Inc. He is Vice-Chairman of Phinma Foundation, Inc.
and Phinma Property Holdings Corp.; Director of Union Galvasteel Corp.and Philcement Corp. He is the
Chairman of Philippine Business for Education; and Vice-Chairman of Caritas Manila and Philippine
Business for Social Progress. He is a former chairman of the National Museum of the Philippines, Ramon
Magsaysay Award Foundation and Makati Business Club, where he remains a Trustee. Mr. del Rosario
graduated from De La Salle College in 1967 with degrees in BSC-Accounting and AB Social Sciences Magna
cum Laude and from Harvard Business School in 1969 for a Master in Business Administration degree. He
has managed Phinma since 2002 and brings with him a wealth of experience in leading a diversified
conglomerate.

Antonio Jose U. Periquet, Filipino, 58, Independent Director of Ayala Corporation since September 2010.
He is the chairman of Campden Hill Group, Inc., and of BPI Asset Management and Trust Corporation. He
also sits as an independent director of publicly listed companies such as Bank of the Philippine Islands,
ABS-CBN Corporation, DMCI Holdings, The Max's Group of Companies and The Philippine Seven
Corporation. He is also an independent director of Albizia ASEAN Tenggara Fund. Mr. Periquet is a trustee
of Lyceum of the Philippines University and a member of the Dean's Global Advisory Council at the University
of Virginia's Darden School of Business. He graduated with an AB Economics degree at Ateneo de Manila
University in 1982 and took his Masters of Science in Economics at the Oxford University, UK in 1988 and
Masters in Business Administration at University of Virginia, USA in 1990.

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Management

EXECUTIVE OFFICERS

Ayala Group Management Committee Members / Senior Leadership Team

*/*** Jaime Augusto Zobel de Chairman and Chief Executive Officer

Ayala
*/*** Fernando Zobel de Ayala Vice Chairman, President and Chief Operating Officer
*** Jose Rene Gregory D. Senior Managing Director, Public Affairs Group Head, President and
Almendras CEO of AC Infrastructure Holdings Corporation
** Cezar P. Consing Senior Managing Director, President and CEO of Bank of the
Philippine Islands
** Bernard Vincent O. Dy Senior Managing Director, President and CEO of Ayala Land, Inc.
*** Jose Teodoro K. Limcaoco Senior Managing Director, Chief Finance Officer, Chief Risk Officer,
Chief Sustainability Officer, Finance Group Head and President of AC
Ventures Holding Corp.
** Arthur R. Tan Senior Managing Director, CEO of Integrated Micro-Electronics, Inc.,
and President and CEO of AC Industrial Technology Holdings, Inc.
** Ernest Lawrence L. Cu President and CEO of Globe Telecom, Inc.
**/**** Ferdinand M. dela Cruz Managing Director, President and CEO of Manila Water Company,
Inc.
** Alfredo I. Ayala Managing Director
*** Paolo Maximo F. Borromeo Managing Director, Corporate Strategy and Development Group Head,
President and CEO of Ayala Healthcare Holdings, Inc.
*** John Eric T. Francia Managing Director, President and CEO of AC Energy, Inc.
*** Solomon M. Hermosura Managing Director, Chief Legal Officer, Corporate Secretary, Chief
Compliance Officer, Data Protection Officer, and Corporate
Governance Group Head
** Ruel T. Maranan Managing Director, President of Ayala Foundation, Inc.
*** John Philip S. Orbeta Managing Director, Chief Human Resources Officer, and Corporate
Resources Group Head
Catherine H. Ang Executive Director and Chief Audit Executive
Estelito C. Biacora Executive Director and Treasurer
Josephine G. De Asis Executive Director and Controller
Dodjie D. Lagazo Assistant Corporate Secretary
Joanne M. Lim Assistant Corporate Secretary
* Members of the Board of Directors.
** Ayala Group Management Committee members.
*** Ayala Corporation Management Committee and Ayala Group Management Committee members
****Retired effective August 31 ,2019
Note: Mr. Jose Rene Gregory D. Almendras was elected President and CEO of Manila Water Company, Inc. effective
September 1, 2019 vice Mr. Ferdinand M. dela Cruz.

Cezar P. Consing, Filipino, 59, is a Senior Managing Director of Ayala Corporation and has been a
member of the Ayala Group Management Committee since April 2013. He has been the President and
CEO of Bank of the Philippine Islands, one of the Ayala Group’s publicly listed companies, since April
2013. He is an Independent Director of Jollibee Foods Corporation. His other significant positions are:
President of Bancnet, Inc., Chairman of Philippine Dealing Systems Holdings Corp., and Board Director
of LGU Guarantee Corporation, Filgifts.com., The Rohatyn Group, Sqreem Technologies and Endeavor
Philippines. He is Chairman and President of the Bankers Association of the Philippines. He is also a
board director of the US-Philippines Society, trustee of the Manila Golf Club Foundation, and a member
of the Trilateral Commission. He served as an independent director of CIMB Group Holdings from 2006 to
2013 and First Gen Corporation from 2005 to 2013, and as Chairman of National Reinsurance Corporation
from 2018 to 2019. He first worked for BPI’s corporate planning and corporate banking divisions from
1980 - 1985. He worked for J.P. Morgan & Co. in Hong Kong and Singapore from 1985– 2004 and became
the co-head of the firm's investment banking business in Asia Pacific from 1997 – 2004 and President of
J.P. Morgan Securities (Asia Pacific) Ltd. As a senior Managing Director of J.P. Morgan, he served as a

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member of the firm's global investment banking management committee and its Asia Pacific management
committee. He was a partner at The Rohatyn Group from 2004 – 2013, ran its Hong Kong office and its
private investing business in Asia, and was a board director of its real estate, and energy and infrastructure
private equity investing subsidiaries. He graduated with a degree of A.B (Accelerated Program) Economics
(Magna Cum Laude) from De La Salle University in 1979 and M.A. Applied Economics from the University
of Michigan, Ann Arbor, in 1980.

Bernard Vincent O. Dy, Filipino, 55, is a Senior Managing Director of Ayala Corporation and has been a
member of the Ayala Group Management Committee since April 2014. He is the President and Chief
Executive Officer of Ayala Land, Inc. (ALI). Prior to this post, he was the Head of the Residential Business,
Commercial Business and Corporate Marketing and Sales of ALI. He also holds the following positions in
other publicly listed Companies: Director of Cebu Holdings, Inc., AyalaLand Logistics Holdings Corp., and
MCT Bhd of Malaysia. His other significant positions include: Chairman of Alveo Land Corp., Ayala
Property Management Corporation, Makati Development Corporation, Amaia Land Corporation,
Avencosouth Corp., AyalaLand Commercial Reit, Inc., Bellavita Land Corporation, Ayagold Retailers, Inc.,
Station Square East Commercial Corporation, Aviana Development Corp., Cagayan De Oro Gateway
Corp., BGSouth Properties, Inc., BGNorth Properties, Inc., BGWest Properties, Inc., Portico Land Corp.
and Philippine Integrated Energy Solutions, Inc.; Vice Chairman of Ayala Greenfield Development
Corporation and Alviera Country Club, Inc.; Director and President of Bonifacio Land Corporation,
Emerging City Holdings, Inc., Columbus Holdings, Inc., Berkshires Holdings, Inc., Fort Bonifacio
Development Corporation, Aurora Properties Incorporated, Vesta Property Holdings, Inc., Ceci Realty Inc.,
Alabang Commercial Corporation and Accendo Commercial Corp.; President of the Hero Foundation
Incorporated and Bonifacio Art Foundation, Inc.; Director of Avida Land Corp., Amicassa Process
Solutions, Inc., Whiteknight Holdings, Inc., AyalaLand Medical Facilities Leasing, Inc., Serendra, Inc.,
Alveo-Federal Land Communities, Inc., ALI Eton Property Development Corporation, Nuevocentro, Inc.,
and AKL Properties, Inc.; Trustee of Ayala Foundation, Inc. and Ayala Group Club, Inc. In 2015, he was
inducted as member of the Advisory Council of the National Advisory Group for the Police Transformation
Development of the Philippine National Police. He earned a degree of B.B.A Accountancy from the
University of Notre Dame in 1985. He also received his Master’s Degree in Business Administration in 1997
and in International Relations in 1989, both at the University of Chicago.

Arthur R. Tan, Filipino, 59, has been a Senior Managing Director of Ayala Corporation since January
2007 and has been a member of the Ayala Group Management Committee since 2002. He has been the
Chief Executive Officer of Integrated Micro-Electronics, Inc. (IMI), a publicly listed company, since April
2002. He is also the Group President and Chief Executive Officer of AC Industrial Technology Holdings,
Inc. Concurrently, he is also the Chairman of the Board and Chief Executive Officer of PSi Technologies
Inc. and Merlin Solar Technologies (Phils.), Inc.; President and Chief Executive Officer of Speedy-Tech
Electronics Ltd.; Chairman of the Board of Surface Technology International (STI), Ltd., Chairman of the
Advisory Board of Via Optronics GmbH and MT Technologies GmbH. He was the President of IMI from
April 2002 to June 23, 2016. Prior to IMI, he was the Northeast Area Sales Manager and Acting Design
Center Manager of American Microsystems Inc. (Massachusetts, USA), from 1994 to 1998, of which he
became the Managing Director for Asia Pacific Region/Japan from 1998 to 2001. He graduated with B.S.
in Electronics Communications Engineering degree from Mapua Institute of Technology in 1982 and
attended post- graduate programs at the University of Idaho, Singapore Institute of Management, IMD and
Harvard Business School.

