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The TRAIN passes the bicam — what’s in and what’s out?

In the Philippines, the last major overhaul of the tax system came 20 years ago. But Filipinos may need not wait any longer. A few days ago, the Senate and the House of Representatives ratified the bicameral conference committee report harmonizing the two chambers’ versions of the Tax Reform for Acceleration and Inclusion (TRAIN) bill. The final bill is now up for signing into law by the President and, once signed, is set to be implemented by next year. True enough, the TRAIN bill is now heading towards the finish line and appears to be the government’s signature legislative achievement so far.

What’s in and what’s out in the bicameral committee-approved TRAIN bill? Below are some of them.

Personal income tax. The most popular component of the bill is the part that changes the personal income tax system. Under the bicameral committee-approved bill, individual earnings of P250,000 or below per year are to be exempt from taxes. The excess over P250,000 will be subject to graduated tax rates of 20% to 35% percent until 2022, and 15% to 35% from 2023 onwards. The personal and additional exemptions are taken out, though. On the other hand, the non-taxable portion of 13th-month pay and other bonuses has been increased from P82,000 to P90,000.

On the part of employees, the above change will result in an increase in take-home pay, as the taxes that will be withheld by the employers will consequently reduce.

Passive income and other taxes. On cash and property dividend income, the good news on the part of affected individual stockholders is that the bicameral committee-approved bill retains the 10% tax rate. The previous proposal to double this tax rate was scrapped, lifting the anxiety among concerned individual stockholders and individual prospective investors.

For interest income on bank deposits, however, the taxes to be withheld on interest on foreign currency deposits doubled from 7.5% to 15%. Meanwhile, as regards the capital gains tax rate on capital gains from the sale of shares of stock not traded on the stock exchange, the rate will be a flat 15% on the net capital gain. The tax rate on capital gains from the sale of shares of stock not traded on the exchange is currently 5% (for the amount of gain not over P100,000) plus 10% (on the amount of gain in excess of P100,000). Interestingly, this could be a significant factor in considering future share sales, particularly for those involving millions or billions worth of capital gains.

Value-added tax (VAT). The VAT threshold was increased from P1,919,500 to P3,000,000 to provide relief to small and medium enterprises. There were also additions and subtractions from the list of VAT-exempt transactions.

A provision in the bill of which many are skeptical whether it will be implemented is the portion enhancing the VAT refund system. Under the bicam-approved measure, input VAT refunds shall be granted within 90 days from the submission of official receipts, invoices, and other documents. This appears to be promising. The bill further provides that a failure on the part of any official, agent, or employee of the Bureau of Internal Revenue to act on the application within the 90-day period shall be punishable under the law. Taxpayers are hopeful that the implementation side would really give life to the VAT refund provisions of the bill.

Compliance requirements. There will also be reforms in tax administration and compliance. One of the most welcome changes is the proposed simplification of income tax returns (ITRs). The bicam version provides that the income tax return shall consist a maximum of four pages in paper or electronic form. This can be a huge relief on the part of the taxpayers. Taxpayers currently fill out 12- or eight-page returns when filing and paying for income tax.  What a welcome development, indeed!

The above are just some of the many provisions in the bicam measure, and the bill is still subject to the approval of the President. While there are still some contentious provisions in the bill that many may not approve of, it is hoped the above measures on tax reform will generally improve the taxpayers’ trust in the Philippine tax system. Tax reform involves many trade-offs, as two interests should always be considered — the taxpayers’ and the government’s. As such, only the taxpayers and the government, in a give and take relationship, can make this tax reform work. This could be something that we can look forward to next year and in years to come.

Welcome aboard the TRAIN!

John Paulo D. Garcia is a senior of the Tax Advisory and Compliance of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing services firms in the Philippines.

Growth, inflation outlook of select Asia-Pacific economies

Nation at a Glance — (12/19/17)

News stories from across the nation. Visit www.bworldonline.com (section: The Nation) to read more national and regional news from the Philippines.

Fintech startup Qwikwire aims to raise $9 M from ‘initial coin offering’ in 2018

Two‑year‑old fintech company Qwikwire, which boasts of being the leading cross‑boarder real estate payment processor in South East Asia, announced last Friday its own digital currency that will be sold through an initial coin offering (ICO).

Pre‑selling of the coin will start on February 26, and regular selling will run from March 26 until the end of April.

