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Growth amidst volatility

BusinessWorld hosts Stock Market Roundtable 2018

By Bjorn Biel M. Beltran, Special Features Writer

The Philippine economy is undergoing great changes. The Duterte administration has begun to roll out a tax reform that promises to put more money back into consumers’ pockets and raising taxes on goods like gasoline and coal, all while funding its ambitious multi-trillion “Build, Build, Build” infrastructure plan. This has flooded the market with a bullish sentiment that caused the bellwether Philippine Stock Exchange Index (PSEi) to close 2017 at a record 8,558.42 points, earning 25.1% for the year. The rally pushed onward to break the 9,000-point barrier in the first month of 2018.

The stellar climb proved to be too high and too fast to be sustainable, however, and profit-taking, along with external factors such as the rising rates of the United States Treasury yields, sent the market plunging back down to the 8,500-level. Amidst this backdrop of market volatility did the country’s investing community gather to hear the insights of four respected stock market professionals at the Makati Shangri-La Manila for the 2nd annual BusinessWorld Stock Market Roundtable held last Feb. 20.

The esteemed panel consisted of Augusto M. Cosio, Jr., president at First Metro Asset Management, Inc.; April Lynn L. Tan, vice-president and head of research at COL Financial Group, Inc.; Justino B. Calaycay, Jr., head of research and engagement at Philstocks Financial, Inc.; and Michael Gerard D. Enriquez, chief investments officer at Sun Life of Canada (Philippines), Inc. They discussed and explored the underlying causes of the recent equities bull run and eventual crash, the effects of the tax reform, as well as all the significant events and developments that led the country to where it is today.

At the roundtable, which was moderated by Regina Lay of Bloomberg TV Philippines, each panelist spoke in succession about various topics, and a few members of the audience got to ask their questions and receive answers.

The main question on everyone’s minds had been if the market could weather such volatility, can it return to a sentiment of optimism, or further fall into bearish territory due to the mounting pressures of inflation, a depreciating peso, and higher interest rates?

To this, the panel unanimously agreed that Philippine equities are unlikely to see any new lows as the country’s long-term economic growth prospects remain intact. But there are a few key factors that need to be monitored to ensure the growth and stability of the market, such as inflation.

“One of the key risks we were really worried about was inflation,” Ms. Tan said. “First of all, tax reform is highly inflationary because of higher oil prices, excise taxes on sugary drinks, and the secondary effects of higher oil, etc. Then you have a weaker peso. A weaker peso is of course inflationary because we import a lot of things and they are going to become expensive.”

As the Philippine economy becomes more competitive in the global market, it could also see higher commodity prices due to higher demand for goods like steel and oil.

“That’s just the price you pay for development. Everything just becomes expensive. A strong economy is inflationary,” Ms. Tan said.

Inflation hit a three-year high of 4% in January, hitting the upper band of the government expectations. The potential effect of higher prices is that it could lead to a decrease in consumer spending and higher interest rates.

The panel unanimously agreed that Philippine equities are unlikely to see any new lows as the country’s long-term economic growth prospects remain intact. But there are a few key factors that need to be monitored to ensure the growth and stability of the market, such as inflation.

“We expect the Bangko Sentral [ng Pilipinas] (BSP) to raise interest rates probably one or two times this year, in line with the U.S. Federal Reserve as well as the weakness of the peso,” Mr. Calaycay said.

Nevertheless, such factors will only serve to hinder the Philippines’ unswerving development, as long-term prospects remain positive due to strong macroeconomic fundamentals.

“This too will pass. It is not a runaway inflation,” Ms. Tan said. “The BSP has the tools to control inflation. It is not a long-term problem. It is a short-term issue.”

Addressing the recent market correction, Mr. Enriquez said, “I think that was a quick reality check on what may happen in the market if it’s not backed by fundamentals. The market can move up, but it should always be backed by fundamentals. There should always be a reason why the market should move higher.”

