Corporate peso bonds slip 2% to P1.5 trillion in H1

MANILA, Philippines — The local currency (LCY) corporate bond market slid by nearly two percent to P1.5 trillion in the first semester, but the Department of Finance (DOF) expects a rebound on the passage of economic reforms pending in Congress.

According to AsianBondsOnline, LCY corporate bonds accounted for over 16 percent of the LCY bond market in the Philippines.

Based on DOF computations, the LCY corporate bond market makes up 8.2 percent of the economy, a drop from the nine percent recorded at the close of last year.

Despite the decline, Finance Undersecretary and chief economist Gil Beltran said the market expanded as it accounted for only 4.1 percent in 2010 and even 0.2 percent in 2000.

“Practically miniscule 20 years ago, the Philippine LCY bond market has grown sizably. In many ways, ability to issue LCY bonds is a reflection of investor confidence in the economy,” Beltran said in an economic bulletin.

Beltran also said the legislation of the Capital Market Development Act would improve the demand for financial securities, but warned the measure can only do so much in pulling new investments into the Philippines.

“The greater issuance of these (corporate) securities, however, will depend on the sustainability of economic growth and efficiencies in the financial markets,” Beltran said.

The Capital Market Development Act, approved by the House of Representatives in June, seeks to set up a Capital Market Development Council that comes up with a blueprint every five years on the policies, programs, and reforms that need to be undertaken for the capital market.

Beltran said the measure should be coupled with the passage of amendments to the Foreign Investments Act of 1991, the 85-year-old Public Service Act and the Retail Trade Liberalization Act of 2000. He said proposals to change these laws would expand the participation of foreigners in select industries by lifting ownership restrictions.

Also, the finance official urged for the passage of the Passive Income and Financial Intermediary Taxation Act (PIFITA), noting that this would escalate the competitiveness of financial markets by rearranging the fiscal structure.

The final package of the administration’s comprehensive tax reform program, PIFITA will simplify and, in the process, minimize the number of tax rates for passive income, financial services and transactions to 36 from 80.

The measure also proposes to set a unified rate of 15 percent tax on interest income, dividends and capital gains.