Small CP market an obstacle to foreign investments – Citi

MANILA, Philippines - A relatively small private sector commercial paper market is hindering the entry of more foreign investments in the Philippines, a recently released Citi bond market guide noted.

“The Philippine market is predominantly composed of government securities (81 percent of the market’s total outstanding). The private sector commercial paper market is small, presenting many obstacles to foreign investors,” the Citi report, titled “Market Infrastructure Development Impacting Asian Bond Markets,” said.

But the report was also quick to point out that the development of the euro-peso bond market for foreign issuers, however, has generated interest.

It also took note of the Philippines’ bond tax regime.

“Under the Tax Code of 1997, income tax exemption is granted to sovereign entities from bond investments in the Philippines. On Nov.7, 2012, the Bureau of Internal Revenue (BIR) issued a revenue regulation to reiterate and clarify existing rules on the tax treatment of financial instruments and related transactions,” it said.

Moreso, Citi said the Philippines is basically looking to the capital markets to help finance its infrastructure funding needs.

The government, it noted, is working with the World Bank and its private sector arm, the International Finance Corp., to create instruments that matched funds to infrastructure requirements as well as tapping private infrastructure funds.

To help industry participants navigate the rapidly changing Asian fixed income landscape, Citi came up with the new bond market guide.

David Russell, regional head Asia Pacific for Citi securities and fund services, said with an increasingly diverse community of active issuers and investor participants, the Asian bond markets are expanding rapidly and are expected to remain strong throughout the year.

“As a global top tier custody and clearing provider, Citi offers unique insights to help clients establish an efficient and scalable process to access the rapidly developing Asia Pacific bond markets,” he said.