What does one do with an idle stash of US dollars, whether it be a big pile or a small amount?
Perhaps one is fortunate enough to have savings denominated in the “greenback” courtesy of having worked overseas. Or maybe one is a beneficiary of an overseas Filipino worker who regularly remits home a steady stream of foreign currency.
So how does one use that money? Does one simply spend it? Does one just leave it in a dollar savings account where the interest income is almost nonexistent? Or does one invest the money in a dollar-denominated bond or equity fund managed by an insurance firm or bank? That’s a good option.
BDO Capital and Investment Corp. president Ed Francisco has a better idea.
“Dollar-denominated securities, specifically equities, might be a better option for you, depending on your investment profile and goals,” he told the Inquirer in an interview. “In this case, we’re offering you an investment instrument that is secure, offers very good yields and can accommodate retail investors.”
He was, of course, talking about the preferred shares offered by publicly listed Del Monte Pacific Ltd. that BDO Capital structured, shepherded through the country’s regulatory maze, and finally opened recently to the investing public— all $150 million worth.
The instrument is the first of its kind for the Philippines’ investment scene which, though accustomed to selling preferred shares to both corporate and retail buyers, has never sold such a security denominated in dollars before.
Preferred shares refer to a class of equity that take priority over common shares in terms of receiving dividends from the company. In fact, regular dividend payments are guaranteed by the issuing firm (in exchange for the holder of the shares foregoing his voting rights) giving preferred shares the same behavior as bonds.
“We thought to ourselves: there’s so much dollar liquidity in this country, thanks to OFW remittances. And they’re just sitting idly in bank accounts. Why don’t we tap that?” Francisco said, explaining that there are currently $32 billion worth of funds just sitting in the foreign currency deposit units of local banks.
“If you have a dollar account with banks, that’s probably just sitting there, not making much money,” he said. “But if you want to make that money work for you by buying dollar equities or bonds, you’ll have to go to a private banker.”
The catch is that private bankers do offer there services, but only to the very well heeled. So unless you have several million dollars in your account, any private banker will not give you his time of day.
“That’s why this instrument is perfect for the millions of Filipinos who are benefiting from OFW remittances,” the BDO Capital chief said. “You just need a minimum of $10,000 to invest in it. Not millions of dollars.”
At a dividend yield of 6.625 percent per annum, payable semiannually, the instrument is a good alternative for investors looking for better dollar interest payouts (in this case, even better than some peso-denominated securities).
Del Monte may redeem the shares on the fifth year. But in case it decides not to, the dividend rate will be raised by 250 basis points over the 10-year US Treasury bond rate prevailing at that time.
Scheduled for listing on the Philippine Stock Exchange on April 7, Del Monte Pacific—the Campos family-owned firm which runs the world’s largest pineapple plantation in Mindanao, and markets its products internationally—is raising the money to fund its expansion program.
But unlike Philippine companies which, almost three decades ago, borrowed cheaply in dollars only to see their debt levels double overnight with the onset of the 1997 East Asian financial crisis, Del Monte is protected from such currency risks.
The firm sells most of its products overseas, giving it a dollar-denominated revenue stream, and ensuring that its debt levels remain the same regardless of the daily fluctuations of the peso-dollar exchange rate.
“It makes perfect sense for them to borrow in dollars because they sell their products in dollars,” Francisco said, explaining that this matching of currencies for Del Monte’s borrowings and earnings meant a more secure investment for the buyers of the preferred shares—unlike in the late 1990s when Filipino firms had trouble paying their dollar debts because it suddenly cost them double in peso terms virtually overnight.
“We are excited to bring this product to the Filipino investors,” Del Monte Pacific president Luis Alejandro said. “Our company is a Filipino success story, and we want to share it with our countrymen through this pioneering investment.”
But for BDO Capital’s Francisco, the nearly three years it took to bring the dollar-denominated preferred shares to the market from the time it was conceived is just the beginning.
He envisions a time when local retail investors will be able to buy and sell dollar-denominated securities issued by local companies just as easily as they do with peso-denominated stocks or bonds.
“Hopefully, this will start the ball rolling for our market,” Francisco said. “We have a lot of dollars in the Philippines and, before this, only wealthy individuals and large corporations can make their dollar savings grow.”
“We are democratizing this,” he declared. “We want everyone to be able to participate in the upside.”