[WATCH: INTERVIEW WITH SUN LIFE FINANCIAL CIO MICHAEL GERARD D. ENRIQUEZ]

The correction marked a change in the market sentiment that dampened expectations for the Philippines’ growth. Ms. Tan said COL Financial downgraded its 2018 forecast for the PSEi to 8,750 from 9,300 after factoring in the impact of higher borrowing costs.

Mr. Calaycay, meanwhile, also hinted that a revision of its base-case forecast of 7,900-8,200 and best-case projection of 10,700-11,000 is in the cards after the release of the first-quarter corporate earnings.

Ms. Tan expects the PSEi to bottom out at the 7,881 and 8,062 levels around March and May.

All in all, the market correction should be seen as an opportunity to buy equities for cheap, according to the panel, as the probability for long-term loss in such a market remains minimal, and opportunities are plentiful for informed investors.

“I feel constructive about the market. I feel that there are opportunities in there,” Mr. Cosio said, noting that the banking sector stands to gain much from the recently implemented tax reform package.

He said that as low-income workers become exempt from income taxes as a result of the tax reform, this would directly increase the average balance of CASA (current account, savings account) in banks.

“As a whole, CASA in the banking sector will definitely grow without the banks doing anything,” Mr. Cosio said. “Secondly, higher short-term rates will increase net interest margins for banks.”

Mr. Enriquez even went as far as to say that the Philippines deserves to trade at a premium over other Asian markets on the back of the strong domestic economy and impressive infrastructure development.

“As a long-term investor, we are excited about how infrastructure will play a role in the GDP. Right now, it’s 70% consumption, but if the government starts to spend and investments come into play, we can see our (gross domestic product) growth breaching seven percent,” Mr. Enriquez said.

“Those waiting for a bear market, I’m sorry, I think you will be disappointed,” Ms. Tan said.

The BusinessWorld Stock Market Roundtable 2018 was presented by BusinessWorld Publishing Corporation; supported by Globe Telecom, Sun Life Financial, and Shell Philippines; with event partner Fiera De Manila; and media partners The Philippine Star and Bloomberg TV Philippines.

Going beyond the traditional work setting

By Mark Louis F. Ferrolino, Special Features Writer

Working environment in the Philippines, particularly in the past 10 years, went through rapid and significant changes. From the traditional cubicle-style setup, primarily designed for employees to stay focused all the time, workplaces today have open space design that encourage collaboration and creativity between staff. And as key developments in the realm of office culture take place, the way people perform their work has also evolved.

Technology is revolutionizing the local working environment, offering boundless opportunities for the employees to be productive and efficient with utmost convenience. Devices such as smartphones, tablets and laptops allow employees to send e-mails, check documents, and talk to their colleagues anytime and anywhere. Video conference also allows people to participate in important meetings wherever they are.

Lars Wittig, country manager of Regus Philippines, shared in an e-mail to BusinessWorld that as generations grow up in this kind of setting — expecting to be able to communicate cheaply and rapidly from anywhere in the world — it follows that they expect this to also be the case in the professional arena.

As a result, flexible workspaces continue to become a trend. According to a report by real estate consulting services firm Colliers International in 2017, the estimated total stock of flexible workspaces in Metro Manila has reached 228,000 square meters. The firm expects this number to grow by 10% annually in the next three years, as demand for co-working spaces is spurred by millennials who dominate the local labor force.

Flexible working spaces, as explained by Colliers, are any workplaces that allow short-term leases, with a minimum size of one seat, fully-furnished and ready-to-use. In the Philippine market, it is grouped into three major classifications: serviced offices; hosted services firms; and co-working spaces, which all provide basic needs of air-conditioning, comfortable workstations, and fast Internet.

“The rise of business process outsourcing (BPO) start-ups and Internet businesses in the Philippines has fueled the demand for flexible workplace solutions. As the commercial real estate in Metro Manila becomes prohibitive, we find that flexible workspaces solutions become more as these allow enterprises to scale up or down according to market sentiments and business needs and performance, while enjoying greater accessibility and proximity to customers,” Mr. Wittig said.

Having a flexible workspace is important for employees who want to manage work-life balance. Thus, for start-ups to drive business growth and for well-established companies to expand further, providing the ideal work environment for employees while avoiding unnecessary costs is a great plan.