Qwikwire aims to raise $9 million for its new project called AQwire, a “decentralized app” and website powered by blockchain technology that will serve as a market place for real‑estate developers to attract and sell properties to foreign buyers. The app will be launched in September 2018.

Tech startups that utilize blockchain technology are taking advantage of the popularity of cryptocurrencies like the much talked about Bitcoin (whose value, as of writing, is now over $20,000 per coin). In this process, they develop new ways to raise capital—some of which going beyond the norm of courting investors or borrowing from the bank.

This ICO process is pretty much the same as the initial public offering or IPO done by established companies to expand their capital by selling a stock to the public or potential investors. In an ICO, however, no share in the company is offered, except for a “crypto‑token” sold in exchange of other digital currencies like Bitcoin and Ethereum to generate funds for an upcoming product or application.

While tech startups in other countries like the U.S. have been resorting to this fund raising process since 2013, launching an ICO is relatively new to the Philippine startup community.

 

Joining the blockchain space

In Qwikwire’s case, the company will sell its own cryptocurrency called “QEY” in exchange of Ethereum, with the equivalent value depending on the latter’s rate during the selling period.

Users of the app can only use QEY in purchasing properties through the platform.

The initiative marks Qwikwire’s entry to the blockchain space.

Qwikwire CEO and founder Ray Refundo believes that “blockchain is the future” and that it is “the new internet.”

“So many companies have been built on top of the internet; Google, Facebook, Uber. [It’s an entirely] new economy built on top of the internet. But the internet is a simple thing, it’s just actually a network of interconnected computers. In the same way, blockchain is a system of interconnected ledgers or data bases. Basically it’s a new way of processing information,” he explained during the launch held at QBO Innovation Hub in Makati, City.

While not so much applications have been built yet on top of the technology after Bitcoin, which is the first blockchain‑powered app, Refundo said that in the next 20 years, blockchain will be “as big as or even bigger than the internet today.”

By using blockchain to run the new app, Refundo said they can validate all listings, buyers, and transactions in the platform at large. And since it is a decentralized system, users no longer need to pay for a middleman that is among the requirements in purchasing properties from abroad.

“[There are] so many problems that can be solved by blockchain, especially when you talk about global commerce or from traveling to banking and finance,” he said.

Hot money turns around in November

MORE FOREIGN FUNDS entered the Philippines in November as investors drew optimism from tax reform progress in Congress as well as increased interest following the Association of Southeast Asian Nations (ASEAN) summit here, the central bank said.

Foreign portfolio investments logged a $107.71-million net inflow last month, a turnaround from $563.42 million in net outbound funds recorded in October as well as outflows worth $607.31 million a year ago, data from the Bangko Sentral ng Pilipinas (BSP) showed.

These flighty investments are often called “hot money” as these enter and leave the country with ease.

Investors from abroad grew confident about placing their bets on the Philippines last month, owing to the country’s trouble-free hosting of the 31st ASEAN Summit and related meetings on Nov. 13-15 as well as the Senate’s approval that month of the first of up to five planned tax reform packages, the BSP said in a statement sent over the weekend.

The first tax reform package was ratified by both chambers of Congress on Dec. 13 and now awaits signing into law by President Rodrigo R. Duterte, in time for implementation next month.

The central bank also credited generally positive third-quarter corporate earnings reported by locally listed companies for the “positive investor reaction.”

International players placed a total of $1.129 billion in investments in the Philippines, which was slightly offset by $1.021 billion in funds withdrawn the same month.

This compares to $1.19 billion in gross inbound flows a year ago that were cancelled out by $1.797-billion funds that fled the economy.

Around 80.8% of hot money went to shares of publicly listed companies. These transactions resulted in a $105-million net outflow. Favored were stocks of holding firms; banks; food, beverage and tobacco companies; property firms; and utilities, the central bank said.

On the other hand, a fifth of investments went to government-issued peso-denominated debt papers, which yielded a $213-million net inflow. Placements in other peso-denominated debt securities, however, resulted in a net outflow of under $1 million.

The United States, the United Kingdom, Singapore, Norway and Luxembourg were the biggest sources of foreign investments that month.

About 90.3% of outbound flows in November headed for the US.

Despite November’s turnaround, the year-to-date hot money tally remained at a net outflow of $634.53 million.

