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Philippines: Peso bond issuances drop 12%
MANILA, Philippines — Private companies relied more on foreign currency (FCY) bonds for their financing needs last year, reducing their exposure to the local currency (LCY) bond market.
In a report, the Department of Finance (DOF) said corporate LCY bond issues fell by nearly 12 percent to P1.42 trillion last year from P1.61 trillion in 2020, and also lower than the pre-pandemic total of P1.5 trillion in 2019.
DOF chief economist Gil Beltran said this brought down the economic share of corporate LCY bonds to 7.3 percent from nine percent a year earlier.
He said companies opted instead to access the FCY bond market to raise their financing requirements during the second year of the pandemic.
As such, FCY bonds traded by the private sector spiked by over half to $22.9 billion from $14.6 billion on a yearly basis. Also, FCY bonds, when measured against the economy, went up to six percent, closing the gap on the share of LCY bonds to gross domestic product (GDP).
Despite the drop, Beltran said LCY bonds issued by corporations improved when compared to 20 years ago, when the share of such financial instruments stood at a mere 0.1 percent of GDP.
“Whereas corporations relied more on FCY bonds for additional financing requirements until the first few years of the new millennium, the country’s strengthened macroeconomic fundamentals thereafter enhanced the business environment for issuing LCY bonds,” he said.
The DOF executive added that private firms managed to diversify their risks in the past two decades by maximizing the use of LCY bonds and reducing their dependence on FCY bonds.
Beltran said he expects corporations to return to the domestic market for their financing needs as they may require additional resources to grow along with the economy. The economy is projected to expand by seven to nine percent this year, then six to seven percent in 2023 and 2024.
He said the passage of amendments to the Foreign Investments Act and the Retail Trade Liberalization Act would compel investors to raise funds for new and expansion projects. He also said the revised Public Service Act, once signed into law, will contribute to the recovery of the LCY bond market.
The country’s LCY bond portfolio recorded a 14 percent increase to P9.79 trillion last year, from P8.57 trillion in 2020, on double-digit jump in government and central bank issuances.
The government made up close to 83 percent of the debt book at P8.11 trillion, while the private sector and the central bank accounted for 17 percent at P1.42 trillion and P260 billion, respectively.
Source: https://www.philstar.com/business/2022/03/10/2166125/peso-bond-issuances-drop-12