In an interview with BusinessWorld, KMC Solutions Chairman and Co-Founder Gregory Kittelson said that design, atmosphere and amenities are vital to boost the employees’ morale and productivity.

“So, make offices as comfortable and attractive as possible, creating a good atmosphere, where if employees had to work on a weekend, they would prefer to work in your office instead of working from home or a coffee shop,” he explained.

Other than this, giving employees a workplace with some health and wellness features has great benefits to the employees and company, ensuring a happier and stronger work force, he added.

Some KMC Solutions offices have yoga studios and a skydeck where employees do circuit training, Mr. Kittelson shared.

“As more and more workers demand to work flexibly, and with all the technology available to enable them to do so productively, businesses are marrying their need for greater agility with helping workers achieve greater personal happiness and work-life balance. This is an important aspect to consider for businesses seeking to acquire top talent, as today’s workers are reporting that it’s not just salary which makes a difference. Add to this the fact that our research shows improved concentration levels and productivity are benefits of flexible working, and the business case is made,” Mr. Wittig said.

Today, the majority of flexible workspace occupiers in the country are foreign companies or individuals, Mr. Kittelson said. “But I think a lot of Filipino companies are now starting to see the advantage of working out of a flexible workspace, whether a serviced office or hip new co-working space.”

Down the line, the millennial generation, who are known for their entrepreneurial mind-set, tech and mobile habits, are assumed to continuously pioneer changes in the traditional business practices.

Thus, companies who stick to a traditional mind-set will lose their attractiveness as an employer and will miss the chance to obtain the large, productive and motivated millennial work force.

“We believe office leases will become shorter and shorter as this young generation continues to gain significant influence, and that demands and expectations will continue to conform to flexible millennial lifestyles. As employees continue to modify their approach to work and career, employers will inevitably follow, and so will commercial real estate developers,” Mr. Wittig said.

For his part, Mr. Kittelson said that companies no longer look for a three- to five-year plan — they rather look at a six- to 12-month plans — not just in the Philippines but around the world. This, on the other hand, indicates the greater need of companies to have a more flexible setup in the workplace now and in the future.

“Given mobile workspaces, given technology, given market trends, at the end of the day, companies don’t have these long-term plan — it is really reduced to a 12-month plan. So, that said, they want the flexibility, they want that plug-in place solutions, someone who could offer the exact private room size that they want, giving them the ability to scale up or scale down,” he explained.

Creating value through a great workplace

It might seem common sense that a happy workplace is a productive one, and yet too many companies prefer to promote a competitive, high-pressure environment as their means of creating value. For one reason or another, businesses work on the assumption that an aggressive, cutthroat work culture produces more results than an engaged and rounded one.

It’s a cause for concern, especially as workplace-induced stress has been linked to a number of health problems ranging from metabolic syndrome to cardiovascular disease and mortality. According to a study published in The Lancet medical journal in 2017, heightened activity in the amygdala — a region of the brain involved in stress — is associated with a greater risk of heart disease and stroke.

“In the past decade, more and more individuals experience psychosocial stress on a daily basis. Heavy workloads, job insecurity, or living in poverty are circumstances that can result in chronically increased stress, which in turn can lead to chronic psychological disorders such as depression. Besides the heavy psychological burden, chronic stress is also associated with an increased risk of cardiovascular disease,” the study read.

Meanwhile, a detailed study commissioned by the Association of Accounting Technicians (AAT) looking into work attitudes, found that eight in 10 of the 2,000 people polled said they would turn down a big salary increase if it meant working with people or an environment they didn’t like.

Clearly, a positive workplace culture is not only more productive one for employees, but it is also a healthier one.

So how do you create a great workplace? Here are three things you can try.

Build connections with your employees, and give them a stake in your company’s success.

Showing interest in the well-being of your employees goes a long way towards building a loyal, and engaged work force. Adding to that, make sure that the employees form positive working relationships with one another. First and foremost, a good workplace culture means that employees are compensated well with manageable workloads, are given opportunities to improve, and are motivated to see their company succeed.

