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Rising interest rates no problem for Philippine property stock traders

THE most aggressive interest rate tightening in the Philippines in 18 years has yet to shake the faith of local money managers in the nation’s property stocks.
Traders at Security Bank Corp. and ATR Asset Management, Inc. are sticking with their overweight position for the sector, even as the central bank has jacked up policy rates by 150 basis points over four months. SM Prime Holdings, Inc. and Ayala Land, Inc. are among preferred builders on bets the tightening will not lead to a jump in mortgage rates and discourage home buyers.
“Favoring property stocks at a time of rising interest rates seems a paradox,” said Noel Reyes, who helps manage $1 billion as chief investment officer at Security Bank. “But this is an extraordinary situation since foreign inflows are helping drive residential sales and office leasing. The weaker peso has given foreigners and overseas Filipinos the firepower to buy property.”
Chinese buyers, foreigners and families of overseas Filipinos have been a driving force for the market: SM Prime, the biggest home builder by market value and largest mall owner, sourced 80 percent of its first-half reservation sales from the two latter groups. And most of the offshore online gaming licenses issued by the Philippines since President Rodrigo Duterte assumed office two years ago went to investors catering to gamblers from the mainland.
As a result, home-reservation sales jumped 23% to P215 billion ($4 billion) in the first half of the year for the nation’s six biggest developers, AP Securities, Inc. data show. Developers listed on the Philippine exchange delivered 16% growth in second-quarter earnings, one of the best sectors, according to data compiled by Bloomberg based on median income growth results from the companies.
While that’s not prevented the sector’s shares from falling, it’s certainly helped. The Philippine Stock Exchange Property Index has fallen 9% this year, less than the 15% plunge in the nation’s benchmark equity gauge.
The competition among banks is another reason to stay overweight property stocks, according to Julian Tarrobago, who helps manage $1.8 billion as head of equities at ATR Asset Management.
“It’s too early to be afraid that this increase in policy rates will adversely impact affordability when it comes to mortgages,” Mr. Tarrobago said. “It takes time for borrowing costs to reflect the adjustment in full, and banks can’t quickly raise mortgages because the environment is very competitive.”
So far, there are no signs that the central bank’s rate adjustments will throw off the property market or that growth is plateauing, according to Richard Laneda, an analyst at COL Financial Group, Inc. who has a buy rating on the six builders he covers.
“We still expect at least two more quarters of strong take-up sales growth and strong earnings,” Mr. Laneda said. “Many major developers are also building up their leasing assets, so the impact of slower residential will not be as bad as in the previous down cycle.” — Bloomberg

Osmanthus to buy 15% stake in BDO’s One Network Bank

BDO Unibank, Inc. has entered into an agreement with a Singaporean investment firm allowing the latter to acquire a minority share of its rural banking subsidiary.
In a disclosure to the local bourse on Monday, the Sy-led BDO said Singapore-based equity company Osmanthus Investment Holdings Pte. Ltd. (Singapore) is set to acquire a 15% stake in the local lender’s rural banking arm One Network Bank, Inc. (ONB), subject to closing conditions and regulatory approvals.
“The partnership with Osmanthus will further strengthen ONB’s strategic foothold in the microfinance business and contribute to the government’s efforts at improving financial inclusion,” BDO said.
It added that the deal with the equity firm is expected to accelerate the ONB’s thrust to tap the micro, small and medium enterprise (MSME) segment and extend coverage of the unbanked and underserved markets.
Likewise, BDO will retain the controlling stake or 85% ownership in the savings bank.
Osmanthus is a unit of Singaporean private equity firm Archipelago Capital Partners Pte. Ltd. which invests in small- to mid-market firms in Southeast Asia.
Since last year, Osmanthus has been helping ONB develop the framework for its MSME loan business, which led to the establishment of initial test sites before the end of 2017.
“We believe in the vast potential of the MSME market in the Philippines and are committed to help ONB achieve a leading position in serving these customers,” Archipelago Capital Partners Chief Executive Officer Jovasky Pang was quoted as saying in the statement.
“We are also excited by the prospect of having a partner like BDO who shares our vision of financial inclusion.”
BDO completed the acquisition of ONB in July 2015 from the Consunji group.
As of end-March, ONB was the biggest rural bank in the country in asset terms with P27.2 billion, central bank data showed.
The lender operates 120 branches and over 220 automated teller machines, most of which are located in countryside Mindanao.
BDO reported a P13.1-billion net income in the first semester, 1.5% lower than the P13.3 billion it booked a year ago amid lower non-interest gains and bigger operating costs.
Shares in ONB’s parent BDO closed at P120 each on Monday, gaining 20 centavos or 0.20%. — Karl Angelo N. Vidal