Ernest Lawrence L. Cu, Filipino, 59, has been a member of the Ayala Group Management Committee
since January 2009. He is the President and Chief Executive Officer of Globe Telecom, Inc., a publicly
listed company. He is a trustee of Ayala Foundation, Inc. and Hero Foundation, Inc. Prior to joining Globe,
he was the President and CEO of SPI Technologies, Inc. In 2017, he was adjudged Best CEO by Finance
Asia. A second for Cu, he first received the award in 2010. Also in 2017, for the fifth straight year, Cu was
recognized as one of the 100 most influential telecom leaders worldwide by London-based Global-
Telecoms Business Magazine Power 100. Frost & Sullivan Asia Pacific has also named him CEO of the
Year twice, first in 2012, and again in 2017. He earned a degree in BS Industrial Management Engineering
from De La Salle University in 1982 and took his Master’s Degree in Business Administration at the JL
Kellogg Graduate School of Management in 1984.

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Ferdinand M. dela Cruz, Filipino, 51, served as a Managing Director and a member of the Ayala Group
Management Committee until August 31, 2019. He served as the President and CEO of Manila Water
Company, Inc. (MWC) from April 2017 to August 31, 2019. Prior to his election as President of MWC,
he was the Chief Operating Officer for Manila Water Operations; and President of Manila Water Total
Solutions Corporation and Manila Water Foundation. He joined MWC in July 2011 as the East Zone
Business Operations Group Director and was concurrently Group Director for Corporate Strategic
Affairs. Before joining MWC, he was the head of Consumer Sales Group and the Consumer Sales and
Consumer Sales Group of Globe Telecom for two years, and was head of its Wireless Business Group
from October 2002 to June 2009. Prior to that, he was the President and General Manager of Kraft
Foods (Philippines) Inc. for more than a year and the same company’s Country General Manager for
its various operating companies in Indonesia. He also held senior leadership roles in ALI, San Miguel
Brewing Philippines, Inbisco Philippines, Unilever Philippines. He graduated cum laude with a degree
in BS Mechanical Engineer from the University of the Philippines. He is a bo ard top-notcher and a
licensed Mechanical Engineer.

Jose Rene Gregory D. Almendras, Filipino, 59, concurrently serves as Senior Managing Director of
Ayala Corporation (AC), President & Chief Executive Officer of Manila Water Company, Inc. (MWCI) and
President & Chief Executive Officer of AC Infrastructure Holdings Corporation (AC Infra). He is also a
member of the AC Management Committee, member of the Ayala Corporation Management Committee
and the Ayala Group Management Committee since August 2016. Rene is the Chairman of the Executive
Committee of MWCI and a Board of Director of the following companies within the Ayala Group: AF
Payments Inc.; Light Rail Manila Holdings, Inc.; MCX Tollway Inc.; and PHINMA Energy. He spent 13
years with the Citibank group where he started as a management trainee and landed his first CEO position
as President of City Savings Bank of the Aboitiz Group at the age of 37. In 2011, he was recognized by
the World Economic Forum as a Sustainability Champion for his efforts as President of MWCI. During his
stint as MWCI President and Chief Operating Officer, the company received multiple awards and was
recognized as one of the Best Managed Companies in Asia, Best in Corporate Governance, one of the
Greenest Companies in the Philippines and hailed as the world’s Most Efficient Water Company. Under
the Administration of President Benigno S. Aquino III, Rene served as a member of the Cabinet holding
the position of Secretary of the Department of Energy, Office of the Cabinet Secretary and the Department
of Foreign Affairs. In June 2016, he was acknowledged by the Administration for his remarkable
performance in addressing the country’s urgent issues and was awarded the highest Presidential Award
given to a civilian - Order of Lakandula, Rank of Gold Cross Bayani.

Alfredo I. Ayala, Filipino, 58, has been a Managing Director of Ayala Corporation and a member of the
Ayala Group Management Committee since June 2006. He is the President, Chief Executive Officer and
Director of LiveIt Investments Limited, Ayala Corporation’s holding company for its business processing
outsourcing. He is also Chief Operating Officer of iPeople, inc., Ayala Corporation’s investment in the
education sector, in partnership with House of Investments, Inc. Currently, he also holds the following
positions: Director of Affinity Express Holdings, Ltd., and Azalea International Venture Partners Limited.;
Chairman and President of AC College of Enterprise and Technology, Inc., National Teachers College,
and LINC Institute; Chairman of Affordable Private Education Center, Inc. and Newbridge International
Investments Limited; Vice Chairman and Vice President of Affinity Express Philippines, Inc.; Vice
Chairman of University of Nueva Caceres; and Trustee of Ayala Foundation, Inc. He is also a Trustee of
Philippine Business for Education (PBEd). He has an MBA from the Harvard Graduate School of Business
Administration in 1987 and B.A. in Development Studies (Honors) and Economics from Brown University
in 1982.

Paolo Maximo F. Borromeo, Filipino, 41, has been a Managing Director since January 2016 and a
member of the Ayala Corporation Management Committee and the Ayala Group Management Committee
since September 2014. He has served as Group Head of Corporate Strategy and Development of the
Company since September 2014. In his role, he oversees the overall corporate planning process, portfolio
strategy, group-wide innovation projects, data and analytics, digital initiatives, new business development
and special projects. In addition, he leads Ayala Corporation’s healthcare businesses. He is currently the
President and Chief Executive Officer of Ayala Healthcare Holdings, Inc. and of Zapfam, Inc., and the Vice

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Chairman of the Generika Group of Companies. He also sits on the board of Affordable Private Education
Center, Inc., AC College of Enterprise and Technology Holdings, Inc., LINC Institute, Inc., National
Teachers College, AC Ventures Holding Corp., AC Industrial Technology Holdings Inc., HCX Technology
Partners, Inc., Ayala International Holdings Limited, AG Holdings Limited and LiveIt Investments Limited.
Prior to joining Ayala, he was a Principal at Booz & Company, a global strategy consulting firm, based in
San Francisco, California, USA. He obtained his Bachelors of Science degree in Management Engineering
from the Ateneo de Manila University and his Master’s in Business Administration with honors from the
Wharton School at the University of Pennsylvania.

John Eric T. Francia, Filipino, 47, has been a Managing Director and a member of the Ayala Corporation
Management Committee and the Ayala Group Management Committee since January 2009. He is the
President of AC Energy, Inc. In his previous role as Head of Ayala’s Corporate Strategy and Development
group, he led Ayala’s entry into the energy and transport infrastructure sectors in 2011. Under his
leadership, Ayala invested in over 1,000MW of attributable capacity in the energy sector, and secured
over $1bn worth of PPP projects in the transport infrastructure space. He is a Director of Manila Water
Company, Inc., a publicly listed company. He is also a member of the Board of Directors of the following
companies within the Ayala Group: Purefoods International Limited, Ayala Healthcare Holding, Inc., AC
College of Enterprise and Technology, Inc., LINC Institute, Inc., AC Ventures Holding Corp., Ayala Aviation
Corporation, Zapfam, Inc., Northwind Power Development Corporation, North Luzon Renewable Energy
Corporation, Light Rail Manila Corporation, AC Infrastructure Holdings Corporation, MCX Tollway, Inc.,
Ayala Hotels, Inc., Michigan Holdings, Inc., Philwater Holdings Company, Inc., and other various
companies under the AC Energy Group. Prior to joining Ayala, he was a senior consultant and member of
the management team of Monitor Group, a strategy consulting firm based in Cambridge, Massachusetts,
USA. Prior to consulting, he spent a few years in the field of academe and media. He received his
undergraduate degree in Humanities and Political Economy from the University of Asia & the Pacific,
graduating magna cum laude in 1993. He then completed his Masters Degree in Management Studies at
the University of Cambridge in the United Kingdom, graduating with First Class Honors in 1995.

Solomon M. Hermosura, Filipino, 57, has served as Managing Director of Ayala Corporation since 1999
and a member of the Ayala Corporation Management Committee since 2009 and the Ayala Group
Management Committee since 2010. He is also the Group Head of Corporate Governance, and the Chief
Legal Officer, Chief Compliance Officer, Corporate Secretary and Data Protection Officer of Ayala
Corporation. He is the CEO of Ayala Group Legal. He serves as the Corporate Secretary and Group
General Counsel of Ayala Land, Inc., and Corporate Secretary of Globe Telecom, Inc., Manila Water
Company, Inc., Integrated Micro-Electronics, Inc. and Ayala Foundation, Inc. He also serves as a
Corporate Secretary and a member of the Board of Directors of a number of companies in the Ayala group.
He is currently a member of the faculty of the College of Law of San Beda University. He graduated
valedictorian with Bachelor of Laws degree from San Beda College in 1986 and placed third in the 1986
Bar Examinations.

Jose Teodoro K. Limcaoco, Filipino, 57, has been the Chief Finance Officer and Finance Group Head
of Ayala Corporation since April 2015. He is also the Chief Risk Officer and Sustainability Officer of Ayala
Corporation. He is a director of Globe Telecom, Inc. and Integrated Micro-Electronics, Inc., two of the
publicly listed companies of the Ayala Group; and an independent director of SSI Group, Inc, also a publicly
listed company. He is the Chairman of Darong Agricultural and Development Corporation and Zapfam Inc.
He is the President and CEO of AC Ventures Holding Corp., AYC Finance Limited, Bestfull Holdings
Limited and Purefoods International Limited. He is the Vice Chairman of Lagdigan Land Corporation. He
is the President of Liontide Holdings, Inc. and of Philwater Holdings Company, Inc. He is a Director of
Ayala Hotels, Inc., AC Energy, Inc., Ayala Healthcare Holdings, Inc., AC Infrastructure Holdings
Corporation, Ayala Aviation Corporation, AC Education, Inc., Asiacom Philippines, Inc., Ayala Group
Legal, Michigan Holdings, Inc., AC Industrial Technology Holdings, Inc., A.C.S.T Business Holdings, Inc.,
LICA Management Inc., and Just For Kids, Inc. He is the Treasurer of Ayala Retirement Fund Holdings,
Inc. He joined Ayala Corporation as a Managing Director in 1998. Prior to his appointment as CFO in April
2015, he held various responsibilities including President of BPI Family Savings Bank, President of BPI
Capital Corporation, Officer-in-Charge for Ayala Life Assurance, Inc. and Ayala Plans, Inc., Trustee and
Treasurer of Ayala Foundation, Inc., President of myAyala.com, and CFO of Azalea Technology

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Investments, Inc. He served as the President of the Chamber of Thrift Banks from 2013-1015. He was
named as the ING-Finex CFO of the Year in 2017. He has held prior positions with JP Morgan & Co. and
with BZW Asia. He graduated from Stanford University with a BS Mathematical Sciences (Honors
Program) in 1984 and from the Wharton School of the University of Pennsylvania with an MBA (Finance
and Investment Management) in 1988.