Olivia Hill, head of human resources at AAT, said of the report, “It just goes to show that there is more to work than just money as the common perception can be. People don’t want stress in their lives and a great way to stay stress-free is to work in an environment you find comfortable, with people you like and with a manageable workload.”

Show empathy, Encourage people to talk to you.

Good leaders take into account the challenges faced by their employees. Compassion can foster the idea of the workplace as a second home and promote a supportive and resilient environment among workers.

“Not surprisingly, trusting that the leader has your best interests at heart improves employee performance,” the Harvard Business Review wrote on its Web site.

“Employees feel safe rather than fearful and, as research by Amy Edmondson of Harvard demonstrates in her work on psychological safety, a culture of safety i.e. in which leaders are inclusive, humble, and encourage their staff to speak up or ask for help, leads to better learning and performance outcomes. Rather than creating a culture of fear of negative consequences, feeling safe in the workplace helps encourage the spirit of experimentation so critical for innovation.”

Consider giving work flexibility benefits as well as material ones.

The job market is evolving. More companies are now offering perks such as working from home or flexitime. Keeping competitive with rates as well as benefits will ensure your workplace retains employees and attract new talent.

“Benefits and perks will continue to play a big role in the job search and recruiting game in 2016, especially with nearly three in five (57%) people reporting benefits and perks being among their top considerations before accepting a job,” online platform Glassdoor wrote in a 2015 study.

Good leaders know how to keep in tune to the needs of their employees, and knowing what to offer them will ensure that a company creates value in the long run.

“A positive workplace is more successful over time because it increases positive emotions and well-being,” the Harvard Business Review wrote.

“This, in turn, improves people’s relationships with each other and amplifies their abilities and their creativity. It buffers against negative experiences such as stress, thus improving employees’ ability to bounce back from challenges and difficulties while bolstering their health. And, it attracts employees, making them more loyal to the leader and to the organization as well as bringing out their best strengths. When organizations develop positive, virtuous cultures, they achieve significantly higher levels of organizational effectiveness — including financial performance, customer satisfaction, productivity, and employee engagement.” — Bjorn Biel M. Beltran

Regus Philippines: Innovating workspaces throughout time

It was in the 1990s when the Philippines’ business process outsourcing industry started. Along with the industry’s dynamic and continuous growth is the need for innovative workspaces. Regus, now known as the world’s largest provider of flexible workspace solutions, was at the forefront of addressing this demand by establishing its presence in the country in 1999.

Lars Wittig, country manager of Regus Philippines, told BusinessWorld in an e-mail, “Regus started providing ready-to-use offices in the Philippines in 1999 with its very first office space at The Enterprise Center in Makati.”

From this first office space, Regus Philippines continued to be a reliable provider of versatile office formats catering from individuals, to small enterprises, and corporations. Having seen a dramatic increase in demand over the past few years, the company has steadily expanded its network not just in Metro Manila but as well as in other key cities including Cebu, Clark in Pampanga, and Davao.

To date, it has more than 5,300 work stations in 25 locations in the Philippines. This is part of Regus’ worldwide network of almost 3,000 business centers, spanning in almost 900 cities across 120 countries established since the company’s founding in Brussels, Belgium, in 1989.

“Anyone who requires a workspace can come to us so that we can solve their needs. We look after more than 2.1 million customers globally, who rely on Regus to help them work. They include organizations of every type and size — from the very largest companies, such as Google, Microsoft and Dell, to the recently launched one-person start-up. Our customers span every sector from manufacturers to retailers and from oil companies to professional services firms,” Mr. Wittig shared.

Apart from fully furnished office spaces, Regus Philippines’ portfolio of office formats includes virtual offices, co-working spaces, meeting rooms, and business lounges, among others. These flexible workspaces suit the preferences of the growing majority of the Filipino work force who value flexible working practices as well as address some of the working challenges of a typical working Filipino and entrepreneurs alike such as the worsening traffic.

“Given the traffic conditions in the Philippines, employees are losing a significant amount of time commuting to and from the workplace. Having the option of checking into the nearest business lounge instead of wasting hours in traffic is ideal for employees and business owners,” Mr. Wittig said.