UnionBank SRO ‘credit positive’

FRESH CAPITAL raised by the UnionBank of the Philippines bodes well for the lender’s credit rating, Moody’s Investors Service said, noting the additional funding will support brisk lending activity.
The listed lender completed its stock rights offering (SRO) on Friday where it raised P10 billion from the issuance of new shares priced at P62.97 apiece.
In a disclosure, the Aboitiz-led bank said 158.8 million additional common shares have been listed on the Philippine Stock Exchange, which is equivalent to 15% of the bank’s outstanding shares.
“The completed rights issue is credit positive because it will boost UBP’s capital buffers well above Basel III capital rules, while supporting credit growth,” Moody’s said in a report published yesterday.
UnionBank currently holds a “Baa2” rating with a “stable” outlook from the debt watcher, one notch above minimum invest grade to match the Philippine government’s rating.
UnionBank President and Chief Executive Officer Edwin R. Bautista said the fresh capital-raising initiative saw strong demand from retail investors as well as the bank’s existing stockholders, which include sister firms Aboitiz Equity Ventures, Inc. and Insular Life Assurance Co. Ltd. as well as the Social Security System, a state-run pension fund.
UnionBank joined an industry trend for fund-raising initiatives this year ahead of higher capital and liquidity requirements that will kick in January 2019, as the Bangko Sentral ng Pilipinas keeps up with international regulatory standards that promote risk management and sound financial profiles.
According to Moody’s estimates, the latest rights offering will boost the bank’s common equity Tier 1 (CET1) ratio by 220 basis points, bringing the level of high-quality capital at par with other banks and well above the BSP’s standard.
“We expect that the capital raise will be sufficient to support credit growth of about 20% over the next three fiscal years (which end in December 2020), after which the bank’s CET1 ratio will decline to 11%-12% as the growth of risk-weighted assets outpaces the growth of retained earnings,” the debt watcher said.
After three years, UnionBank may need to raise new capital “because its internal capital generation capacity lags credit growth.”
UnionBank’s fresh fund-raising drive would likewise boost its thrust to go more digital, Moody’s said, which is seen to broaden customer reach and increase efficiency. The bank recently adopted blockchain technology to tap rural banks via an interbank information network organized by J.P. Morgan.
Shares of UnionBank closed at P66.60 apiece on Monday, down 40 centavos or 0.60%. — Melissa Luz T. Lopez

