Local corporations are seen tapping more offshore bond deals, strategic hedging tools and “green” bonds in 2020 as capital markets will likely remain conducive to those with big-ticket funding requirements, ING Philippines chief executive officer Hans Sicat said.
“We think there will be continued fund-raising for the simple reason that there’s a lot of continued activity being driven not just by the government infrastructure program but also by some of the private sector transactions,” Sicat said in an interview with the Inquirer.
“We also saw this in the last quarter when suddenly, there was a flurry of bond fund-raising, and the banks themselves, and we’re happy to be one the underwriters for many of our friendly banks,” Sicat said.
Asked which sectors would likely be active in the capital market next year, Sicat said any entity involved in infrastructure would likely be among the big issuers, particularly the conglomerates that were already building huge projects. Whether using straight loans or various capital market formats, Sicat said he expected more of these big conglomerates to be active in the financial markets.
“Outside of cross currency and interest rate swap deals, there’s beginning to be strategic hedging going on depending on your view on interest rates, depending on your view of currency exposure and some of these have to do with positioning the corporates’ balance sheet in terms of optimizing it. We think this will continue next year as well,” he said.
By employing hedging tools, these conglomerates are seen to better manage risks.
In terms of capital market instruments, Sicat sees more corporations issuing green and sustainable bond type formats.
Green bonds are similar to traditional bonds in terms of deal structure, but they have different requirements for reporting, auditing and proceeds allocations.
The Association of Southeast Asian Nations (Asean) “green” bonds, for instance, refer to bonds and sukuk that comply with a framework wherein the proceeds will be exclusively applied to fund eligible green projects. These include renewable energy, energy efficiency, pollution prevention and control, environmentally sustainable management of living natural resources and land use, clean transportation, climate change adaptation and green buildings.
More corporations are beginning to appreciate green bonds “from a funding diversification type of argument,” Sicat said.
“We also think, by the way, that despite the fund-raising done by the banks and the liquidity of the local banking sector on some of these large projects, they will be forced to do some hard currency instruments because we don’t think that you can fund everything in the peso market just because of the expected demand,” Sicat said.
“In the first game, everyone will still maximize peso (bond) level but as you get up the curve, there will be some foreign currency (deals),” he said.
As the issuance of foreign currency-denominated instruments could increase foreign exchange risk over time, Sicat said this would be where hedging comes into play.
On the macroeconomic front, Sicat sees the Philippine economy growing by 6-6.5 percent next year, supported by public and private sector spending. Doris Dumlao-Abadilla