That, in turn, was a reversal from the $672.73-million net inflow seen in 2016’s comparable 11 months.

The BSP now expects foreign portfolio investments to reach a $2.5-billion net outflow for the entire year following its latest review. This would be a significant turnaround from the $404.43-million in 2016 net inflows.

Concerns over interest rate hikes from the US Federal Reserve, global terrorist attacks and North Korea’s nuclear missile testing continued to hound investor sentiment, adding to uncertainty in the Philippine mining industry after several sites were ordered closed by the government earlier this year.

The Fed introduced 2017’s third rate hike at the end of its Dec. 12-13 policy review, and kept plans for three additional rate increases in 2018 and 2019.

BSP officials said this latest US interest rate adjustment could lead to some volatility in the financial markets, but maintained that local policy need not match the Fed’s tightening just yet. — Melissa Luz T. Lopez

Hot money turns around in November

DoF hopeful on excluded tax reform provisions

THE GOVERNMENT hopes to persuade lawmakers to approve next quarter provisions scratched out upon ratification of the first of up to five planned tax reform packages, the head of the Department of Finance (DoF) said.

“Package one has become package 1A and 1B, the second part of the package,” Finance Secretary Carlos G. Dominguez III told reporters on Friday at the DoF headquarters in Manila.

“The legislature has committed that they will pass the second part of the tax package — part B of tax package one — by the first quarter of next year.”

Mr. Dominguez was referring to the planned estate tax amnesty and easing of the bank secrecy law. He also included a planned increase in the Motor Vehicle Users Charge.

Senator Juan Edgardo “Sonny” M. Angara and Quirino Rep. Dakila Carlo E. Cua, chairmen of the ways and means committees of the Senate and of the House of Representatives, respectively, did not respond when asked to confirm Mr. Dominguez’s remarks.

While the ratified version of the first tax reform package contained some significant departures from earlier versions, Mr. Dominguez said it should still generate about two-thirds of the P130 billion in additional revenues initially targeted in the first year of implementation — starting Jan. 1, 2018 — as projected.

Mr. Dominguez said he was confident that President Rodrigo R. Duterte would sign the ratified measure into law despite differences between the final and earlier tax reform versions.

“We had extensive discussions on that with them (lawmakers). Well what is already passed by both houses is already passed. In the version that was ratified by both houses, the VAT (value-added tax) on domestic coal production is exempt,” said Mr. Dominguez, referring to the measure’s controversial last-minute provision.

Asked whether the DoF is comfortable with the reform’s current configuration, Mr. Dominguez replied: “Well you know this is legislation, and we understand that the administration does not always get 100% of what it wants.”

“This is something, though, that is a step forward,” he added.

“In other words, when they ratified it on Wednesday we have a brighter future than what we were looking at last Tuesday.”

The first tax package which Congress ratified last Dec. 13 consists of reduced personal income, estate and donors tax rates; removal of some VAT exemptions; increased tax rates for fuel, automobiles, tobacco, coal, minerals, documentary stamps, foreign currency deposit units, capital gains for stocks not in the stock exchange, and stock transactions; new taxes for sugar-sweetened drinks and cosmetic enhancements; as well as tax administration measures.

The provisions on tobacco, coal, mining and documentary stamp taxes were supposed to form part of the next tax reform packages which the DoF planned to submit to Congress next year.

The entire tax reform program is designed to shift the burden to those who can afford to pay more, while raising additional revenues that will help finance the government’s ambitious P8.44-trillion infrastructure development effort until 2022. — Elijah Joseph C. Tubayan

Global trade order in a wobble as Washington snubs status quo at World Trade Organization

BERLIN — The frustration of Roberto Azevedo was evident when, as director general of the World Trade Organization (WTO), he summed up the results of a three-day ministerial conference in Buenos Aires in the past week.

There were simply none.

The delegates of more than 160 countries from around the globe failed to reach any new agreements in the face of stinging US criticism of the WTO and vetoes from other countries. At the end, they were not even able to agree on a joint communique.

And a further blow could strike in the coming week when Republican US lawmakers aim to pass sweeping changes to the tax code which may introduce protectionist measures critics say are at odds with WTO rules.

“In retrospect, 2017 could mark the beginning of the end of the rules-based free trade order and the system unravelling,” said Andre Sapir, senior fellow at the Brussels-based think tank Bruegel.

He called it a “big worry.”