Jefferson Airplane band co-founder Marty Balin, 76

LOS ANGELES — Marty Balin, a co-founder of the legendary rock band Jefferson Airplane whose soulful tenor gave the band its distinctive sound, has died at the age of 76, his representative said on Friday.
The guitarist and singer, who co-founded the psychedelic group in San Francisco in 1965, died on Thursday and his wife, Susan Joy Balin, was by his side, spokesman Ryan Romenesko said in a statement. The cause of death was not announced.
Jefferson Starship, the splinter band that Balin also played in for a number of years, paid tribute to their former bandmate on its official Facebook site.
“With heavy hearts, we learn today of the passing of Marty Balin. He was a true talent and inspiration to many. We send his family and friends our deepest condolences,” the group said.
Balin teamed up with guitar player Paul Kantner in San Francisco and the band launched its debut album, Jefferson Airplane Takes Off, in 1966. Kantner died in 2016.
The band, best known for their hits sung by vocalist Grace Slick, including “Somebody to Love” and “White Rabbit,” played at the Woodstock music festival in 1969 and was inducted into the Rock and Roll Hall of Fame in 1996.
Balin also wrote songs like “Volunteers” and “Today” for the band, as well as contributing to hits for Jefferson Starship, including “Runaway” and “Miracles.”
The band went through various line-ups, and Balin left Jefferson Starship in 2008 to focus on a solo career.
Balin had heart surgery in 2016 and in August this year he filed a civil lawsuit for malpractice against a New York City hospital, saying he left the hospital with a damaged tongue and vocal chords.
“Marty and I shared the deepest of love — he often called it Nirvana — and it was. But really, we were all touched by his love. His presence will be within my entire being forever,” Susan Joy Balin said in a statement. — Reuters

Cost of a home in Toronto, Vancouver ‘off the charts’

THE COST of owning a home in Canada is at the highest level in 28 years and likely to get only more onerous as interest rates continue to rise, according to a report from Royal Bank of Canada.
Home ownership costs, including a mortgage, property taxes and utilities, took up 54% of a typical household’s pre-tax income in the second quarter, the Toronto-based bank said in a report on Friday. That’s up from 43% three years ago.
“From overheating to correction to the onset of recovery, we’ve seen pretty much everything in the past three years in Canada’s housing market,” economists at the Toronto-based bank said in the report. “Yet an eye-watering loss of affordability has been a constant.”
Unaffordability is “off the charts” in Vancouver, Toronto and Victoria, with RBC’s index at 88%, 76% and 65% respectively — the highest in records going back to the mid-1980s. The measure uses an aggregate of all housing categories, including single-family detached homes and condos.
While rising prices had been the culprit behind the loss of affordability between 2015 and 2017, mortgage-rate increases accounted for the entire rise in carrying costs over the past year, the bank said. The country’s central bank has risen interest rates four times since July, 2017.
“We expect the Bank of Canada to proceed with further rate hikes that will raise its overnight rate from 1.50 percent currently to 2.25 percent in the first half of 2019,” the report said. “This will keep mortgage rates under upward pressure and boost ownership costs even more across Canada in the period ahead.” — Bloomberg

PT&T appeals ‘erroneous’ fee imposed by NTC

By Denise A. Valdez, Reporter
PHILIPPINE Telegraph and Telephone Corporation (PT&T) has filed a petition with the Court of Appeals (CA), questioning the “erroneous” and “inaccurate” amount of supervision and regulation fee (SRF) imposed on the company by the National Telecommunications Commission (NTC).
“While PTT is required to pay an annual SRF, the amount PT&T is being required to pay under the 28 September 2018 Decision of the NTC is inaccurate for the same was computed by the NTC based on its erroneous assumption of PT&T’s paid-up capital,” the company said in a disclosure to the stock exchange on Monday.
In a Sept. 28 decision, the NTC asked the company to pay a total SRF of P444 million — broken down as P330 million for the period from 2002 to 2015; and P114 million from 2016 to 2017.
The NTC said SRF for the 2002 to 2015 period was based on PT&T’s paid-in capital of P8.712 billion, as computed in a resolution it released on March 31, 2017.
Although it acknowledged that PT&T’s annual reports showed the additional paid-in capital is P2.054 billion, the NTC said it cannot overturn its own decision because the company failed to file an appeal within 15 days from its issuance.
“For (PT&T)’s failure to contest the computation within the time allowed, the Commission deems the basis and resulting computation of (PT&T)’s SRF from 2002 as final and binding,” it said.
Last Feb. 28, PT&T filed an appeal with the NTC to recompute the SRF, almost a year after the resolution was released.
As for the SRF from 2016 to 2017, the NTC said this was based on PT&T’s paid-in capital of P10.766 billion, as indicated in its March 31, 2017 decision.
In a mobile message to BusinessWorld, NTC Deputy Commissioner Edgardo V. Cabarios said: “We stand by our assessment but we will respect the resolution of the courts on the matter.”
PT&T is one of the companies vying for the third telco player slot being auctioned off by the government.
The selection terms for the third player required that participants have no outstanding liability with the NTC as of Oct. 1.
Asked how the latest NTC decision will affect the company’s intentions of joining the bidding, PT&T chief executive officer James G. Velasquez said it should be of no concern, as the restriction is limited to uncontested liabilities. He noted PT&T is fully paid on this aspect.
“As the fee amount in this particular instance is contested, it does not prevent us from bidding as planned,” he told BusinessWorld.
In a statement, Mr. Velasquez said the company has already paid the NTC its uncontested P10.27 million SRF for 2018, and the P20.57 million for its spectrum users fee from 2003 to 2018.
The government plans to name the third telco player by December. The deadline of submission of bids is on Nov. 5.