“The country also has an average work force age of 23.5. The millennial generation, which accounts for the bulk of the work force, are accustomed to working through portable devices, and continue to expect to work that way. For employers to attract and retain millennial talent, option for flexible workplace solutions is of high importance,” he added.

Mr. Wittig also noted that many businesses in the Philippines, particularly start-ups, tech, and creative businesses are opting to use co-working spaces today not only to keep their costs low but to also seek the opportunity to meet and network with other businesses.

“This year alone, we are projecting around 20% to 30% growth in co-working spaces driven by the country’s young work force and growing small and medium enterprises (SMEs). Currently, only one or two percent of office inventories are for flexible or co-working spaces. Regus is perfectly placed to support the move towards such hub-and-spoke configurations, with smaller corporate centers linked to regional and/or satellite branch locations, with its strengths in the flexible, mobile working space market,” Mr. Wittig pointed out.

Looking forward into the entrance of the digital natives into the work force, Regus is poised to introduce services that offer a more collaborative, interactive work environment through its co-working spaces and virtual office offerings.

Moreover, in addition to its network of workspaces nationwide, Regus Philippines plans to add 200 more work stations to existing locations in the country.

“As it continues to establish locations in megacities, Regus is looking at expanding to second-tier cities. Zamboanga, Cagayan de Oro, Mactan, Iloilo and Bacolod are among the sites eyed for expansion this year,” Mr. Wittig revealed.

“Another expansion model Regus is working on is a partnership with property developers to allow Regus to operate and manage a Regus office in buildings owned by the developers,” he added. — Romsanne R. Ortiguero

KMC Solutions: Making offices flexible and scalable

KMC Solutions was started in 2010 by Michael McCullough, Greg Kittelson and Amanda Rufino-Carpo — the people behind KMC Mag Group of Companies, which includes KMC Savills, Inc. and Kittelson & Carpo, Inc. — to fill what was then a growing need for serviced offices.

“What we noticed was a lot of our clients needed plug-and-play solutions or a few seats or just a private office space in a larger office, with all the infrastructure,” Mr. Kittelson, now KMC Solutions chairman, told BusinessWorld. He explained that plug-and-play solutions refer to the likes of tables, Internet connection, reception desk — basically the things a business needs to operate.

Those clients were the same clients who sought the services of Savills, a real estate consultancy firm, and Kittelson & Carpo, a business consultancy firm. In an attempt to address their concerns, Mr. Kittelson said they began occupying several floors in some first-class buildings in prime business locations in Metro Manila — Makati City, Bonifacio Global City (BGC) in Taguig City — and eventually in Cebu City, and building office facilities there.

In less than a decade, KMC Solutions has dominated the market. “Now we’ve become the largest flexible workspace provider in the country, and flexible workspace of course covers co-working serviced office and build-to-suit for enterprise clients,” Mr. Kittelson said. KMC Solutions is also one of the largest providers of its kind in the Southeast Asian region.

Currently, KMC Solutions manages over 5,600 workstations, spanning some 32,000 square meters, located on 23 floors in 13 buildings in the top central business districts (CBDs) in Metro Manila and Cebu City. These buildings are Cyber Sigma, Picadilly Star, SM Aura Office Tower, Sun Life Centre, and Uptown Place Tower 2 in BGC; Rufino Pacific Tower and V Corporate Centre in Makati City; Rockwell Business Center, Rockwell Sheridan 1, UnionBank Plaza, Robinsons Cybergate Gamma and Robinsons Zeta Tower in and around Ortigas Center; and Skyrise 4 in a Cebu City information technology park.

An ISO-certified company headquartered in BGC, KMC Solutions caters to a wide array of enterprises — tech start-ups, information technology and business process management (IT-BPM) firms, multinational banks and even the world’s largest unicorns from Silicon Valley. They are normally given the option to choose between a private room or temporary shared office space. The latter, a fairly recent phenomenon, allows employees, regardless of their positions and the departments to which they belong, to build connections and share ideas with each other in a literally and figuratively open work environment.