US President Donald Trump, propelled to power by his election promise to put “America First” and protect US workers against what he views as unfair trade practices from China and others, has weakened the WTO as a forum to settle disputes.

In the past months, Washington has blocked the appointment of several WTO appeals judges, a move which could paralyze the body’s dispute settlement system for years to come.

“The new US administration does not want to work within multilateral frameworks,” Mr. Sapir said.

“It wants bilateral deals.”

As a critic, he says, “This would lead to a system in which the stronger ones outplay the smaller ones.”

“It would be the law of the jungle.”

This apparent change of course in Washington is puzzling for free trade advocates who argue that the United States for decades supported and benefitted from multilateral decision-making and rules-based arbitration enshrined in the WTO statutes.

THREAT TO GROWTH
For them, Mr. Trump’s protectionist rhetoric is a threat to global growth and prosperity since tariffs and other trade barriers such as import restrictions, registration formalities or state aid for domestic suppliers push up costs for everyone.

The slow dismantling of the international trade order could also hurt midterm export prospects for European countries and Germany in particular at a time when the euro zone economy is benefitting from a surge in demand for its manufactured goods. A rebound in exports is one of the key drivers of Germany’s economic upswing as they still account for more than 40% of its gross domestic product. The United States is Germany’s most important single export destination after the bloc of European Union countries.

But the combat lines have also become blurry.

In a sign that other countries share Mr. Trump’s concerns about Chinese trade practices, the European Union and Japan joined Washington in the past week in vowing to combat market-distorting policies that fuel excess industrial capacity, including subsidies for state-owned enterprises and technology transfer requirements.

Following the fruitless WTO meeting, the US tax overhaul could now be another nail in the coffin of free trade. The European Union and the finance ministers of Europe’s five biggest economies have sounded an alarm over elements of the plan.

‘CLEARLY PROTECTIONIST’
In a letter sent to US Treasury Secretary Steven Mnuchin, Britain, France, Germany, Italy and Spain said that the inclusion of “certain less conventional” tax provisions would contravene WTO rules and violate double taxation treaties.

In a separate letter, the European Commission warned Mr. Mnuchin that the planned overhaul contained elements that risk seriously hampering trade and investment flows between the world’s two biggest economic blocs.

Some of the provisions would discriminate against foreign business in the United States, the Commission said, while the Federation of German Industries (BDI) — the biggest lobby group for manufacturers in Europe’s largest economy — was more blunt.

“Clearly protectionist,” it said of some proposed excise taxes.

What actually emerges from Washington remains unclear, but even if US lawmakers decide to delete some of the disputed measures in their final bill, Mr. Trump is still wedded to a unilateral approach to trade that does not require consultations with Congress.

So far, he has not fulfilled campaign threats such as withdrawing from the North American Free Trade Agreement (NAFTA) or imposing steep import tariffs on imported goods such as German and Japanese cars manufactured abroad.

But Mr. Trump has ordered the US Commerce department to conduct an investigation into whether steel imports threaten US national security and whether broad import restrictions should be imposed.

European allies have warned Mr. Trump that such a move could trigger a global trade war since trading partners could retaliate and impose trade barriers on certain US goods that they label as a threat to their national security.

Chad P. Bown, senior fellow at the Washington-based Peterson Institute for International Economics, said Mr. Trump’s approach may not end up targeting China, but will hit partners such as Canada, Germany, Japan, Mexico and South Korea — most of which have little to do with the concerns the US has with China.

In a research note entitled “Trump Is A New Kind of Protectionist — He Operates in Stealth Mode,” Mr. Bown warned that Mr. Trump’s version of protectionism could result in higher costs for US industries that use steel and aluminum.

But for Mr. Trump the drive is a matter of “America First” whether the international trade order established after World War Two gets in the way or not. — Reuters

MGen eyes wind energy projects

By Victor V. Saulon, Sub-Editor

MERALCO PowerGen Corp. (MGen) has expanded the reach of its power development plan to include 300 megawatts (MW) of wind energy and a yet-undetermined capacity for pumped storage hydropower and solar energy, company officials said.

“We’ve been asked to look at wind proposals,” said Rogelio L. Singson, MGen president and chief executive officer, referring to instructions from parent firm Manila Electric Co. (Meralco), the country’s biggest power distribution utility.