Microinsurance coverage up

THE Insurance Commission (IC) said the number of Filipinos covered by microinsurance grew further in the first half of the year driven by mutual benefit associations (MBA).
In a statement sent to reporters on Monday, the IC said 36.55 million individuals were covered by microinsurance products as of end-June, up 28.59% from just 28.42 million reported in the same period last year.
“As of end-June this year, the number of individuals covered by some form of microinsurance protection increased to 36.55 million with the mutual benefit associations sector as the consistent frontrunner in terms of number of lives covered and premium production,” Insurance Commissioner Dennis B. Funa was quoted as saying in the statement.
Broken down, the MBA sector covered 21.45 million members and dependents as of end-June, cornering a 58.59% in the total number of individuals covered by microinsurance.
This was followed by the life insurance sector, which covered 11.45 million lives in the first semester, up 37.58% from 8.32 million a year ago.
The non-life insurance sector insured 3.65 million as of end-June, up 29.31% from only 2.82 million lives year-on-year.
In terms of premium production and contributions, an increase of 12.47% was recorded as of end of second quarter this year to P3.71 billion, up from P3.3 billion in the same period last year.
MBAs accounted for 59.3% of the total premium production amounting to P2.2 billion. This was followed by the life insurers with 29.51% or P1.1 billion, and the non-life insurance sector with 11.19% or P415.3 million.
At present, a total of 43 companies composed of 22 MBAs, 11 life insurance firms and nine non-life insurers actively engaged in providing microinsurance products
“The consistent growth in the number of lives insured and premium production demonstrates the effectiveness of the microinsurance scheme in providing insurance solutions to everybody especially to the low-income households,” Mr. Funa added.
In separate interviews, Philippine American Life and General Insurance Co. and Allianz PNB Life Insurance, Inc. have said they are considering to venture into the microinsurance business.
“We are pleased that more insurance companies are expressing their interest in developing new microinsurance products to help narrow the country’s protection gap,” added Mr. Funa. — Karl Angelo N. Vidal

Swiss-Belhotel to manage luxury resort on Samal island

GLOBAL hospitality management chain Swiss-Belhotel International said it will manage a luxury resort in Island Garden City of Samal, northern Davao.
In a statement, the company said it partnered with Luxury Lifestyle Leisure and Resorts Corporation for Swiss-Belresort and Villas Samal, which will have 180 rooms.
Located 18 kilometers away from the Davao International Airport, Samal island is expected to draw both local and foreign tourists.
“We are delighted to be planning to launch a new property on Samal Island, which I am sure will become a major new tourism destination in the Philippines,” Gavin M. Faull, Chairman and President of Swiss-Belhotel International said.
“Swiss-Belresort and Villas Samal Davao will be a truly beautiful property in the northern part of Davao, an eco-friendly resort where guests can unwind in style and enjoy extensive facilities,” he added.
Swiss-Belhotel International currently manages 105 hotels and resorts in Asia, including Indonesia, Malaysia, Vietnam, China, Cambodia and the Philippines. Globally, it has 145 properties in locations such as Australia, New Zealand, the Middle East, and Europe. — Vincent Mariel Galang

