Corporate debt surges 45% to P470 B in 2010

MANILA, Philippines - Total debt issuances of private corporations surged 45 percent last year as companies took advantage of low-fixed interest rates and to raise funds to prepay maturing financial obligations, industry data showed.

Data showed that total corporate issuances in both foreign and local currency debt reached P470 billion last year or about P150 billion more than the P320 billion issued in 2009. Of the total amount, about 60 percent was denominated in foreign currency while 40 percent was denominated in local currency and placed in the domestic debt capital market.

Foreign currency denominated debt issuances by local companies jumped by 377 percent to $6.2 billion last year from $1.3 billion in 2009 due to the re-opening of the offshore debt markets early last year after closing down in 2008 and 2009 due to the global financial crisis and due to increased appetite from foreign investors for emerging market issuers including Philippine corporations.

On the other hand, peso-denominated issuances fell 24 percent to about P200 billion in 2010 from P263 billion in 2009 as most corporate borrowers preferred to issue privately placed debt instead of issuing corporate bonds.

First Metro Investments Corp. executive director Carmelo Maria Bautista said the corporate debt market this year would be characterised by the refinancing of debt maturities as well as accelerated refinancing of maturing debt obligations beyond this year to take advantage of the low fixed interest rates.

Bautista also said there would be an increase in corporate bond issuances through private placements this year particularly large Philippine conglomerates that are near the single borrower’s limit set by the Bangko Sentral ng Pilipinas (BSP).

She pointed out that large conglomerates hitting the SBL prompted companies to consider US dollar denominated debt issuances offshore.

Last August, the BSP’s Monetary Board eased the current limitations on lending for single borrowers undertaking major infrastructure projects under the Aquino administration’s PPP program. The BSP authorized a separate single borrower’s limit of 25 percent specifically for much needed infrastructure projects under the PPP scheme.

At the moment, the BSP restricts each bank’s exposure to a single borrower to only 25 percent of its capital.

However, President Aquino said that a bank could now lend as much as 25 percent of its equity to a project under the PPP as certified by the National Economic and Development Authority (NEDA) after monetary authorities agreed to issue a separate cap on lending for infrastructure projects to encourage diversified conglomerates to bankroll priority projects of the Aquino government.

Furthermore, the FMIC official said there would be a strong demand particularly among banks for any agri-agra eligible debt paper this year due to the issuances of the implementing rules and regulations of BSP Circular 10000 or the Revised Agri-agra Law.

Bautista added that offshore US dollar denominated debt would probably normalize this year because of the extraordinary surge this year.