He declined to give details about the proposals, but said these are either existing or new ones. He also disclosed an upcoming meeting with a company behind a wind project near Metro Manila.

Dan Neil, MGen executive vice-president and general manager, said MGen was looking at a wind project in north Luzon and another near Meralco’s load or franchise area, each with a capacity of 150 MW. 

“I think we’d probably choose one in the short term,” he said.

Mr. Neil said MGen was looking at “either majority or significant minority” in the two wind projects, or between a 45% and 55% stake.

“For the wind projects, we’re very hopeful early next year we’d be able to make an announcement,” he said.

He said MGen had been looking at wind projects “for a number of years” although the company’s previous head — Meralco President and Chief Executive Officer Oscar S. Reyes — had been “completely focused on cost of energy to the consumer.” 

“He doesn’t believe in FiT (feed-in-tariff), correctly, that it’s increasing the cost to the consumer,” he said, referring to the guaranteed rate for 20 years offered to early developers of wind farms.

The difficulty in finding a suitable wind project in the past is largely because none had met or at least came close to the lower cost of power from coal-fired power plants, he said.

“We’re talking to a couple of developers now who we think can be competitive with coal,” Mr. Neil said. 

Ahead of the proposed renewable energy projects, MGen is developing several coal-fired power plants, including the 100% company-owned ultra-supercritical coal-fired power plant under subsidiary Atimonan One Energy, Inc. 

The two-unit plant, each with a capacity of 600 MW, is awaiting Energy Regulatory Commission (ERC)-approval of its power supply agreement (PSA). 

MGen has a 47% stake in Redondo Peninsula Energy, Inc. (RP Energy), which is awaiting the ERC nod of its PSA with Meralco for 225 MW of the first of two 300-MW units, and 75 MW with the retail electricity supply business of Aboitiz Power Corp. 

Therma Power, Inc., a unit of AboitizPower, owns 25% of RP Energy’s coal-fired power plant at the Subic Freeport Zone, while Taiwan Cogeneration International Corp. holds another 25%.

MGen has a 51% stake in another coal-fired power plant being developed in Quezon province with a capacity of 455 MW under San Buenaventura Power Ltd. Co. (SBPL).

SBPL, which is expected to start commercial operation in mid-2019, is a partnership between MGen and New Growth BV, a subsidiary of the Electricity Generating Public Co. Ltd. or EGCO Group of Thailand.

Another project, St. Raphael Power Generation Corp., is a 50-50 partnership between MGen and Consunji-led Semirara Mining and Power Corp. It is also awaiting ERC’s approval of its 400-MW PSA with Meralco. The planned coal power plant in Calaca, Batangas has two units, each with a capacity of 350 MW. 

Mr. Singson, who was appointed to his post at MGen in September, said aside from coal and wind, the company is also looking at solar and pumped storage hydro projects.

“We cannot do away with solar. We’re even looking at pumped storage,” he said. “We think solar in the next five years will become more viable with energy storage.” 

Mr. Neil said Meralco had signed off-take agreements with solar developers but not necessarily putting in equity in their projects.

“But we’re certainly working hard at developing our own,” he said.

Reissued five-year bonds to see weak demand

TREASURY BONDS (T-bond) on offer this week may see higher bids due to tight following the government’s latest offer and issuance of retail bonds.

The Bureau of the Treasury’s offer of reissued five-year T-bonds tomorrow will likely be met with thin demand, traders said last week, with the government expected to continue rejecting bids beyond the returns it is willing to pay due to its comfortable cash position.

The Treasury will offer P20-billion worth of debt papers with a remaining life of four years and one month. The bonds were originally issued last Jan. 26 and carry a coupon rate of 4%.

A trader said that the Treasury’s last auction of government securities for this year will be met with weak demand.

“I think there will be less demand for this bond. [The] market is still adjusting to the RTBs (retail Treasury bonds) and liquidity is still tighter,” a trader said.

“The banks are tight — [they are still coping] from the five-year RTBs. The size is too big,” another trader said.

The government issued retail Treasury bonds worth P255.4 billion following a public offering that started last month.

Broken down, the Treasury sold P125.4 billion during the one-week public offering on top of the P130 billion issued during the initial auction.

The Treasury last offered five-year T-bonds on Oct. 3, where it made a full award  of P15 billion as total demand reached P29.951 billion. The papers fetching an average rate of 3.979%.

