ADB sees ‘Build’ program boosting PH corporate bond market

Philippine infrastructure stock photo. INQUIRER.NET

The Manila-based multilateral lender Asian Development Bank (ADB) is bullish about prospects in the domestic corporate bond market as real estate firms participate in the Duterte administration’s ambitious “Build, Build, Build” program.

In a statement Monday, the ADB welcomed financing company AEON Credit Service (Philippines) Inc.’s P1-billion bond issuance, which was issued under the Asean+3 Multi-Currency Bond Issuance Framework (Ambif) and guaranteed by the Credit Guarantee and Investment Facility (CGIF).

AEON Philippines’ bond issuance was offered in two tranches maturing in 2021 and 2023, with the money raised to be used “to provide tricycle loans and personal loans, as well as financial services for the purchase of consumer products such as home appliances, furniture, electronics, and other consumer products, focusing particularly on the unbanked population and those with limited access to financial services,” the ADB said.

AEON Philippines is a subsidiary of AEON Group of Companies via Japan-based bank holding firm AEON Financial Service Co. Ltd.

“We hope that this pilot bond will pave the way for similar bond issues going forward. Vibrant local currency bond markets provide valuable alternative sources of funding for companies while borrowing in local rather than foreign currencies strengthens the overall stability of the domestic financial sector,” ADB chief economist Yasuyuki Sawada said.

“We welcome the first CGIF-guaranteed Ambif bond in the Philippines. The issuance not only supports the development of the Philippine bond market but also Asean’s efforts toward financial integration,” Commissioner Ephyro Luis B. Amatong of the Securities and Exchange Commission (SEC) was quoted by the ADB as saying.

According to the ADB, AEON Philippines’ bond sale was the third CGIF-guaranteed issuance in the country, following those by AP Renewables (the first climate project bond in Asia) as well as ASA Philippines Foundation (the first guarantee support for a local currency microfinance bond in the region).

At present, the ADB noted that “the size of the Philippines’ bond market is relative small as compared to other markets in the region, while the number of companies accessing the bond market is also limited.”

But moving forward, “the local currency bond market  has a potential to expand to support fund-raising activities of real sector, and finance infrastructure projects of the government, particularly projects under the ‘Build, Build, Build’ program, which the government is expected to spend between P8-9 trillion from 2017-2022,” the ADB said.

Under “Build, Build, Build,” the government plans to rollout 75 “game-changing” projects, with about half targeted to be finished within President Duterte’s term, alongside spending a total of over P8 trillion on hard and modern infrastructure until 2022 to usher in “the golden age of infrastructure.”

According to the ADB, “we are hoping to have more bond issuances under the Ambif framework and guaranteed by CGIF.”

“As part of the Asian Bond Markets Initiative (Abmi), the ADB and the CGIF work closely together to support local currency bond market development in the region, particularly in emerging and frontier markets,” it added.

In 2003, the governments of Asean, China, Japan and South Korea launched the Abmi “to boost the development of local currency bond markets,” the ADB noted.

“The Abmi aims to address the double mismatch problem, [in effect], too much reliance on short-term foreign currency funding, by promoting local currency bonds. This was an important lesson from the Asian currency crisis in 1997-1998,” according to the ADB.

The CGIF was established by the Abmi, with the ADB serving as the initiative’s secretariat.

“One of the key initiatives of the Abmi and the CGIF is to support local currency bond market development in the region, particularly in emerging and frontier markets. The role of the CGIF is very important in building trust and creating investors’ confidence, especially in markets where bond market is just starting and number of investors is limited. As markets develop, issuers will be able to raise funds in local currency across the region to expand their operations, paving the way for more integrated financial markets in Asean+3,” the ADB said. /cbb