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Record debt bill pushes Philippine firms back to bond market
THE biggest companies in the Philippines need to repay the most debt ever next year, and they're lining up for fresh funds while interest rates are still low.
Three corporate groups - Ayala Corp, JG Summit Holdings Inc and San Miguel Corp - are looking to raise a total of US$2.5 billion with bonds, based on regulatory filings. They are among the first firms to return to the debt market after a lockdown caused issuance to plunge to a four-year low of US$540 million in the second quarter, Bloomberg-compiled data show.
Philippine firms are set to join the global rush to borrow funds as they prepare for a massive debt bill: about US$8.3 billion in corporate bonds and loans will mature in the second half of the year, before that pile climbs to a record US$16.4 billion in 2021, according to data compiled by Bloomberg. They are keen to borrow while rates are still low, amid signs that the central bank is moving to absorb excess funds as the economy gradually reopens this month.
"We expect to have a very busy next couple of months, and hopefully the second half of the year will retain the momentum," said Ryan Martin Tapia, president of China Bank Capital Corp, one of the country's most active bond arrangers. Still, lingering pandemic uncertainty is making tenors shorter and credit spreads wider, he said.
In the latest possible Philippine debt deal, PLDT Inc hired Credit Suisse Group AG and UBS Group AG for a series of investor calls starting on June 15. They may be followed by an offering of 10- and 30-year dollar bonds, the telecommunications company told the stock exchange on Monday.
Port operator International Container Terminal Services Inc priced US$400 million of 10-year bonds on June 10, one of only two Philippine debt issuers in the second quarter along with a peso deal by Rizal Commercial Banking Corp, Bloomberg-compiled data show. Developer Robinsons Land Corp also has notes in the pipeline.
Falling interest rates may spur increased demand for Philippine corporate securities. Peso-denominated five-year government bond yields dropped to a seven-year low this month after policymakers pumped cash into the market. The virus outbreak caused the country's economy to shrink for the first time since 1998 and its unemployment rate to rise to a record.
"With interest rates moving down, some investors will be thinking of locking in their yields," said Robert Ramos, chief investment officer at East West Banking Corp. "Of course, this will be dependent on investors being satisfied with the credit spreads over the government benchmark." The easy money won't be around forever.
In a move to mop up extra funds in the market, the Philippine central bank said on June 8 it would gradually resume offering term deposits to financial firms and increase the volumes in its reverse repurchase facility. An estimated 1.1 trillion pesos (S$30.5 billion) were released into the financial system, equivalent to about 25 per cent of the first quarter's gross domestic product, through a series of steps including cuts in the benchmark interest rate and the reserve requirement ratio.
Nestor Tan, president of BDO Unibank Inc, said the bank is monitoring the market "to assess whether longer-term funding solutions may be warranted to better secure our liquidity needs, such as a reissuance of the bonds, given that interest rates at the moment are at much lower levels". The country's largest bank by assets is already lining up potential funding sources for its maturing bonds later this year.
Augusto Bengzon, chief financial officer at Ayala Land Inc, felt that this was the opportunity to lock in lower borrowing costs and lengthen the debt maturity profile, especially since the builder has managed to keep its local credit rating. Ayala Land could raise as much as 19 billion pesos through a debt capital market transaction or a bilateral loan facility before the year-end to refinance and prepay certain debts.
Ricky Cebrero, treasurer at Rizal Commercial Banking, said the bank will continue to tap the domestic bond market and look at the international debt market as well to diversify its funding base. The liquidity in the market "gives a positive landscape in issuing medium-term funding". BLOOMBERG