PH dollar bonds lacking attributes, says law firm

MANILA, Philippines–Philippine companies’ dollar bonds will have to be made more palatable to foreign investors if the private sector is to continue enjoying access to financing amid tightening monetary conditions.

According to  multinational law firm Latham & Watkins, which lists corporate finance as one of its areas of expertise, dollar bonds issued by local corporates still lack many features that have become commonplace in international markets.

In a report this week, the firm noted the continued deepening of the Philippines’ debt markets.

Philippine companies were Asia’s third-top dollar borrowers in the last five years, trailing China and Indonesia. Local firms beat out Australian, Indian and Singaporean companies.

Amid this growth, “more standard features of dollar-denominated bonds issued outside the Philippines should begin to infiltrate into the Philippine markets,” Latham & Watkins said.

The firm said many dollar bonds by Philippine firms lack basic features such as optional redemption clauses, and exit clauses in case of ownership changes.

Most bonds also remain unrated by reputable credit agencies.

Local firms have also been hesitant in raising debt from American investors, despite deep economic ties between the Philippines and the United States.

Philippine companies issued $11.4 billion in dollar-denominated bonds in the last five years, Latham & Watkins said. So far, the appetite for these IOUs has been strong, partly attributable to strong global demand for emerging-market securities.

“However, the Philippine bond market is characterized by some terms inconsistent with terms typical for such international bonds,” the firm said.

For instance, local firms tend to favor financial maintenance covenants, which require issuers, as the name suggests, to maintain their financial health based on several metrics.