MANILA, Philippines—Global banking giant Citigroup sees Philippine corporations increasingly turning to the overseas capital markets to fund expansion plans, likewise taking advantage of the upbeat sentiment to diversify their investor base.
“We’re seeing a paradigm shift, wherein tapping international capital markets is becoming an increasingly attractive alternative to domestic issuance. In the process, corporations are able to truly diversify their investor base and save domestic SBL (single borrower’s limit) capacity for bilateral loan facilities,” Citi Philippines corporate banking head Usman Ahmed said in an interview with the Inquirer.
The SBL—often cited as a constraint to local borrowings among top-tier local corporations although acknowledged a prudent measure against overexposure—refers to the cap on lending, credit accommodations and guarantees that a bank may provide to any single institution. The SBL cap is set at 25 percent of the lender’s net worth although a separate 25-percent SBL has been set aside for undertaking infrastructure or development projects under the government’s public-private partnership program.
Ahmed, who also heads Citi’s global Islamic banking for Asia, said the favorable Philippine economic story was providing more bases to raise funds in US dollars, such as for onshore capital spending with foreign currency component as well as for overseas expansion by Philippine companies.
Apart from the conducive interest rate environment for US dollars, positive market reception has also driven dollar bond pricing for Philippine corporations to all-time lows, citing the success of recent corporate debt deals out of the Philippines.
Historically, he noted that about 30-40 percent of offshore debt deals would be taken up by local investors. “When we did the $500-million SM Investments Corp. bond issue in October 2012, the participation of international investors was remarkable—almost 90 percent of the issue size. This shift was not driven by a lack of appetite from the local market, but rather the overwhelming demand from off-shore investors from Asia and Europe,” he said. The order book for the SMIC debt offer exceeded $3 billion.