Ruel T. Maranan, Filipino, 56, has been a Managing Director of Ayala Corporation since January 2015. He
has served as President of Ayala Foundation, Inc. since March 1, 2015. He is also a member of the board
of directors of Asticom Technology, Inc. and a member of the board of representatives of CIFAL
Philippines. He was the Group Director of Manila Water Company, Inc. (MWC)’s Corporate Human
Resources Group from 2004 to 2014. Before joining MWC, he was part of various organizations such as
Globe Telecom, Inc., Vitarich Corporation, and Integrated Farm Management, among others. In MWC, he
introduced numerous innovations in human resources management, rallying behind the company’s being
the first Filipino company to win the prestigious Asian Human Capital Award in 2011, an award sponsored
by the Singapore Ministry of Manpower, CNBC Asia-Pacific, and INSEAD. Through his leadership in
human resources, MWC was vested the 2006 Outstanding Employer of the Year by the People
Management Association of the Philippines. Mr. Maranan earned his AB Social Sciences degree from the
Ateneo de Manila University and his law degree from the University of Santo Tomas. The latter institution
has recently granted him the UST 2016 Outstanding Alumni Award under Private Sector. He has also
completed the Leadership Management Program under Harvard.

John Philip S. Orbeta, Filipino, 58, is currently the Managing Director, Chief Human Resources Officer
and Group Head for Corporate Resources at Ayala Corporation, covering Strategic Human Resources,
Information & Communications Technology, AC Synergy, Knowledge Management, and Corporate
Support Services. He has served as a member of the Ayala Corporation Management Committee since
May 2005 and the Ayala Group Management Committee since April 2009. He is currently the Chairman
of Ayala Aviation Corporation, Ayala Group HR Council, Ayala Group Corporate Security Council and
Ayala Business Clubs; Chairman and President of HCX Technology Partners, Inc.; and Vice Chairman of
Ayala Group Club, Inc. Mr. Orbeta also serves as a Board Director of AG Counselors Corporation, AC
Industrial Technology Holdings, Inc., Ayala Foundation Inc., Ayala Healthcare Holdings, Inc., Ayala
Retirement Fund Holdings, Inc., ZapFam Inc., Generika Group of Companies, BPI Family Bank, Inc.,
ALFM Growth Fund, Inc., ALFM Money Market Fund, Inc., ALFM Peso Bond Fund, Inc., ALFM Dollar
Bond Fund, Inc., ALFM Euro Bond Fund, Inc., ALFM Global Multi-Asset Income Fund, Inc., ALFM Retail
Corporate Fixed Income Fund, Inc. and the Philippine Stock Index Fund Corporation. Mr. Orbeta
previously served as the President and CEO of Ayala Automotive Holdings Corporation and Automobile
Central Enterprise, Inc. (Philippine importer of Volkswagen) and the Chairman and CEO of Honda Cars
Makati, Inc., Isuzu Automotive Dealership, Inc. and Iconic Dealership, Inc., and Board Director of Honda
Cars Cebu, Inc and Isuzu Cebu Inc.Prior to joining Ayala Corporation, he was the Vice President and
Global Practice Director of the Human Capital Consulting Group at Watson Wyatt Worldwide (now Willis
Towers Watson), overseeing the firm’s practices in executive compensation, strategic rewards, data
services and organization effectiveness around the world. He was also a member of Watson Wyatt’s Board
of Directors. He graduated with a degree in A.B. Economics from the Ateneo de Manila University in 1982.

Catherine H. Ang, Filipino, 48, has served as Executive Director and Chief Audit Executive of Ayala
Corporation since July 2013. She joined the Company in February 2012 as Head for Risk Management
and Sustainability. Currently, she also holds the following positions: Director of Technopark Land, Inc.;
Audit and Risk Committee Member of Ayala Healthcare Holdings, Inc., AC Energy, Inc., AC Infrastructure
Holdings Corporation, and Ayala Multi-Purpose Cooperative; Audit Committee Member of Light Rail
Manila Corporation and AF Payments, Inc.; Audit Committee Chair of the Financial Executives Institute of
the Philippines (FINEX); and a member of the Governance Committee of The Institute of Internal Auditors
– Philippines (IIAP). She was also the 2017 - 2018 Audit Committee Chair and Good Governance
Committee Vice Chairperson of FINEX, 2016 Finance Committee Chair of FINEX Foundation, 2015-2016
Institute of Corporate Directors’ Scorecard Circle Chair, 2014 Chair of the IIAP Board of Trustees, and a
member of the Board of Directors from 2009 to 2013 of IIAP. Prior to joining Ayala Corporation, she was
the Chief Audit Executive of Globe Telecom, Inc. where she started as an Internal Audit Manager in 1996
and rejoined the company in 2000. In 1998, she joined PricewaterhouseCoopers - Singapore as Manager

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for Operational and Systems Risk Management. She started her career at SGV & Co in 1991 as a financial
and IT auditor. She is a Certified Public Accountant, a Fellow of the Institute of Corporate Directors, a
qualified Crisis Communication Planner, and holds an Associate (Level 1) Certification from Global
Innovation Management Institute (GIMI). She graduated magna cum laude from Saint Louis College in
1991 with a degree in Bachelor of Science in Commerce major in Accounting.

Estelito C. Biacora, Filipino, 48, is the Executive Director and Treasurer of Ayala Corporation since
November 2018. He is Director and Treasurer of Michigan Holdings, Inc., Pameka Holdings, Inc.,
Technopark Land, Inc., Director of AYC Finance, Limited, AYC Holdings Limited, and Zapfam, Inc.
Currently, he also holds the following positions: Treasurer of AC Infrastructure Holdings Corporation,
ACST Business Holdings, Inc., ASIACOM Philippines, Inc., AC Ventures Holding Corporation, Ayala
Foundation, Inc., Azalea International Venture Partners, Ltd., Liontide Holdings, Inc., and Chief Finance
Officer of Ayala Group Club, and member of Ayala Foundation Endowment Committee and Ayala
Corporation Retirement Committee. Prior to joining Ayala, he served as Senior Vice President for Global
Markets Group at the Bank of the Philippine Islands (BPI). His other previous senior assignments include
Chief Investment Officer (CIO) for BPI Asset Management and Trust Group, and Senior Vice President
and Head of BPI Private Banking. He also served as member of BPI Management Committee, and member
of the board of BPI Forex Corporation and BPI International Finance Limited, Hong Kong. He has held prior
positions with Far East Bank and Trust Company, and Banco Santander, Philippines. Mr. Biacora earned
a Bachelor of Science degree in Commerce, major in Finance in 1990 and Masters in Business
Administration in 1994, both from De La Salle University.

Josephine G. De Asis, Filipino, 48, has been the Controller of Ayala Corporation since August 2012.
Currently, she also holds the following positions: Chairwoman of PPI Prime Venture, Inc.; Director and
Chief Finance Officer of Pameka Holdings, Inc.; Director of Azalea International Venture Partner Ltd.,
Darong Agricultural & Development Corporation, Technopark Land, Inc., and Zapfam, Inc.; Chief Finance
Officer of Azalea International Venture Partner Ltd. and Michigan Holdings, Inc.; Treasurer and Chief
Finance Officer of AG Counselors Corporation; and Audit and Risk Committee Member of AC Energy, Inc.
and AC Infrastructure Holdings Corporation. Prior to joining Ayala Corporation, she served as the Head of
Financial Control Division of Globe Telecom, Inc. from 2010 to 2012 and Controller of the Wireless
Business of Globe Telecom, Inc. from 2005-2010. She is a Certified Public Accountant. She graduated
with a degree in BS Accountancy (summa cum laude) from Polytechnic University of the Philippines in 1991
and attended an Executive Management Program from the University of California Los Angeles in 2004-
2005.

Dodjie D. Lagazo, Filipino, 39, Filipino, has served as Assistant Corporate Secretary of Ayala Corporation
since April 2015. He is the Head for Legal and Regulatory, as well as the Assistant Corporate Secretary,
of AC Energy, Inc. He also serves as the Corporate Secretary of the various AC Energy subsidiaries and
affiliates. He was a Director of Ayala Group Legal’s management committee from January 2014 to July
2017. Prior to joining the Ayala Group, he was an associate at SyCip Salazar Hernandez & Gatmaitan. He
received his undergraduate degree in Political Science from the University of the Philippines, Diliman,
graduating magna cum laude. He then completed his Bachelor of Laws Degree in the College of Law of
the University of the Philippines, Diliman, ranked sixth in the graduating class of 2003. He is a member in
good standing of the Integrated Bar of the Philippines.

Joanne M. Lim, Filipino, 36, has served as Assistant Corporate Secretary of Ayala Corporation since June
2016. She is also the Assistant Corporate Secretary of Integrated Micro-Electronics, Inc, Ayala Foundation,
Inc., AC Industrial Technology Holdings, Inc., LiveIt Investments Limited and other companies within the
Ayala Group to which she also provides other legal services. She is a Senior Counsel at Ayala Group Legal.
Prior to joining Ayala Group Legal in 2015, she was a Project Legal Advisor for CFT Transaction Advisors.
She served as Director of the Legal Affairs Office of the Department of Finance from 2011 to 2013 and
was an Associate at SyCip, Salazar, Hernandez & Gatmaitan Law Offices from 2007 to 2010. She obtained
her Bachelor of Laws degree in 2007 and her Bachelor of Arts degree in Broadcast Communication
(magna cum laude) in 2003, both from the University of the Philippines, Diliman. She has a Master of Laws
degree in Global Business Law from New York University and a Master of Laws degree in Corporate and

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Financial Services Law from National University of Singapore. She was admitted to the Philippine Bar in
2008 and to the New York State Bar in 2015.