City of Dreams to open VR Zone

CITY OF DREAMS Manila will soon introduce a VR zone and food park that puts into spotlight a new generation entertainment. The Garage will bring top of class VR technology operated by Bandai Namco, a leading video game development company from Japan, and a curated selection of food and beverage trucks and trailers. Situated in a 2,714-sq.m. air-conditioned space marked with graffiti artwork and modern industrial interiors, The Garage is designed by award-winning Paris-based creative design agency, Malherbe Design. The new facility promises to deliver a startling realistic experience with virtual reality games combined with food from contemporary food trucks and trailers. In the line-up for games at the VR Zone are: Mario Kart Arcade GP VR, Hospital Escape Terror, and Ski Rodeo. The new facility will offer the resort’s customary free parking spaces.

ICTSI subsidiary expands Honduras terminal

A SUBSIDIARY of International Container Terminal Services, Inc. (ICTSI) recently started operations of a new berth in Puerto Cortes in Honduras.
The Pier 6 facility, operated by Operadora Portuaria Centroamericana S.A. de C.V. (OPC), was inaugurated by Honduran President Juan Orlando Hernandez.
“Pier 6 positions Puerto Cortes to be the leader of the region and the Caribbean,” Mr. Hernandez was quoted a saying during the inauguration.
ICTSI said the $145-million greenfield development represents the first phase of OPC’s expansion in Puerto Cortes. It added 350 meters of quay to the existing 800 meters and depth of 14 meters.
“The expansion work we see today is a clear demonstration of the support we have been getting to help us effectively and efficiently develop and run the terminal,” Enrique K. Razon Jr., ICTSI chairman and president, said.
The company said OPC is currently the only port in the Central America-Four region that can receive the biggest box ships because of its new super post-Panamax cranes. The cranes increased the annual operational capacity of the terminal by 50% to 1.4 million twenty-foot equivalent units (TEUs). — D.A. Valdez

How PSEi member stocks performed — October 1, 2018

Here’s a quick glance at how PSEi stocks fared on Monday, October 1, 2018.

 
Philippine Stock Exchange’s most active stocks by value turnover — October 1, 2018

Piñol signals plans to reshuffle NFA leadership

AGRICULTURE Secretary Emmanuel F. Piñol said that he plans to reorganize the National Food Authority (NFA) in consultation with President Rodrigo R. Duterte and incoming NFA Administrator Rolando Joselito D. Bautista.
In a chance interview on the sidelines of the ASEAN Agriculture Summit 2018, Mr. Piñol said: “I still have to discuss this with the President, then the incoming NFA Administrator. I really believe that NFA should undergo a major reshuffling. There’s got to be a movement of officials, with the emphasis on those who have been long in their posts and to weed out the weaklings.”
Mr. Duterte has said that he wants to appoint retiring Army Commanding General Rolando Joselito D. Bautista as NFA Administrator, to replace Jason L.Y. Aquino.
Under Mr. Aquino’s watch the inventory of NFA rice was allowed to decline, depriving the poor of a source of low-cost rice and forcing them to turn to commercial rice traders selling higher and more expensive grades.
“NFA has to regain its respectability. The only way to do that is to make sure that there are changes. We are not saying that those who are currently in the positions are incompetent or corrupt but in an organization, there has to be a periodic reshuffling and movement of officials,” Mr. Piñol said.
Mr. Piñol said in his speech at the summit that the NFA and the NFA Council disagreed on the mode of importation, which resulted in delayed shipments, which caused prices to rise.
“When you import rice, you have to take in the seasonality of the product,” Mr. Piñol said.
“What happened was the NFA, the agency and the council which is supposed to be composed of 14 wise men, disagreed on the mode of importation, and the importation was delayed,” according to Mr. Piñol.
The NFA also said that it used its funds to pay down maturing debt instead of buying palay from domestic farmers. — Reicelene Joy N. Ignacio

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