“If ever” the Treasury decides to accept bids, the first trader said, yields may range between 4.5% to 4.65%.

At the secondary market on Friday, the yield on the five-year papers closed at 4.6843%, while the four-year Treasury bonds — the liquid benchmark closest to tomorrow’s offered papers — were quoted at 4.8279%.

The second trader said there is “lightened mood” in the market as the year ends.

“The market is not that keen on having those bonds because it’s already December and trading is getting slightly lighter. Every time the year comes to an end, the mood is getting lighter,” the trader mentioned, adding that interests might be renewed if the yields get attractive.

After last week’s Treasury bills (T-bill) auction, National Treasurer Rosalia V. De Leon said enthusiasm is already waning as banks “are already preparing for the closing of the books.”

The government rejected all bids at that T-bills auction as banks asked for higher returns ahead of an interest rate hike by the US Federal Reserve.

The Bureau of the Treasury rejected bids which totalled just P7.6 billion, well below the government’s planned P20-billion borrowing.

Broken down, the 91-day debt paper was met with demand worth P2.975 billion, lower than the P8 billion the Treasury offered.

The Treasury also rejected P2.325-billion worth of bids for the 182-day tenor, which also fell short of its P6-billion offer.

Lastly, the 364-day debt papers attracted only P2.276 billion in demand, likewise below the programmed borrowing of P6 billion.

Last Dec. 5, the government rejected all bids for the reissued 10-year Treasury bonds as inflation eased and amid its solid cash buffer. The Treasury refused to award the debt papers, which have a remaining life of six years and eight months, with rates rising anew. — KANV

Aboitiz Equity to set aside up to P50-B capex

By Arra B. Francia, Reporter

ABOITIZ EQUITY Ventures, Inc. (AEV) may set aside between P40 to P50 billion in capital expenditures for 2018, with its power unit cornering the bulk of the spending as it completes several power projects next year.

“Probably P40 to P50 billion, overall. Not just power. Power will still be the main,” AEV Chief Finance Officer Manuel R. Lozano told reporters in a press chat in Taguig City last week. 

Next year’s spending plan is significantly lower than the P77-billion capex for 2017.

AEV’s power segment, AboitizPower Corp. is targeting to add around 500 megawatts (MW) of installed capacity by next year.

“Pagbilao should be finishing soon. Therma Visayas in Cebu both units by middle of the year. First one should be March, April. Second one by June. Manolo-Fortich will also be finishing. So there’s gonna be a lot of new capacity for us next year, 2018,” Mr. Lozano said. 

The Pagbilao power plant expansion in Quezon province has a capacity of 400MW, but half of this will be attributable to its foreign partners TeaM Energy Philippines, a partnership between Japanese firms Tokyo Electric and Marubeni Corp.

The 340MW plant by AboitizPower unit Therma Visayas, Inc. in Toledo City, Cebu will also be finished in 2018, with 20% of the capacity to be shared with its partner, Vivant Corp.

“So the 500 (MW) more or less, that’s our equity interest. That probably will bring us to close to 3,500MW… We’re well below the grid limit, probably overall in the country at 18%,” Mr. Lozano said.

CEMENT PLANT
The executive of one the country’s largest power producers said they may also allocate funds for the expansion of its cement plant. AEV’s infrastructure arm, Aboitiz InfraCapital, Inc. owns Republic Cement and Building Materials, Inc. To date, Republic Cement’s current capacity stands at seven million tons.

“Our cement (plant), we may begin 2018 or early 2019 to also expand, potentially, so that will also be a big capex as well. But that one is a question of timing,” Mr. Lozano said. 

Meanwhile, AEV is also targeting the completion of its bulk water supply project in Davao City by 2019. Construction of the P10-billion project in partnership with JV Angeles Construction Corp. has been pushed back to the first quarter of 2018 due to various government permits and documentary requirements.

“Water supply in Davao hasn’t been enough for a long time, because in Davao City all of their water comes from the ground, it’s ground water. (It’s) depleting, but more importantly the quality is not good. Because the deeper you are, the more chemicals, contaminants, and then more expensive to pump the water up,” Mr. Lozano said.

This will further have a 1.5-MW hydro power component that will be used exclusively for the operation of the bulk water project.

AEV posted a 6.9% decline in attributable profit for the first nine months of 2017 to P15.9 billion, pulled down by the recognition of foreign exchange losses upon revaluation of dollar-denominated liabilities and pre-termination costs. Revenues for the period were up 27% to P111.48 billion. 