SIGNIFICANT EMPLOYEES

The Company attributes its continued success to the collective efforts of its employees, all of whom
contribute significantly to the business in various ways.

FAMILY RELATIONSHIP

Jaime Augusto Zobel de Ayala, Chairman and Chief Executive Officer, and Fernando Zobel de
Ayala, President and Chief Operating Officer, are brothers.

Except for the foregoing, there are no known family relationships between the current members of the
Board and key officers.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

Except as disclosed herein or in the Information Statements of the Company’s subsidiaries or affiliates
which are themselves public companies or as has been otherwise publicly disclosed, there are no
material pending legal proceedings, bankruptcy petition, conviction by final judgment, order, judgment or
decree or any violation of a securities or commodities law for the past five years and the preceding years
until June 30, 2019 to which the Company or any of its subsidiaries or affiliates or its directors or
executive officers is a party or of which any of its material properties is subject in any court or
administrative government agency.

COMPENSATION OF DIRECTORS AND OFFICERS

Directors

Article IV, Section 20 of Ayala’s By-Laws provides:

Section 20 - Each Director shall be entitled to receive from the Corporation, pursuant to a resolution of the
Board of Directors, fees and other compensation for his services as Director. The Board of Directors shall
have the sole authority to determine the amount, form and structure of the fees and other compensation
of the Directors. In no case shall the total yearly compensation of Directors exceed one percent (1%) of
the net income before income tax of the Corporation during the preceding year.

The compensation and remuneration committee of the Board of Directors shall have the responsibility of
recommending to the Board of Directors the fees and other compensation for directors. In discharging this
duty, the committee shall be guided by the objective of ensuring that the level of compensation should
fairly pay Directors for work required in a company of the Corporation’s size and scope. (As amended on
April 18, 2011.)

On April 21, 2017, the Board, upon the recommendation of its Personnel and Compensation Committee
to make the level of remuneration more commensurate with their responsibilities, approved a resolution
fixing the current remuneration of non-executive directors as follows:

Retainer Fee: ₱ 3,000,000.00

Board Meeting Fee per meeting attended: ₱ 200,000.00
Committee Meeting Fee per meeting attended: ₱ 100,000.00

Directors who hold executive or management positions do not receive directors’ fees. Their
compensation, as executive directors is included in the compensation table below.

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Name and Year Salary Bonus Other Annual

Principal Position Compensation
Jaime Augusto
Zobel de Ayala
Chairman and CEO

Fernando Zobel de
Ayala
President and Chief
Operating Officer

Solomon M.
Hermosura
Managing Director,
Chief Legal Officer,
Corporate
Secretary, Chief
Compliance Officer,
Data Protection
Officer, and
Corporate
Governance Group
Head

Jose Teodoro K.
Limcaoco
Senior Managing
Director, Chief
Finance Officer,
Chief Risk Officer,
Chief Sustainability
Officer, and Finance
Group Head

John Philip S.
Orbeta
Managing Director,
Chief Human
Resources Officer,
and Corporate
Resources Group
Head
CEO and Most Actual 2017 ₱279.04M ₱210.51M ₱0
Highly Actual 2018 ₱303.98 ₱243.29M ₱0
Compensated Projected 2019 ₱328.30M ₱261.77M ₱0
Executive Officers
All other officers** Actual 2017 ₱704.72M ₱442.48M ₱0
as a group Actual 2018 ₱730.62M ₱464.87M ₱0
unnamed Projected 2019 ₱792.18M ₱503.97M ₱0

The total annual compensation includes basic pay and other taxable income (guaranteed bonus and
performance-based bonus).

The Company has no other arrangement with regard to the remuneration of its existing officers aside
from the compensation received as herein stated.

Employment Contracts and Termination of Employments and Change-In-Control Arrangements

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The above- named executive officers are covered by letters of appointment stating their respective job
functions, among others.

Warrants and Options Outstanding

Since 1995, the Company has offered its officers options to acquire common shares under its executive
stock option plan (ESOP). For the period January 1, 2019 to June 30, 2019, there were options covering
8,273 shares exercised by various officers of the Company pursuant to the Company’s Stock Option Plan,
to wit:
Date of Grant Exercise Price Market Price at
Date of Grant
Various ₱421.35* ₱932*
*Average price

The Company has adjusted the exercise price and market price of the options awarded to the officers
due to the stock dividend declared by the Company in May 2004, June 2007 and May 2008 and July
2011 and to the reverse stock split in May 2005.

Management and Certain Security Holders

Security Ownership of Certain Record and Beneficial Owners and Management

Security Ownership of Certain Record and Beneficial Owners (of more than 5%) as of June 30, 2019:

Title of Name and address of record Name of beneficial Citizenshi No. of Percent of
class owner and relationship with owner and p shares outstandin
of Issuer relationship with held g voting
voting record owner shares
shares
Common Mermac, Inc.11 Mermac, Inc.12 Filipino 296,625,70 35.85268%
3/F Makati Stock Exchange 6
Building, Ayala Triangle,
Voting Ayala Avenue, Makati City 172,778,76 20.88349%
Preferre 0
d
Common PCD Nominee Corporation PCD participants Various 174,705,84 21.11642%
(Non-Filipino)13 acting for Non- 5
G/F MSE Bldg. themselves or for Filipino
Ayala Ave., Makati City their customers14

Common PCD Nominee Corporation PCD participants Filipino 96,496,237 11.66335%

(Filipino)4 acting for

11 The Co-Vice Chairmen of Mermac, Inc. (“Mermac”), Jaime Augusto Zobel de Ayala and Fernando Zobel de Ayala,
are the Chairman and Chief Executive Officer and President and Chief Operating Officer of the Company, respectively.
Mr. Jaime Augusto Zobel de Ayala has been named and appointed to exercise the voting power of Mermac.
12 The Board of Directors of Mermac has the power to decide how Ayala shares held by Mermac are to be voted.
13 PCD Nominee Corporation (PCD) is not related to the Company.
14
Each beneficial owner of shares through a PCD participant is the beneficial owner to the extent of the number of
shares in his account with the PCD participant. Out of the 271,202,082 common shares registered in the name of PCD
Nominee Corporation, 66,746,589 (8.06755% of the voting stock) and 59,399,760 (7.17955% of the voting stock) are
for the accounts of Deutsche Bank Manila (DB) and The Hongkong and Shanghai Banking Corporation (HSBC),
respectively. The Company has no record relating to the power to decide how the shares held by PCD are to be voted.
As advised to the Company, none of DB and HSBC or any of their customers beneficially owns more than 5% of the
Company’s common shares.

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G/F MSE Bldg. themselves or for

Ayala Ave., Makati City their customers5
Common Mitsubishi Corporation15 Mitsubishi Japanese 37,771,896 4.56543%
Voting 3-1, Marunouchi 2- Chome, Corporation16 19,545,678 2.36246%
Preferre Chiyoda-ku, Tokyo 100-8086
d

Security ownership of directors and management as of June 30, 2019

Title of class Name of beneficial owner Amount and nature of Citizenship Percent of
of beneficial ownership total
outstanding outstandin
shares g shares
Directors
Common 392,806 (indirect) 0.04493%
Preferred B 20,000 (indirect)
Series 1 Jaime Augusto Zobel de Ayala Filipino 0.00229%
Voting 543,802 (direct)
Preferred 0.06220%
Common 392,264 (direct & indirect) 0.04486%
Voting Fernando Zobel de Ayala 554,983 (direct) Filipino
Preferred 0.06347%
Common 41,129 (direct & indirect) 0.00470%
Voting Delfin L. Lazaro 258,297 (direct) Filipino
Preferred 0.02954%
Common Keiichi Matsunaga 1 (direct) Japanese 0.00000%
Common 126,614 (direct) 0.01448%
Voting Xavier P. Loinaz 65,517 (direct) Filipino 0.00749%
Preferred
Common 1,200 (direct) 0.00014%
Preferred B Antonio Jose U. Periquet 400,000 (direct) Filipino
Series 2 0.04575%
Common Ramon R. Del Rosario, Jr. 1 (direct) Filipino 0.00000%
CEO and most highly compensated officers
Common 392,806 (direct & indirect) 0.04493%
Preferred B 20,000 (indirect)
Series 1 Jaime Augusto Zobel de Ayala Filipino 0.00229%
Voting 543,802 (direct)
Preferred 0.06220%
Common 392,264 (direct & indirect) 0.04486%
Voting Fernando Zobel de Ayala 554,983 (direct) Filipino
Preferred 0.06347%
Common 119,960 (indirect) 0.01372%
Voting Solomon M. Hermosura 53,583 (direct) Filipino
Preferred 0.00613%
Common Jose Teodoro K. Limcaoco 302,068 (indirect) Filipino 0.03455%
Common John Philip S. Orbeta 607,667 (indirect) Filipino 0.06950%
Other executive officers (Ayala group ManCom members/Senior Leadership Team)
Common Cezar P. Consing 107,926 (indirect) Filipino 0.01234%
Common Bernard Vincent O. Dy 21,681 (indirect) Filipino 0.00248%
Common Arthur R. Tan 359,743 (indirect) Filipino 0.04114%
Common Jose Rene Gregory D. 112,488 (direct & indirect) Filipino
Almendras 0.01287%
Common Alfredo I. Ayala 174,777 (direct & indirect) Filipino 0.01999%
Common Paolo Maximo F. Borromeo 65,311 (indirect) Filipino 0.00747%

15Mitsubishi Corporation (“Mitsubishi”) is not related to the Company.

