Interview: Roberto Juanchito Dispo
What is supporting the current trend towards increased corporate activity in the capital markets?
ROBERTO JUANCHITO DISPO: The macroeconomic factors of the country continue to be fairly stable and positive. Market sentiment is being fuelled by ample liquidity in the system, low interest rates, relatively benign inflation and stable exchange rates. All of these elements underpin the development of the capital markets in the country.
While public issuances continue to dwarf corporate issues, 2010 saw a record level of corporate activity in the markets, a feat that lays the foundation for a growing corporate presence. The Philippine government has been blazing the trail for the private sector by successfully issuing relatively innovative financial instruments, such as retail bonds. This has led to an uptick in corporations that are following suit and issuing their own corporate retail bonds, allowing these companies access to additional capital as opposed to relying on financing from banks, which has traditionally dominated the market. Considering the limits imposed by the Bangko Sentral on how much corporations can borrow, this trend is especially relevant as the funding requirements of corporations continue to increase.
The government has also paved the way for the lengthening of the maturities of financial instruments by setting a precedent with their own issuances. While in the past, the government issued only treasury bills of limited length, the last few years have seen a trending towards longer issuances. Recently this culminated in the first-time issue of a benchmark 25-year bond, which interestingly enough is currently the most actively traded bond on the market. This has underpinned the extension and stretching of private sector transactions as well, particularly project finance.
Banks in the Philippines are becoming more accustomed to and familiar with longer-dated project finance transactions, and they are increasingly becoming more comfortable with providing financing for projects with longer maturity financing. Likewise, banks that are active in large-scale infrastructure project financing are allocating more of their resources to these types of projects. This lengthening trend is expected to persist, as both the public sector and the private sector would like to see the deepening of the capital markets.
How can the Philippines support the development of an active secondary market for corporate issues?
DISPO: The main initiative is the development of the Philippine Dealing & Exchange System (PDEx), a self-regulatory organisation whose main responsibility is to support the growth of the secondary capital markets. PDEx is encouraging the listing of corporate issuances to provide for active two-way quotes and a viable bid and offer market. The platform provides secondary market participants the place to trade, load, buy or liquidate their corporate holdings. PDEx remains in its infancy, and many corporate issuers are yet to understand the benefits of listing on the exchange. However, the leading companies are increasingly utilising the exchange, and it is hoped this will lead to more listing and rising activity in the secondary market.
What can be done to expand access to capital markets for small and medium-sized enterprises (SMEs) and other non-traditional companies?
DISPO: The corporate issuance space is continually dominated by six or seven flagship conglomerates. Thus it is important for organisations in the Philippines to actively identify and support new names that would benefit from access to the mainstream capital markets. If past issuances are indicative, SMEs that are able to successfully launch their first corporate issues benefit greatly from the access to capital and often return for secondary offers. These opportunities are important for SMEs and non-traditional companies as they offer vital financing for expansion and diversification. Crucially, this access enables these enterprises to further participate in and contribute to the county’s economic growth. Such efforts are especially relevant for the relatively untapped markets outside of Metro Manila.
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