Top conglomerates’ borrowings nearly triple in 5 years, says BSP

MANILA, Philippines - The net debts of 17 of the largest Philippine corporates nearly tripled from 2008 to the first quarter of 2014, the fastest pace in Southeast Asia, according to studies made by Standard & Poor’s Rating Service (S&P).

The 17 companies, all listed at the Philippine Stock Exchange (PSE), are among the country’ leading conglomerates.

S&P managing director Michael Seewald noted that over the past few years, revenues have been thinning while debt growth have been expanding.

Of the 17 companies, five are overly leveraged (more debt) while only four are among the least exposed to huge debts. Those with large debts often use the funds for spending or acquisitions, while those with lower debts have conservative balance sheets with moderate to low debt levels.

However, S&P said it expects credit quality to decline further over the next 12 months.

“We see no sign of a slowdown in spending as Philippine companies continue to invest,” Xavier Jean, S&P director for corporate ratings in Asia Pacific, said in a press briefing yesterday.

Jean added that the 17 Philippine companies are expanding at an aggressive pace that most have no other recourse than engage in mergers and acquisitions (M&A) outside of the domestic market.

“We expect mergers and acquisitions to pick up in the country in the next one to two years as large and profitable domestic investment opportunities become more difficult to find,” he said.

That is particularly true for conglomerates linked with major banks.

“It can work as long as the country’s financial sector are behind the huge debts incurred by the companies,” he said, adding that the cost of credit has remained broadly at the low level of 2008.

It was estimated that these companies have invested at least $300 billion or roughly $3 billion each over time.