16The Board of Directors of Mitsubishi has the power to decide how Mitsubishi’s shares in Ayala are to be voted. Mr.
Keiichi Matsunaga has been named and appointed to exercise the voting power.

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Common Ferdinand M. Dela Cruz* 46,592 (indirect) Filipino 0.00533%

Common John Eric T. Francia 120,224 (indirect) Filipino 0.01375%
Common Ernest Lawrence L. Cu 133,502 (indirect) Filipino 0.01527%
Common Ruel T. Maranan 21,671 (indirect) Filipino 0.00248%
Common Estelito C. Biacora 2,712 (indirect) Filipino 0.00031%
Common Josephine G. De Asis 26,984 (indirect) Filipino 0.00309%
Common 25,773 (indirect) 0.00295%
Voting Catherine H. Ang 5,290 (direct) Filipino
Preferred 0.00061%
Common Dodjie D. Lagazo 0 Filipino 0.00000%
Common Joanne M. Lim 0 Filipino 0.00000%
All Directors and Officers as a group 5,104,566 0.58382%

*Retired effective August 31, 2019.

None of the members of Ayala’s directors and management owns 2% or more of Ayala’s outstanding capital
stock.

Voting Trust Holders of 5% or More

Ayala knows of no person holding more than 5% of common shares under a voting trust or similar
agreement.

Changes in Control

No change in control in the Company has occurred since the beginning of its fiscal year.

372 | P a g e
 MATTERS AFFECTING LIQUIDITY AND CAPITAL EXPENDITURE
As regards internal and external sources of liquidity, funding will be sourced from internally generated cash
flows, and also from borrowings or available credit facilities from other local and international commercial
banks, including an affiliated bank.

There is no material commitment for capital expenditures other than those performed in the ordinary course
of trade or business.

There is no significant element of income not arising from continuing operations other those disclosed in
the financial statements, if any.

There have not been any seasonal aspects that had a material effect on the financial condition or results
of Ayala’s operations.

373 | P a g e
 INDEPENDENT AUDITORS AND COUNSEL
LEGAL MATTERS

All legal opinion/matters in connection with the offering of the Offer which are subject of this Offer will be
passed upon by Romulo Mabanta Buenaventura Sayoc & de los Angeles for the Underwriter and by Co
Ferrer Ang-Co & Gonzales Law Offices for the Company.

INDEPENDENT AUDITORS

SyCip, Gorres, Velayo & Co. or SGV & Co., independent auditors and a member firm of Ernst & Young
Global Limited audited Ayala’s annual consolidated financial statements as at December 31, 2018 and
2017 and for each of the three years in the period ended December 31, 2018 as included in this Prospectus.

There is no arrangement that independent auditors will receive a direct or indirect interest in the Issuer or
was a promoter, underwriter, voting trustee, director, officer, or employee of the Issuer.

a. Fees for Audit and Audit-Related Services

Ayala paid or accrued the following fees, including VAT, to its independent auditors in the past two years:
(in ₱ million)

Year Audit and Audit-Related Tax Services Non-Audit Fees

Fees Fees
2018 ₱10.92 - ₱.12
2017 ₱10.97 - ₱.12

The Audit and Audit-Related Fees include the audit of Ayala’s annual financial statements and the mid-year
review of financial statements in connection with the statutory and regulatory filings or engagements for the
years ended 2018 and 2017. These also include assurance services that are reasonably related to the
performance of the audit or review of Ayala’s financial statements pursuant to the regulatory requirements.

b. Tax Fees

No tax consultancy services were secured from SGV & Co. for the past two (2) years.

c. Non-Audit Fees

In 2018, SGV & Co. billed the Company for an aggregate fee of ₱.12 million for the validation of
stockholders’ votes during the 2018 annual stockholders’ meeting.

In 2017, SGV & Co. billed the Company for an aggregate fee of ₱.12 million for the validation of
stockholders’ votes during the 2017 annual stockholders’ meeting.

The Board, upon the recommendation of the Company’s Audit Committee approved the re-appointment of
SGV & Co. as the Company’s independent auditor for 2019 based on its performance and qualifications,
and fixed its remuneration amounting to ₱5.15 million, exclusive of value-added tax and out of pocket
expenses.

The re-appointment of the SGV & Co., and the fixing of its remuneration was approved by the Ayala
stockholders at the Annual Stockholders’ Meeting held on April 26, 2019. Under Section E, Oversight on
External Audit, No. 5.1 of the Ayala Audit Committee Charter, Ayala’s Audit Committee, which is composed
of two (2) Independent Directors (ID) and one (1) Non-Executive Director (NED), namely, Mr. Xavier P.
Independent Auditors and Counsel

Loinaz (Chairman, ID), Mr. Ramon R. Del Rosario, Jr. (Member, ID), and Mr. Keiichi Matsunaga (Member,
NED), recommends to the Board the appointment of the independent auditor and the audit fees.

Likewise, Ayala’s Audit Committee reviewed the nature of non-audit services rendered by SGV & Co. and
the corresponding fees and concluded that these are not in conflict with the audit functions of the
independent auditor.

SGV & Co. has no shareholdings in the Company, nor any right, whether legally enforceable or not, to
nominate persons or to subscribe for the securities in the Company. SGV & Co. will not receive any direct
or indirect interest in the Company or in any securities thereof (including options, warrants or rights thereto)
pursuant to or in connection with the Offer. The foregoing is in accordance with the Code of Ethics for the
Professional Accountants in the Philippines (which is based on the International Code of Ethics for
Professional Accountants developed by the International Federation of Accountants) set by the Board of
Accountancy and approved by the Professional Regulation Commission.

d. Changes in, and Disagreements with, Accountants on Accounting and Financial Disclosure

The Company has engaged the services of SGV & Co. during the two most recent fiscal years. There were
no disagreements with SGV & Co. on any matter of accounting principles or practices, financial statement
disclosures, or auditing scope or procedure.

375 | P a g e
 PHILIPPINE TAXATION
The following is a general description of certain Philippine tax aspects of the investment in the Preferred “B”
Shares. This general description does not purport to be a comprehensive description of the Philippine tax aspects of
the Preferred “B” Shares and no information is provided regarding the tax aspects of acquiring, owning, holding or
disposing of the Preferred “B” Shares under applicable tax laws of other applicable jurisdictions and the specific
Philippine tax consequence in light of particular situations of acquiring, owning, holding and disposing of the Preferred
“B” Shares in such other jurisdictions. This discussion is based upon laws, regulations, rulings, and income tax
conventions (treaties) in effect at the date of this Prospectus.

The tax treatment of a prospective investor may vary depending on such investor’s particular situation and
certain investors may be subject to special rules not discussed below. This summary does not purport to be a
comprehensive description of all the tax considerations that may be relevant to a decision to invest in the
Preferred “B” Shares and does not purport to deal with the tax consequences applicable to all categories of
investors, some of which (such as dealers in securities) may be subject to special taxes.

EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF
THE PREFERRED “B” SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF LOCAL AND
NATIONAL OR FOREIGN TAX LAWS.

The following is a general description of certain Philippine tax aspects of the investment in the Preferred
“B” Shares. It is based on the present provisions of the Tax Code, the regulations promulgated thereunder
and judicial and ruling authorities in force as of the date of this Prospectus, all of which are subject to
changes occurring after such date, which changes could be made on a retroactive basis.

As used herein, the term “resident alien” refers to an individual whose residence is within the Philippines
and who is not a citizen thereof. A “non-resident alien” is an individual whose residence is not within
the Philippines and who is not a citizen thereof. A non-resident alien who is actually in the Philippines
for an aggregate period of more than 180 days during any calendar year is considered a non-resident alien
engaged in trade or business in the Philippines”; otherwise, such non-resident alien who is actually within
the Philippines for an aggregate period of 180 days or less during any calendar year is considered a non-
resident alien not doing business in the Philippines. A “domestic corporation” is created or organized under
the laws of the Philippines. A “resident foreign corporation” is a non-Philippine corporation engaged in
trade or business in the Philippines. A “non-resident foreign corporation” is a non-Philippine corporation not
engaged in trade or business in the Philippines.

[The Preferred “B” Shares are intended to be listed with the PSE on Issue Date.]

Corporate Income Tax

A domestic corporation is subject to a tax of 30% of its taxable income (gross income less allowable
deductions) from all sources within and outside the Philippines except, among other things, (a) interest
income from Philippine currency bank deposits and yield or any other monetary benefit from deposit
substitutes, trust funds, and similar arrangements as well as royalties from sources within the Philippines
are subject to final withholding tax rate of 20%; and (b) interest income from a depository bank under
the expanded foreign currency deposit system which is subject to a final tax at the rate of 15%.

A minimum corporate income tax of 2% of the gross income as of the end of the taxable year is imposed
on a domestic corporation beginning on the fourth taxable year immediately following the year in which
such corporation commenced its business operations, when the 2 % minimum corporate income tax
is greater than the corporate tax rate of 30% on taxable income.

Nevertheless, any excess of the minimum corporate income tax over the ordinary corporate income tax
shall be carried forward and credited against the latter for the three immediately succeeding taxable
years. Furthermore, subject to certain conditions, the minimum corporate income tax may be suspended
Philippine Taxation

with respect to a corporation which suffers losses on account of a prolonged labor dispute, force
majeure, or legitimate business reverses.

In addition, under the RE Law, a corporation engaged in the exploration, development, and utilization of
RE resources and actual operation of RE systems or facilities is, after seven years of income tax holiday,
entitled to pay a corporate tax of 10% of its net taxable income (as defined in the Tax Code), provided
that the said corporation shall pass on the savings to the end-users in the form of lower power rates.
However, under current rules implementing the RE Law, it is not clear on how the corporation can pass
on the savings to end-users in order to avail of this preferential 10% tax rate.

