S&P warns PH of possible downgrade

Firm cites risks from leveraged conglomerates


The Philippine government may lose the “investment grade” rating it worked so hard to achieve if a debt default by one of the country’s handful of major conglomerates should erode investor confidence.

In a report released Friday, debt watcher Standard & Poor’s (S&P) said that while the Philippines remained one of the strongest markets in the region, the structure of the country’s economy—being dependent on family-owned conglomerates—was a source of vulnerability.

“We may… lower the ratings if problems at one of the large conglomerates impair investor confidence,” S&P said in a supplementary analysis report on the Philippines. S&P rates the Philippine government’s long-term debt at the minimum “investment grade” with a stable outlook, a reflection of the stability of the local economy.

S&P became the second major rating firm to give the Philippines an “investment grade” rating after Fitch Ratings. Moody’s Investor Service still considers Philippine government debt as “junk” investments, although the country is on positive watch for a possible upgrade.

Other risks that threaten the country’s “investment grade” status include the possible spillover of weak global economic conditions that could affect the domestic economy.

S&P’s concerns over banks’ exposure to conglomerates echoed the International Monetary Fund’s own assessment of the structure of the Philippine economy. The IMF said in its April country report that a default by any major, highly leveraged conglomerate could lead to a significant increase in bad assets held by lenders. This, in turn, could lead to banks restricting lending to other sectors of the economy.

The IMF and S&P did not name any specific conglomerate in particular. In contrast, the BSP had said that its period stress tests showed that even if all major conglomerates defaulted on half of their loans, local banks were strong enough to absorb these losses without affecting their operations.

S&P also raised concerns over the Bangko Sentral ng Pilipinas’ (BSP) ability to manage capital flows from abroad that could cause overheating in the economy and create asset price bubbles.

“Low level of bank intermediation and underdeveloped capital markets constrain the effectiveness of monetary policy transmission,” S&P said in its report. It said the BSP’s main focus, given low inflation in the first half of the year, had become managing capital flows to prevent potential bubbles. “Ample domestic liquidity is giving rise to concerns over overheating in the property sector and banks’ exposure to it, in particular via related lending,” S&P said.

The rating firm, however, recognized efforts by the central bank to curb this risk by limiting loans and guarantees between property companies and their parent conglomerates.

Political developments that could throw the Aquino administration off its current course of promoting good governance and fiscal stability could also lead to a downgrade, S&P said.

One of the upside, S&P said the Philippines could earn another upgrade if revenue reforms that facilitate improvements in infrastructure and human capital would be passed.

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  • klepto

    Still waiting for $1=PHP60

  • Paliwaweng

    …my hunch says San Miguel Corporation is the mentioned conglomerate.

    • boboposter

      conglomerateS… with S yan… kasama JGS at LPZ siguro dyan

  • unokritiko

    Based on this report I believe this SP company if they downgrade the PH it will not hurt much because the economy they are reporting are not true and correct. The reality is that the economy is still stagnant and very less investors are coming. Only those investor with criminal oriented mind do invest here.
    SP company is very much related to this high profile families were they got their money from bad faith. So for me, SP go ahead and make my day!!!!

    • Paliwaweng

      post a credible source/s of your claim. Innuendoes are innuendoes. Inadmissible as proof of evidence. Am sorry but anyone can claim like what you did.

      • Ayjayar

        Innuendoes? How many companies are controlled and/ or owned by a certain Sy, a certain Pangilinan, a certain Lopez, a certain Cojuangco,a certain Aboitiz, etc etc ad nauseum! Only a few months ago it became hot news when it was revealed by a study that the combined wealth of these conglomerates (family- and foreign-partnered) account for 60 percent of the Gross Domestic Product of the country.

        Tayo lang naman ang nag-bubulagan, ah, as if nothing is happening… and it takes S&P and the IMF to point out these things to us!

        No wonder Cong Rufus Rodriguez and House Speaker Sonny Belmonte are jointly sponsoring a bill to curtail, control and prevent corporate conglomerates from swallowing the economy! In the U.S., they call this law “Anti-Trust Law”
        Innouendoes? Pls address that to Messrs Belmonte and Rodriguez. as they are in the best position to present your “proof.” Good day.

      • Paliwaweng

        as I said, substantiate your claim/s with irrefutable proofs, documents. Post your sources to such claims.
        Opinions are subjective, they are not facts.

  • Unicahija

    BSP recently conducted its own stress test and everything came out well. S&P seems to say otherwise. Is there something S&P knows that BSP does not know? Is there something that BSP knows that S&P does not know? At any rate, it would be nice if the public could be let in on it. Hmm .. . .

  • doctor_mengele

    This is San Miguel Corporation. Ramon Ang’s wheeling dealing style making commissions on the buying and selling of companies and assets, support services and supply contracts are breaking this great corporation’s back. He managed all of this using SMC’s funds. This is the same with Petron and Philippine Airlines. of which he is President and CEO of.

    The way I see it, Ramon Ang is not interested in building a legacy nor building a name synonymous to the pioneers of Philippine Business and Industry. All he wants is to make a fast buck and have his “toys”.

    By the number of “thumbs down” I got, I must have hit a nerve….

    Sayang San Miguel……

    • koolkid_inthehouse

      non existence of compliance. What happen to Anti-Money Laundering Law?
      Tax incentives for example to foreign investors in lieu of changing the constitutions should be applied to entice foreign investments.

  • Baket?

    We’ll never really know until the hot money flows out and the BSP starts hiking interest rates and a credit crunch ensues. We’ll know who’s swimming naked or over-leveraged when the tide goes out. Or, at the very least, the BSP should have an inkling on which conglomerates are in trouble. Within BSP, they have their own unofficial data of which banks are engaging in loose credit practices, questionable loans and the chronic DOSRI loans. They’re unofficial because if they were made official and public, BSP auditors and supervisors would be hounded by lawsuits.

    • koolkid_inthehouse

      no transparency.
      who will invest in family run conglomerates? the book could be cooked and who can stop insider trading. the way this country run business through FAKES and bribery, foreign investors has to think twice before departing from their cash.

      • Baket?

        You are right. Family-owned banks are mostly not transparent. This has been the case even way back since Licaros was CB governor.

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