Aside from power and infrastructure, AEV also has core interests in financial services, food manufacturing, real estate, and portfolio investments. 

Debt yields down on Fed rate hike, Fitch rating move

YIELDS on government securities (GS) ended lower last week as the Federal Reserve turned dovish after its interest rate hike and on the back of slower US consumer price index (CPI) data and the Philippines’ credit rating upgrade.

Bond yields, which move opposite to prices, fell by an average of 0.11 basis point (bp) week on week, data from the Philippine Dealing & Exchange Corp. as of Dec. 15 showed.

“Government securities fell by an average of 0.11 basis point week on week on a dovish Fed and lower US CPI,” Carlyn Therese X. Dulay, vice-president and head of institutional sales at Security Bank Corp. (Security Bank), said in an e-mail.

Land Bank of the Philippines (Landbank) market economist Guian Angelo S. Dumalagan said yields fell primarily because of the upgrade received by the Philippines from Fitch Ratings.

“The downward bias was minute, as were also upward forces last week that almost offset the impact of the credit upgrade,” added Mr. Dumalagan.

Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc., said via e-mail that yield movements were minimal.

“Downward pressure came from recent events [last] week on monetary policy directions of advanced countries. The uncertainty of the pace of the tightening is fuelling these movements,” added Mr. Asuncion.

A bond trader added that last week’s trading activity was “lackadaisical” as investors awaited the Bangko Sentral ng Pilipinas’ (BSP) decision on top of the US Fed, European Central Bank and Bank of England policy meetings.

“Relatively, no fireworks from these meetings, market players opted to keep to the sidelines with traders simply servicing client-based requirements,” the bond trader added.

The BSP Monetary Board kept borrowing rates unchanged during its eighth and final policy review for 2017.

Rates stayed at 3.5% for the overnight lending rate, 3.0% for the overnight reverse repurchase rate, and 2.5% for overnight deposit.

The BSP’s decision followed this year’s third rate increase from the Federal Reserve during its two-day review. Central bank officials have said that they need not move in sync with the Fed, as they focus more on domestic developments in setting interest rates.

The US central bank raised rates by a quarter of a percentage point to a range of 1.25% to 1.5%. It expects three more hikes in both 2018 and 2019, unchanged from the last round of forecasts in September.

However, the market perceived the rate hike to be dovish, with two out of the twelve members of the Federal Open Market Committee, namely Charles L. Evans and Neel Kashkari, voting against the move.

In its justification for Wednesday’s rate increase, which was widely expected by financial markets, the Fed’s policy-setting committee cited “solid” economic growth and job gains.

Meanwhile, the US Labor Department said its CPI excluding the volatile food and energy components slowed to 1.7% in November from 1.8% in October as prices for airline fares and household furnishing declined.

The overall CPI increased 0.4% in November after edging up 0.1% in October. That raised the year-on-year increase in the CPI to 2.2% from 2% in October.

Back home, at the close of trading at the secondary market last Friday, in the short end of the yield curve, debt yields went down across the board. Yields on the 91-, 182- and 364-day Treasury bills dropped 3.61 bps to 3.1193%, 3.18 bps to 3.2521%, and 10.91 bps to 3.0194%, respectively.

In the belly, all debt yields also declined. The two-, three-, four, five- and seven-year Treasury bonds (T-bond) saw their rates drop by 2.26 bps to 4.0519%, 10 bps to 4.25%, 10.92 bps to 4.8279%, 4.77 bps to 4.6843% and 4.82 bps to 5.2982%, respectively.

On the other hand, in the long end of the curve, yields on the 10- and 20-year T-bonds went up 10.5 bps to 5.685% and 38.83 bps to 5.6074%.

Looking forward, Landbank’s Mr. Dumalagan said yields might see an upward correction, as likely strong US third-quarter growth data and positive developments on the US tax bill might divert investors’ attention back to prospects of three more interest rate hikes in 2018.

Meanwhile, Security Bank’s Ms. Dulay expects the securities market to remain range-bound as participants await the four-year Treasury bond reissuance tomorrow, which is expected to print between 4.5% and 4.625%.