Tax on Dividends on the Preferred “B” Shares

Cash and property dividends actually or constructively received from a domestic corporation by individual
shareholders who are either Philippine citizens or resident aliens are subject to a final withholding
tax at the rate of 10%. Cash and property dividends actually or constructively received by non-resident
alien individuals engaged in trade or business in the Philippines are subject to a final withholding tax
on dividends derived from Philippine sources at the rate of 20% of the gross amount, subject to
applicable preferential tax rates under tax treaties in force between the Philippines and the country of
domicile of such non-resident alien individual. Non-resident alien individuals not engaged in trade or
business in the Philippines are subject to a final withholding tax on dividends derived from Philippine
sources at the rate of 25% of the gross amount, subject, however, to the applicable preferential tax rates
under tax treaties executed between the Philippines and the country of residence or domicile of such
non-resident foreign individuals.

Cash and property dividends received from a domestic corporation by another domestic corporation or
by resident foreign corporations are not subject to tax. On the other hand, cash and property dividends
received by a non-resident foreign corporation from a domestic corporation are subject to a 30% final
withholding tax, which dividend tax rate may be reduced to 15% if the country in which the non-
resident foreign corporation is domiciled allows a credit against the tax due from the non- resident
foreign corporation, for taxes deemed to have been paid in the Philippines equivalent to 15%, which
represents the difference between the regular corporate income tax rate of 30% and the 15% tax rate
on dividends. The reduced dividend tax rate may be further minimized if tax treaty relief is available to
the non-resident foreign corporation. Depending on the country of residence of the non-resident foreign
corporation, with which the Philippines has an existing tax treaty, the tax rate may go as low as 10%.

Stock dividends distributed pro rata to any holder of the Preferred “B” Shares are not subject to
Philippine income tax. However, the subsequent sale, exchange or disposition of the Preferred “B”
Shares received as stock dividends by the holder is subject to either the capital gains or stock transaction
tax.

Philippine tax authorities have prescribed certain procedures, through an administrative issuance, for
availment of tax treaty relief. Subject to approval by Philippine tax authorities of the recipient’s application
for tax treaty relief, the Company shall withhold taxes at a reduced rate on dividends to be paid to a non-
resident holder, if such non-resident holder provides the Company with the duly accomplished BIR
Certificate of Residence for Tax Treaty Relief (CORTT Form), with the Certification by the Competent
Authority or Authorized Tax Office of Country of Residence, with the corresponding apostille certificate
issued by the pertinent office in such foreign state, or if the state or country is not a member of the Apostille
Convention, legalized by the Philippine Consulate General in such country.

If the regular tax rate is withheld by the Company instead of the reduced rates applicable under a treaty,
the non- resident holder of the Preferred “B” Shares may file a claim for refund from the BIR within the
prescribed period. However, because the refund process in the Philippines requires the filing of an
administrative claim and the submission of supporting information, and may also involve the filing of a
judicial appeal, it may be impractical to pursue such a refund.

377 | P a g e
Philippine Taxation

SALE, EXCHANGE OR DISPOSITION OF THE PREFERRED “B” SHARES

Capital Gains Tax

Net capital gains realized from the sale, exchange, or disposition of the Preferred “B” Shares effected
outside of the facilities of the PSE by a Filipino citizen, a resident alien, a non-resident alien doing
business in the Philippines, a non-resident alien not engaged in trade or business in the Philippines, a
resident foreign corporation or a non-resident corporation other than a dealer in securities during each
taxable year are subject to final withholding tax of 15% on net capital gains realized..

Foreign individuals and corporations may avail of preferential tax rates or exemptions provided under the
applicable tax treaty. An application for tax treaty relief must be filed (and approved) by the Philippine
BIR in order to obtain such exemption under a tax treaty. A prospective investor should consult its own
tax advisor with respect to the applicable rates under the relevant tax treaty.

The transfer of the Preferred “B” Shares shall not be recorded in the books of the Company unless the
BIR certifies that the capital gains and documentary stamp taxes relating to the sale or transfer have
been paid or, where applicable, tax treaty relief has been confirmed by the International Tax Affairs
Division of the BIR in respect of the capital gains tax or other conditions have been met.

Taxes on Transfer of Shares Listed and Traded at the PSE

A sale, barter, exchange, or other disposition of the Preferred “B” Shares effected through the facilities of
the PSE by a resident or a non-resident individual or by a domestic or foreign corporation, other than a
dealer in securities, is subject to a stock transaction tax at the rate of 0.6% of the gross selling price or
gross value in cash of the Preferred “B” Shares sold, bartered, exchanged, or otherwise disposed,
unless an applicable treaty exempts such sale from the said tax. Said tax shall be paid by the seller or
transferor. The stock transaction tax is classified as a percentage tax and is paid in lieu of capital gains
tax. Gains on any such sale or disposition are not subject to income tax. In addition, a value added tax of
12% is imposed on the commission earned by the PSE-registered broker who facilitated the sale,
barter, exchange, or disposition through the PSE, which is generally passed on to the client.

Documentary Stamp Tax on the Preferred “B” Shares

The original issue of the Preferred “B” Shares is subject to a documentary stamp tax of ₱2.00 for each
₱200.00 par value, or a fraction thereof, of the shares of stock issued. The transfer of shares is subject to
a documentary stamp tax of ₱1.50 for each ₱200.00, or a fractional part thereof of the par value of the
shares transferred.

However, the sale, barter, or exchange of Preferred “B” Shares listed and traded at the PSE, if made
34
through the facilities of the PSE, shall be exempt from documentary stamp tax. Otherwise, such sale or
other disposition of the Preferred “B” Shares will be subject to a documentary stamp tax of 0.75% of the par
value of the Preferred “B” Shares sold or disposed.

The documentary stamp tax must be paid by the transferor of the Preferred “B” Shares. However, if such
transferor enjoys exemption from the documentary stamp tax, the transferee who is not exempt shall be
directly liable for the documentary stamp tax.

Estate and Gift Taxes

The transfer of the Preferred “B” Shares upon the death of an individual holder to his heirs by way of
succession, whether such holder was a citizen of the Philippines or an alien and regardless of residence, is
subject to Philippine estate taxes at 6% of the net estate. Individual and corporate holders, whether or not

378 | P a g e
Philippine Taxation

citizens or residents of the Philippines, who transfer the Preferred “B” Shares by way of gift or donation
are liable to pay Philippine donor’s tax on such transfer at the rate of 6% of the of the total gifts in excess
of ₱250,000.00 during the year.

Estate and donor’s taxes, however, shall not be collected in respect of intangible personal property, such
as the Preferred “B” Shares: (a) if the deceased at the time of his death or the donor at the time of his
donation was a citizen and resident of a foreign country which at the time of his death or donation did not
impose a transfer tax of any character, in respect of intangible personal property of citizens of the
Philippines not residing in that foreign country; or (b) if the laws of the foreign country of which the
deceased or donor was a citizen and resident at the time of his death or donation allows a similar
exemption from transfer or death taxes of every character or description in respect of intangible personal
property owned by citizens of the Philippines not residing in that foreign country.

TAXATION OUTSIDE THE PHILIPPINES

The Preferred “B” Shares are considered under Philippine law as situated in the Philippines and the gain
derived from their sale is entirely from Philippine sources; hence such gain is subject to Philippine capital
gains tax and the transfer of such shares by gift (donation) or succession is subject to the donor’s or
estate taxes, each as described above. Sales or other dispositions of the Preferred “B” Shares through
the facilities of the PSE by a resident or a non-resident holder, other than a dealer in securities, are,
however, subject to a stock transaction tax at the rate of 0.6% of the gross selling price or gross value in
money of the shares of stock sold or otherwise disposed, unless an applicable treaty exempts such sale
from said tax.

34
The exemption from documentary stamp tax of the sale, barter or exchange of shares of stock listed and traded through the
local stock exchange was previously for a period of five (5) years from the effectivity of Republic Act No. 9243 dated February
17, 2004, or until March 20, 2009. However, on June 30, 2009, then President Gloria Macapagal-Arroyo signed Republic Act No.
9648, which permanently exempts the sale, barter or exchange of shares of stock listed and traded through the local stock
exchange from the documentary stamp tax and was made retroactive to March 20, 2009.

The tax treatment of a non-resident holder of the Preferred “B” Shares in jurisdictions outside the Philippines may vary
depending on the tax laws applicable to such holder by reason of domicile or business activities and such shareholder‘s particular
situation. This Prospectus does not discuss the tax consideration on non-resident holders of the Preferred “B” Shares under
laws other than those of the Philippines.

379 | P a g e
 THE PHILIPPINE STOCK MARKET
The information presented in this section has been extracted from publicly available documents which
have not been prepared or independently verified by the Company, the Joint Issue Managers and t h e
Underwriters or any of their respective subsidiaries, affiliates or advisors in connection with re-issuance of
the subject shares.

BRIEF HISTORY

The Philippines initially had two stock exchanges, the Manila Stock Exchange, which was organized in
1927, and the Makati Stock Exchange, which began operations in 1963. Each exchange was self -
regulating, governed by its respective Board of Governors elected annually by its members.

Several steps initiated by the Government have resulted in the unification of the two bourses into the
PSE. The PSE was incorporated in 1992 by officers of both the Makati and the Manila Stock Exchanges.
In March 1994, the licenses of the two exchanges were revoked. While the PSE maintained two trading
floors, one in Makati City and the other in Pasig City, these floors were linked by an automated trading
system, which integrated all bid and ask quotations from the bourses. In February 2018, the PSE
transferred to its new office located at the PSE Tower, Bonifacio Global City, Taguig City. The PSE Tower
houses the PSE corporate offices and a single, unified trading floor.

