Time for PH to shine, says Citi

The Philippines has come of age as a vibrant marketplace for capital-raising as well as merger and acquisition (M&A) deals, even as global investment appetite has been tempered by the eurozone crisis, a top regional official of Citigroup said.

Hong Kong-based Farhan Faruqui, head of global banking for Asia-Pacific at Citi, said in a recent interview with the Inquirer that cross-border M&A deals as an indicator of investment had significantly dropped globally because of the lingering uncertainties in Europe and the United States.

“But if you look at intra-Asia—Asian companies investing in the region—that’s a record high within Asia. It’s resilient. We’ve had a record year so far. So a lot of that (cautiousness by the West) is being replaced by Asian interest,” Faruqui said.

Asia’s share of global M&A doubled from 10 percent to 20 percent in the last five years, Faruqui noted.

Exciting time

He said that it is an “exciting time” for the Philippines, in particular, noting that the level of activity from capital raising and M&A was holding up well.

“When I travel across the region, the Philippines is increasingly on the agenda. We are seeing strong interest from our clients looking to find an appropriate entry point into the country. There are so many areas of activity where clients can enter—whether it is through investment in local firms or partnerships. We see clients looking at setting up a new business or to buy something,” Faruqui said.

“The Philippines has certainly attracted a lot of attention among international corporates. A lot of people are recognizing that if you’re in the region looking for business, this is the place to be,” he said.

Citi, which is celebrating its 200th year this year, is the leading M&A advisor in Asia-Pacific based on year-to-date volume of deals announced. It ranks second in terms of equity deals arranged and third-largest in debt underwriting.

Given global trends toward urbanization, the bank aims to serve current and emerging urban centers and is focused on supporting the world’s top 150 cities.

“Obviously, the fact that many parts of the world are slowing down helps in the sense that it singles out the Philippines as a very resilient economy. There are a lot of reasons to come here,” Faruqui said.

The banker noted the big opportunities in Philippine infrastructure and real estate.

Once the mining framework in the country becomes clearer, he said this could be another magnet for investments.

Infrastructure

“The way I define infrastructure is really progress. It’s not just a new road or power plant. It is also the perception of foreign investors to taxation, courts and rule of law and there has been progress across all these areas,” he said.

Faruqui also sees the Philippine business process outsourcing industry moving to the higher value-added knowledge process outsourcing on the back of strong education and language skills.

“Despite some political controversies and other challenges, broadly the mood is very upbeat. It’s basically the time for the Philippines to shine,” Faruqui said.

The power sector is also expected to attract a lot of new investments from both foreign and local players, whether to install new capacity or expand existing ones, said Usman Ahmed, Citigroup corporate and investment banking head for the Philippines.

While a lot of the optimism had been driven by the economic policies of the Aquino administration, particularly on fiscal management, Faruqui said credit should also go to the local private sector for prudent management of businesses.

And even if the financial system is awash in liquidity, the local private sector is seen very conscious about sticking to core strategies when expanding.

Remittances

Domestic consumption is likewise seen being buoyed by remittances, which have likewise held up despite the economic uncertainties in developed markets.

“Remittances haven’t dropped and all signs point to foreign direct investments increasing this year,” Faruqui said.

But heightened interest among foreign investors will not necessarily push local players to the sidelines.

“I think everybody is cautious in paying the right value. We don’t necessarily see a situation of price war in buying these assets,” Ahmed said.

Ahmed added that for foreign companies, “they have seen that the local capital market has been quite resilient, so they are able to access funding domestically at very competitive rates.”

Asked whether he thought Philippine assets were still reasonably priced, Faruqui said: “Relative to many other economies, I don’t think there’s an asset price bubble here. Obviously things to watch are unemployment, consumption levels, inflation—all areas which the government is watching every day,” he said.