Massive PH liquidity offers rare chance for firms

Local corporations are facing a rare opportunity to raise funds—whether on the debt or equity side of their balance sheets—at fairly low costs, while would-be investors in these corporate issues face an equally rare chance to receive better returns amid an environment of muted risk.

This is the prevailing view among several bankers, investors, as well as policy makers who believe that prevailing circumstances make the capital markets “extremely attractive” for parties on both the “buy” and “sell” sides.

“In general, there’s so much money in the financial system, and there’s a dearth of investment instruments available to investors. So demand is really strong,” BDO Capital president Eduardo Franciso told the Inquirer in an interview.

The liquidity flooding the Philippines is due in part to the massive amounts of cash sloshing around in the financial system owned by Filipinos who are seeking better investment opportunities.

It is also compounded by foreign funds rushing into the country, attracted by relatively high local yields, and fleeing the extremely low interest regime abroad amid attempts by the US Federal Reserve and the European Central Bank to spur their economies by keeping their borrowing costs at record lows.

According to the latest data from the Bangko Sentral ng Pilipinas, some P1.8 trillion in funds are parked idly and unproductively in its special deposit account (SDA) facility, earning a low gross annual yield of 3.79 percent—which is still significantly higher than the 0.25 percent yield in the United States.

Because of this historically rare situation, many local corporations have taken the opportunity to raise funds from capital markets on both the debt and equity sides.

Real estate developer Vista Land and Lifescapes, for one, is raising P2.5 billion by issuing “homebuilder bondsm” which yield an attractive 5 percent.

On the equity side, publicly listed JTH Davies of businessman Eusebio Tanco announced plans to raise as much as P4.5 billion from sale of 3 billion shares to investors.

Another equity issuer, Tanduay Holdings—the newly reorganized flagship firm of the Lucio Tan group—will sell approximately 3 billion shares to comply with the Philippine Stock Exchange’s free float rule, in a deal that could be worth as much as P37 billion based on prevailing market prices.

Even a government housing agency, the National Home Mortgage Finance Corp., has joined the bandwagon, recently selling over P600 million in bonds to retail creditors.

This phenomenon has also manifested itself overseas, with Bloomberg News reporting over the weekend that corporate bond sales around the world in August hit a total of $237 billion—the highest ever recorded for the month.

“Many corporates are taking this opportunity to borrow,” Francisco explained. “If you believe in the Philippines’ growth story, this is a good strategy. If you believe the peso will appreciate, then investing in peso assets makes sense.”

“The name of the game for both issuers and investors nowadays is yield, regardless of whether we’re talking about debt or equity securities,” said HSBC Philippines senior vice president and country treasurer Wick Veloso.

Many of the bank’s clients have, for some time now, been clamoring for better investment yields from securities with relatively low-risk profiles, he explained.

At present, both Veloso and Francisco are in the process of selling to their clients preferred shares of diversified conglomerate San Miguel Corp.—a local issue potentially worth as much as P80 billion.

At an issue price of P75 apiece, the preferred shares are being marketed to both corporate and retail buyers.

“For investors, they should consider medium-term investment assets in the 5-, 7- and 10-year area that provide good returns,” the HSBC treasurer added.

Veloso and Francisco have, of course, an interest in pushing corporate bonds, as both their firms are underwriters of the SMC preferred shares.

But the head of the BSP—who needs to make no such push—broadly agrees with the bankers’ views.

“The view is interest rates will likely remain low globally, so picking up some good fixed income investments now can potentially yield you capital gains,” BSP Governor Amando Tetangco Jr. told the Inquirer, when asked about potential investment strategies. “But this really depends on your risk appetite.”