In June 1998, the Philippine SEC granted the “Self-Regulatory Organization” status to the PSE,
allowing it to impose rules as well as implement penalties on erring trading participants and listed
companies. On August 8, 2001, the PSE completed its demutualization, converting from a non-stock
member-governed institution into a stock corporation in compliance with the requirements of the
Philippine Securities Regulation Code. The PSE had an authorized capital stock of ₱120 million, of which
61.2 million shares were subscribed and fully paid- up as of June 30, 2018. Each of the 184 member-
brokers was granted 50,000 common shares of the new PSE at a par value of ₱1.00 per share. In
addition, a trading right evidenced by a “Trading Participant Certificate” was immediately conferred on
each member broker allowing the use of the PSE’s trading facilities. As a result of the demutualization,
the composition of the PSE Board of Governors was changed, requiring the inclusion of seven brokers
and eight non-brokers, one of whom is the President of the PSE.

On December 15, 2003, the PSE listed its shares by way of introduction at its own bourse as part of a
series of reforms aimed at strengthening the Philippine securities industry. Recently, the PSE issued Rules
on Exchange Traded Funds (“ETF”) which provides for the listing of ETFs on an ETF Board separate from
the PSE’s existing boards.

The PSE has a benchmark index, referred to as the PSEi, which reflects the price movements of the 30
largest and most active stocks at the PSE. The PSEi is a free float market capitalization-weighted index.

With the increasing calls for good corporate governance and the need to consistently provide full, fair,
accurate and timely information, the PSE has adopted a new online disclosure system to support the
provision of material information coming from listed companies and enhance access to such reports by the
investing public. In December 2013, the PSE Electronic Disclosure Generation Technology (EDGe), a new
disclosure system co-developed with the Korea Exchange, went live. The EDGe system provided a dedicated
portal for listed company disclosures and also offered a free-to-download mobile application for easy access
by investors.

In June 2015, the PSE shifted to a new trading system, the PSEtrade XTS, which utilizes NASDAQ’s X-stream
Technology. The PSEtrade XTS, which replaced the NSC trading platform provided by NYSE Euronext
Technologies SAS, is equipped to handle large trading volumes. It is also capable of supporting the future
requirements of the PSE should more products and services be introduced.
The Philippine Stock Market

In November 2016, the Exchange received regulatory approvals to introduce new products in the stock market
– the Dollar Denominated Securities and the Listing of PPP Companies.

In June 2018, the PSE received approval from the Philippine SEC to introduce short selling in the equities
market.

The PSE launched its Corporate Governance Guidebook in November 2010 as another initiative of the PSE
to promote good governance among listed companies. It is composed of 10 guidelines embodying principles
of good business practice and based on internationally recognized corporate governance codes and best
practices.

The table below sets out movements in the composite index as of the last business day of each
calendar year from 2008 to 2018, and the most recent month end in 2019, and shows the number of
listed companies, market capitalization, and value of shares traded for the same period:

PSEi Number of Aggregate Market Combined Value

Year Level at Listed Capitalization of Turnover
Closing Companies (in ₱ billions) (in ₱ billions)
2008 1,872.85 246 4,072.16 763.90
2009 3,052.68 248 6,032.22 994.15
2010 4,201.14 253 8,866.11 1,207.38
2011 4,371.96 253 8,696.96 1,422.59
2012 5,812.73 254 10,930.09 1,771.71
2013 5,889.83 257 11,931.29 2,546.18
2014 7,230.57 263 14,251.72 2,130.12
2015 6,952.08 265 13,465.57 2,151.41
2016 6,840.64 265 14,438.77 1,929.50
2017 8,558.42 267 17,583.13 1,958.36
2018 7,466.00 267 16,150.00 1,740.00
June 30, 2019 7,999.71 [269] [14,690.00] [●]
Source: PSE

Trading

The PSE is a double auction market. Buyers and sellers are each represented by stockbrokers. To trade,
bid or ask prices are posted on the PSE’s electronic trading system. A buy (or sell) order that matches the
lowest asked (or highest bid) price is automatically executed. Buy and sell orders received by one broker
at the same price are crossed at the PSE at the indicated price. Payment of purchases of listed securities
must be made by the buyer on or before the third trading day (the settlement date) after the trade.

Equities trading on the PSE starts at 9:30 a.m. and ends at 12:00 p.m. for the morning session, and resumes
at 1:30 p.m. and ends at 3:30 p.m. for the afternoon session. Trading days are Monday to Friday, except
legal and special holidays and days when the BSP clearing house is closed.

To maintain stability in the stock market, daily price swings are monitored and regulated. Under current
PSE regulations, whenever an order will result in a breach of the trading threshold of a security within a
trading day, the trading of that security will be frozen. Orders cannot be posted, modified or cancelled for
a security that is frozen. In cases where an order has been partially matched, only the portion of the order
that will result in a breach of the trading threshold will be frozen. Where the order results in a breach of the
trading threshold, the following procedures shall apply:

• In case the static threshold is breached, the PSE will accept the order, provided the price is within
the allowable percentage price difference under the implementing guidelines of the revised
trading rules (i.e., 50% of the previous day’s reference or closing price, or the last adjusted closing
price);

381 | P a g e
The Philippine Stock Market

otherwise, such order will be rejected. In cases where the order is accepted, the PSE will adjust
the static threshold to 60%. All orders breaching the 60% static threshold will be rejected by the
PSE.

• In case the dynamic threshold is breached, the PSE will accept the order if the price is within the
allowable percentage price difference under the existing regulations (i.e., 20% for security cluster
A and newly-listed securities, 15% for security cluster B and 10% for security cluster C); otherwise,
such order will be rejected by the PSE.

Non-Resident Transactions

When the purchase/sale of Philippine shares involves a non-resident, whether the transaction is effected
in the domestic or foreign market, it will be the responsibility of the securities dealer/broker to register the
transaction with the BSP. The local securities dealer/broker shall file with the BSP, within three business
days from the transaction date, an application in the prescribed registration form. After compliance with
other required undertakings, the BSP shall issue a Certificate of Registration. Under BSP rules, all
registered foreign investments in Philippine securities including profits and dividends, net of taxes and
charges, may be repatriated.

Settlement

The Securities Clearing Corporation of the Philippines (“SCCP”) is a wholly-owned subsidiary of the PSE,
and was organized primarily as a clearance and settlement agency for SCCP-eligible trades executed
through the facilities of the PSE. SCCP received its permanent license to operate on January 17, 2002. It
is responsible for:

• synchronizing the settlement of funds and the transfer of securities through Delivery versus
Payment clearing and settlement of transactions of Clearing Members, who are also Trading
Participants of the PSE;

• guaranteeing the settlement of trades in the event of a Trading Participant’s default through the
implementation of its Fails Management System and administration of the Clearing and Trade
Guaranty Fund; and

• performance of Risk Management and Monitoring to ensure final and irrevocable settlement.

SCCP settles PSE trades on a three-day rolling settlement environment, which means that settlement of
trades takes place three days after transaction date (T+3). The deadline for settlement of trades is 12:00
noon of T+3. Securities sold should be in scripless form and lodged under the book entry system of the
PDTC. Each PSE Trading Participant maintains a Cash Settlement Account with one of the nine existing
Settlement Banks of SCCP which are BDO Unibank, Inc., Rizal Commercial Banking Corporation,
Metropolitan Bank & Trust Company, Deutsche Bank, Union Bank of the Philippines, The Hongkong and
Shanghai Banking Corporation Limited, Maybank Philippines, Inc., Asia United Bank, and China Banking
Corporation. Payment for securities bought should be in good, cleared funds and should be final and
irrevocable. Settlement is presently on a broker level.

SCCP implemented its Central Clearing and Central Settlement (“CCCS”) system on May 29, 2006. CCCS
employs multilateral netting, whereby the system automatically offsets “buy” and “sell” transactions on a
per issue and a per flag basis to arrive at a net receipt or a net delivery security position for each clearing
member. All cash debits and credits are also netted into a single net cash position for each clearing member.
Novation of the original PSE trade contracts occurs, and SCCP stands between the original trading parties
and becomes the Central Counterparty to each PSE-eligible trade cleared through it.

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The Philippine Stock Market

Scripless Trading

In 1995, the PDTC (formerly the Philippine Central Depository, Inc.), was organized to establish a central
depository in the Philippines and introduce scripless or book-entry trading in the Philippines. On December
16, 1996, the PDTC was granted a provisional license by the Philippine SEC to act as a central securities
depository.

All listed securities at the PSE have been converted into book-entry settlement in the PDTC. The depository
service of the PDTC provides the infrastructure for lodgment (deposit) and upliftment (withdrawal) of
securities, pledge of securities, securities lending and borrowing and corporate actions including
shareholders’ meetings, dividend declarations and rights offerings. The PDTC also provides depository and
settlement services for non-PSE trades of listed equity securities. For transactions on the PSE, the security
element of the trade will be settled through the book-entry system, while the cash element will be settled
through the current settlement banks.

In order to benefit from the book-entry system, securities must be immobilized into the PDTC system
through a process called lodgment. Lodgment is the process by which shareholders transfer legal title (but
not beneficial title) over their shares in favor of the PCD Nominee Corporation (“PCD Nominee”), a
corporation wholly-owned by the PDTC, whose sole purpose is to act as nominee and legal title holder of
all shares lodged in the PDTC. “Immobilization” is the process by which the warrant or share certificates of
lodging holders are cancelled by the transfer agent and the corresponding transfer of beneficial ownership
of the immobilized shares in the account of the PCD Nominee through the PDTC participant will be recorded
in the issuing corporation’s registry. This trust arrangement between the participants and PDTC through
the PCD Nominee is established by and explained in the PDTC Rules and Operating Procedures approved
by the Philippine SEC. No consideration is paid for the transfer of legal title to the PCD Nominee. Once
lodged, transfers of beneficial title of the securities are accomplished via book-entry settlement.

