Leading global private equity fund bullish on Philippines

MANILA, Philippines — Leading global private equity firm Warburg Pincus is bullish about the recovery of the Philippines from the pandemic-induced recession and is ready to pump in more investments in the country.

Saurabh Agarwal, managing director at Warburg Pincus, told participants of the 53rd Annual Conference of the Financial Executives Institute of the Philippines (FINEX) the Philippines may rebound strongly after slipping into recession last year due to the pandemic.

The New York-based private equity fund sees the Philippines’ gross domestic product (GDP) expanding by 4.3 percent this year, 5.1 percent next year, and 6.6 percent in 2023 after shrinking by 9.6 percent last year as the economy stalled when the country imposed the longest and strictest lockdown in the world.

While the outlook may appear grim to many, Agarwal said Warburg Pincus strongly believes that the pandemic would be more of a short term drag and things would improve meaningfully once vaccines are deployed and scaled, paving the way for a full recovery to pre-COVID level by 2023.

“In our view, the long term fundamentals of the Philippines remain largely intact. We expect the Philippines to significantly rebound and resume its strong growth path of over five percent, which would continue to set it apart among other economies in a relatively slow growth world,” he said.

Agarwal said the government has provided supportive fiscal policy, while the Bangko Sentral ng Pilipinas (BSP) has maintained an accommodative policy stance as the benchmark interest rate has been maintained at a record low of two percent to allow the economic recovery to gain more traction.

He also said the Philippines is a priority market for Warburg Pincus because it is the second largest country in Southeast Asia with a population of 110 million and a favorable demographics as 70 percent are under age 40.

Furthermore, he said the Philippines has the highest private consumption in the region with 75 percent of GDP and has a fast real GDP compound annual growth rate of 5.9 percent from 2021 to 2023.

Founded in 1966, Warburg Pincus has raised 19 private equity funds, which have invested more than $94 billion in over 940 companies in more than 40 countries.

It is one of the most active private equity firms in Southeast Asia, with funds of up to $3 billion since it entered the region in 2013 and opened an office in Singapore in 2019.

In the Philippines, Warburg Pincus, through Coherent Cloud Investments BV, invested $225 million for a 29 percent interest in Converge ICT Solutions Inc. of Dennis Anthony Uy in 2019.

Converge raised $600 million through an initial public offering in October last year, the largest IPO in the Philippines at the time of the listing and the largest broadband IPO in Southeast Asia.

While the global health crisis has not altered the fundamental investment philosophy of Warburg Pincus, he said the pandemic has created some unique investment opportunities in countries, including the Philippines.

“The Philippines is significantly underpenetrated across all major financial products. About 70 percent of the population is unbanked, only a few have access to formal loans, and very few have access to credit cards, or insurance,” he said.

Against this backdrop, the private equity firm is seeing an accelerated adoption of financial technology products, resulting in a strong opportunity in the new economy, financial services, with the rise of electronic wallets, digital banks and digital wealth management.

“The digital economy is beginning to reach an inflection point across emerging Southeast Asia, including the Philippines, as customers shift their consumption toward online channels.”