UnionBank’s Mr. Asuncion said this week would be more of the same as the year comes to an end. — Lourdes O. Pilar

How Disney is bringing the brand to more Filipinos

By Cathy Rose A. Garcia,
Associate Editor

IF YOUR FAVORITE SM mall is looking more like a Disney wonderland these days, it’s just part of the mall giant’s multi-year partnership with The Walt Disney Company (Philippines), Inc.

This holiday season, Christmas decorations at SM malls are all about Disney. For instance, a giant Christmas tree made up of Disney Tsum Tsum characters dominates SM City North EDSA’s The Block. Other malls feature well-loved characters like Mickey Mouse, as well as those from Disney animated films like Cars and Frozen.

The “We Love Disney” campaign with SM Supermalls is just one part of The Walt Disney Company’s plan to bring the well-loved brand to more Filipinos, not just in urban areas but around the country.

Veronica Espinosa-Cabalinan, Country Manager Philippines, The Walt Disney Company (Photo: RENDY ARYANTO/Visual Verve Studios)

Veronica Espinosa-Cabalinan, general manager in the Philippines, said the company is pursuing more local partnerships, like the one with SM, to be able to expand the brand’s reach.

“One of our key strategies really to expand our reach is localization. As you know, for you to be able to be successful in localization is you have to partner with local companies because they would really tie in the brand messaging seamlessly into the local culture,” she said, in an interview at the company’s new office in Taguig.

For partnerships, Ms. Cabalinan said The Walt Disney Company is looking for companies that it shares common values and goals, as well as provide reach and relevance.

“Local companies pretty much have ears and eyes on ground. And one of the things me and my team are working on is we want to be known as the Filipino Walt Disney Company, not The Walt Disney Company Philippines. Our goal is really for every Filipino household to have the opportunity to touch and feel the Disney and Marvel brands. That’s our primary goal,” she said.

With SM, the company has a multi-year theatrical promotions partnership that “aims to bring Disney, Marvel, Pixar,and Star Wars movies to life through unique Disney experiences at SM’s entertainment properties.”

“We’re doing the We Love Disney campaign. The SM malls are allowed to dress up their malls in Disney or Marvel characters. This kind of mall-theming is across its chain of malls, including far-flung malls like SM Rosales or SM Lanang. That’s the type of reach we’re looking at,” Ms. Cabalinan said.

This perhaps has helped ensure box office success for Disney and Marvel films. The top five highest-grossing films of all-time in the Philippines are all from Disney and Marvel, namely Beauty and the Beast; Captain America: Winter Soldier; Avengers: Age of Ultron; Avengers, and Iron Man.

Disney has also tied up with Globe Telecom, Inc. for theatrical promotions, media distribution and Disney Interactive. “In terms of how to expand our stories and integrate into every day lives of Filipinos, we have partnership with Globe where we did the web series called I Dare to Dream — which showed how our (Disney) Princess stories were integrated in the every day lives of Filipinos,” Ms. Cabalinan said.

She noted both SM and Globe have the “reach” that Disney was looking for. “That’s very important for us, the way we want to expand into areas where our content hasn’t be able to reach,” she said.

Folded & Hung Star Wars Collection as modeled by celebrity endorsers James Reid and Nadine Lustre

PRIORITY MARKET
Ms. Cabalinan emphasized that Disney considers the Philippines as one of two priority markets in Southeast Asia, along with Indonesia.

“It comes from the fact that Filipinos have a natural resonance towards the Disney and Marvel brands,” she said, noting Filipino children’s favorite characters include Spiderman, Sofia The First, Avengers and Frozen’s Anna and Elsa.

“The challenge is how to continue giving best in class Disney and Marvel experiences to the fans over and over again… Also to remain relevant, we just have to keep up, especially with the technological advancements,” she added.

Disney has also worked with several local companies on consumer products. Folded and Hung recently released a Star Wars clothing line, while Lamoiyan Corporation sells Mickey Mouse-themed Hapee kiddie toothpaste.

Homegrown beauty brand Happy Skin released Disney Princess-inspired lipsticks in October 2016, followed by a Beauty and the Beast collection in time for the live action film’s release in March this year.

“We really work closely with the partner to integrate the (Disney) stories in the every day lives of Filipinos, whether content or products, even social media,” Ms. Cabalinan said.

Disney also has an up-coming partnership with furniture designer Kenneth Cobonpue, although she did not give details.

“From low to high, what we are looking at is making the content available for all,” she said.

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