Under the current PDTC system, only participants (e.g. brokers and custodians) will be recognized by the
PDTC as the beneficial owners of the lodged equity securities. Thus, each beneficial owner of shares,
through his participant, will be the beneficial owner to the extent of the number of shares held by such
participant in the records of the PCD Nominee. All lodgments, trades and uplifts on these shares will have
to be coursed through a participant. Ownership and transfers of beneficial interests in the shares will be
reflected, with respect to the participant’s aggregate holdings, in the PDTC system, and with respect to
each beneficial owner’s holdings, in the records of the participants. Beneficial owners are thus advised that
in order to exercise their rights as beneficial owners of the lodged shares, they must rely on their participant-
brokers and/or participant-custodians.

Any beneficial owner of shares who wishes to trade his interests in the shares must course the trade through
a participant. The participant can execute PSE trades and non-PSE trades of lodged equity securities
through the PDTC system. All matched transactions in the PSE trading system will be fed through the
SCCP, and into the PDTC system. Once it is determined on the settlement date (T+3) that there are
adequate securities in the securities settlement account of the participant-seller and adequate cleared funds
in the settlement bank account of the participant-buyer, the PSE trades are automatically settled in the
SCCP Central Clearing and Central Settlement system, in accordance with the SCCP and PDTC Rules
and Operating Procedures. Once settled, the beneficial ownership of the securities is transferred from the
participant-seller to the participant-buyer without the physical transfer of stock certificates covering the
traded securities.

If a shareholder wishes to withdraw his shareholdings from the PDTC system, the PDTC has a procedure
of upliftment under which PCD Nominee will transfer back to the shareholder the legal title to the shares
lodged. The uplifting shareholder shall follow the Rules and Operating Procedures of the PDTC for the
upliftment of the shares lodged under the name of the PCD Nominee. The transfer agent shall prepare and
send a Registry Confirmation Advice to the PDTC covering the new number of shares lodged under the
PCD Nominee. The expenses for upliftment are for the account of the uplifting shareholder.

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The difference between the depository and the registry would be on the recording of ownership of the
shares in the issuing corporations’ books. In the depository set-up, shares are simply immobilized, wherein
customers’ certificates are cancelled and a confirmation advice is issued in the name of PCD Nominee to
confirm new balances of the shares lodged with the PDTC. Transfers among/between broker and/or
custodian accounts, as the case may be, will only be made within the book-entry system of the PDTC.
However, as far as the issuing corporation is concerned, the underlying certificates are in the PCD
Nominee’s name. In the registry set-up, settlement and recording of ownership of traded securities will
already be directly made in the corresponding issuing company’s transfer agents’ books or system.
Likewise, recording will already be at the beneficiary level (whether it be a client or a registered custodian
holding securities for its clients), thereby removing from the broker its current “de facto” custodianship role.

Amended Rule on Lodgment of Securities

On June 24, 2009, the PSE apprised all listed companies and market participants through Memorandum
No. 2009-0320 that commencing on July 1, 2009, as a condition for the listing and trading of the securities
of an applicant company, the applicant company shall electronically lodge its registered securities with the
PDTC or any other entity duly authorized by the Philippine SEC, without any jumbo or mother certificate
in compliance with the requirements of Section 43 of the SRC. In compliance with the foregoing
requirement, actual listing and trading of securities on the scheduled listing date shall take effect only after
submission by the applicant company of the documentary requirements stated in Article III Part A of the
Revised Listing Rules.

For listing applications, the amended rule on lodgment of securities is applicable to:

• The offer shares/securities of the applicant company in the case of an initial public
offering;

• The shares/securities that are lodged with the PDTC, or any other entity duly authorized
by the Philippine SEC in the case of a listing by way of introduction;

• New securities to be offered and applied for listing by an existing listed company; and

• Additional listing of securities of an existing listed company.

Pursuant to the said amendment, the PDTC issued an implementing procedure in support thereof to wit:

• For a new company to be listed at the PSE as of July 1, 2009, the usual procedure will be
observed but the transfer agent of the company shall no longer issue a certificate to PCD
Nominee but shall issue a Registry Confirmation Advice, which shall be the basis for the
PDTC to credit the holdings of the depository participants on the listing date.

• On the other hand, for an existing listed company, the PDTC shall wait for the advice of the
transfer agent that it is ready to accept surrender of PCD Nominee jumbo certificates and
upon such advice the PDTC shall surrender all PCD Nominee jumbo certificates to the
transfer agent for cancellation. The transfer agent shall issue a Registry Confirmation Advice
to PDTC evidencing the total number of shares registered in the name of PCD Nominee in
the listed company’s registry as of confirmation date.

Further, the PSE apprised all listed companies and market participants on May 21, 2010 through
Memorandum No. 2010-0246 that the Amended Rule on Lodgement of Securities under Section 16 of
Article III, Part A of the Revised Listing Rules of the PSE shall apply to all securities that are lodged with
the PDTC or any other entity duly authorized by the PSE.

Issuance of Stock Certificates for Certificated Shares

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On or after the listing of the shares on the PSE, any beneficial owner of the shares may apply with PDTC
through his broker or custodian-participant for a withdrawal from the book-entry system and return to the
conventional paper-based settlement. If a shareholder wishes to withdraw his stockholdings from the PDTC
system, the PDTC has a procedure of upliftment under which PCD Nominee will transfer back to the
shareholder the legal title to the shares lodged. The uplifting shareholder shall follow the Rules and
Operating Procedures of the PDTC for the uplifting of the shares lodged under the name of the PCD
Nominee. The transfer agent shall prepare and send a Registry Confirmation Advice to the PDTC covering
the new number of shares lodged under PCD Nominee. The expenses for upliftment are on the account of
the uplifting shareholder.

Upon the issuance of stock certificates for the shares in the name of the person applying for upliftment,
such shares shall be deemed to be withdrawn from the PDTC book-entry settlement system, and trading
on such shares will follow the normal process for settlement of certificated securities. The expenses for
upliftment of the shares into certificated securities will be charged to the person applying for upliftment.
Pending completion of the upliftment process, the beneficial interest in the shares covered by the
application for upliftment is frozen and no trading and book-entry settlement will be permitted until the
relevant stock certificates in the name of the person applying for upliftment shall have been issued by the
relevant company’s transfer agent.

Amended Rule on Minimum Public Ownership

Under the PSE Amended Rule on Minimum Public Ownership (“MPO”), listed companies are required, at
all times, to maintain a minimum percentage of listed securities held by the public of 10% of the listed
companies’ total issued and outstanding shares (i.e., exclusive of treasury shares), or at such percentage
that may be prescribed by the PSE. For purposes of determining compliance with the MPO, shares held by
the following are generally considered “held by the public”: (i) individuals (for as long as the shares held
are not of a significant size (i.e., less than 10%) and are non-strategic in nature; (ii) trading participants
(for as long as the shares held are non-strategic in nature); (iii) investment and mutual funds; (iv) pension
funds; (v) PCD nominees if this account constitutes a number of shareholders, none of which has
significant holdings (provided that if an owner of shares under the PCD Nominee has a shareholding that
is 10% or more of the total issued and outstanding shares, then this shareholder is considered a principal
stockholder); and (vi) social security funds.

Listed companies which become non-compliant with the MPO on or after January 1, 2013 will be suspended
from trading for a period of not more than six (6) months and will automatically be delisted if it remains non-
compliant with the MPO after the lapse of the suspension period. Suspended or delisted shares will not be
traded on the exchange. In addition, sale of shares of listed companies that do not maintain the MPO are
not considered publicly listed for taxation purposes and should, therefore, be subjected to capital gains tax
and documentary stamp tax.

In accordance with the SEC Memorandum Circular No. 13 Series of 2017 issued on December 1, 2017,
the MPO requirement on initial public offerings is increased from 10% to 20%. For existing publicly listed
companies, the existing rules and/or guidelines of an exchange on minimum public float duly approved by
the SEC still apply. The PSE rule on MPO requires that listed companies shall, at all times, maintain a
minimum percentage of listed securities held by the public of 10% of the listed companies’ issued and
outstanding shares, exclusive of any treasury shares, or as e percentage that may be prescribed by the
PSE. As of date, the SEC is looking at increasing the MPO requirement of existing listed companies to
15%, such proposed rules on MPO is yet to be issued by SEC for comments by the public.

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FINANCIAL INFORMATION

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 ISSUER
Ayala Corporation
32/F to 35/F Tower One and Exchange Plaza
Ayala Triangle, Ayala Avenue Corner Paseo De Roxas
Makati City 1200

JOINT ISSUE MANAGERS

BDO Capital & Investment Corporation BPI Capital Corporation
20/F South Tower, BDO Corporate Center 11/F Tower One, Ayala North Exchange
7899 Makati Avenue 6796 Ayala Avenue corner Salcedo Street
Makati City 0726 Legaspi Village, Makati City 1229

JOINT LEAD UNDERWRITERS

BDO Capital & Investment Corporation BPI Capital Corporation
20/F South Tower, BDO Corporate Center 11/F Tower One, Ayala North Exchange
7899 Makati Avenue, Makati City 0726 6796 Ayala Avenue corner Salcedo Street
Legaspi Village, Makati City 1229

China Bank Capital Corporation First Metro Investment Corporation

28/F BDO Equitable Tower 45/F GT Tower International
8751 Paseo de Roxas, 6813 Ayala Ave. cor. H.V. De la Costa St.
Makati City Makati City 1227

PNB Capital and Investment Corporation

9/F PNB Financial Center,
Pres. Diosdado Macapagal Boulevard
Pasay City 1300

LEGAL COUNSEL
To the Issuer To the Joint Lead Underwriters
Co Ferrer Ang-Co & Gonzales Romulo Mabanta Buenaventura Sayoc & de los
11th Floor Atlanta Center Angeles
31 Annapolis St. Greenhills, 21/F Philamlife Tower, 8767 Paseo de Roxas
San Juan Makati City 1226

INDEPENDENT AUDITOR
SyCip Gorres Velayo & Co.
SGV & Co.
6760 Ayala Avenue
1226 Makati City

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