Those spaces are fully furnished so that firms can occupy them as soon as possible. And the quality of the office is never compromised. Mr. Kittelson said they even use sound-absorbing carpets and lots of glass. Recently, he added, they conducted a redesign of some of their serviced offices to enlarge common areas (lobby, reception, pantry, bar and function area).

Mr. Kittelson noted that their clients are growing a lot faster than they typically do. So are their space needs. “So they need that scalability. They need those larger private rooms with solid Internet connection,” he said. And KMC Solutions is flexible enough to respond to the changing needs of its clients.

“Flexibility means you’re providing your clients constant new room sizes on new floors, and sometimes in new buildings, which allow them to expand with you. Or if they need to downsize, they can as well downsize, offering true flexibility,” Mr. Kittelson explained.

KMC Solutions is now offering other services, like staff augmentation. “We provide virtual teams within our offices for our clients abroad,” Mr. Kittelson said. These clients are normally based in North America, northern Europe, Singapore and Australia. They can directly contact their Philippine staff by phone, e-mail or Skype, and are allowed to implement their own processes and set deliverables. They also have the option to work directly with the staff in a KMC Solutions workspace.

Another is the human resources and payroll management service. KMC Solutions promises to quickly set up the office, together with the human resources services, a client needs. And it offers a comprehensive set of services designed to achieve the following: optimized talent management, reduction of costs, and improved process efficiency.

KMC Solutions will continue to expand, Mr. Kittelson said. “We’re constantly building quality facilities. We’re never not building. We’re expanding thousands of square meters at a time, always,” he said. He added, “I believe you’ll see us expand into second-tier cities throughout the country, and other parts of Metro Manila that are not the traditional CBDs.”

Parkway Corporate Center: The pinnacle of success

Since its groundbreaking in 2015, the Parkway Corporate Center, an office condominium that major developer Filinvest offers, has been steadily reshaping the burgeoning Filinvest City skyline, one level and glass curtain wall at a time. This year, investors and locators alike are another step closer to reaching the pinnacle of success with the completion and turnover of this remarkable corporate tower by the fourth quarter of 2018.

This means that investors will soon reap healthy returns on their property investment, with the Parkway Corporate Center being one of the few office developments in the market to offer state-of-the-art units for sale. For locators, they soon can move into their office units — ranging from a flexible 36 square meter all the way to a full floor — as well as enjoy the features and amenities that can catapult your business to world-class status.

The completion of this smart, future-ready office building
is slated for the fourth quarter of 2018.

Additionally, the Parkway Corporate Center, with its impressive design by H1 Architecture and Design, rises apart from the rest with its unrivaled location and cutting-edge facilities.

As a future-ready premium office tower, Parkway Corporate Center provides an ideal setting for continuous business growth with its intelligent space planning and modern building facilities such as six high-speed elevators, 24-hour security with CCTV cameras in strategic areas, 100% back-up power, and an advanced fiber optic backbone. Of note as well is its VRF (Variable Refrigerant Flow) air-conditioning system, which results in consistent cooling comfort, quiet operation, and utmost energy efficiency. Double-glazed low-e glass, on the other hand, helps protect against UV radiation and fading while reflecting heat back, thus ensuring that the interior temperature remains unaffected.

Coupled with this are the numerous standard amenities including an elegant main lobby, a retail plaza at ground floor, a fully-equipped business center at 7th level, a podium deck garden, pocket gardens every five levels, plus eight levels of secured parking — all providing a healthy balance in the workplace.

Serving as the home of the Parkway Corporate Center, at the prestigious corner address of Corporate and Parkway Place, is Filinvest City, Alabang, a thriving, fully-integrated, and self-contained 244-hectare metropolis that harmonizes modern conveniences with nature — a genuine work-live-play environment that is quickly reinforcing its stature as the ultimate green city that’s in close proximity to the CALABARZON region and just 15 minutes from Makati and the Ninoy Aquino International Airport (NAIA).

Indeed, the Parkway Corporate Center allows your business to grow with the city and achieve success unlike any other, as it is primed for continuous advancement in the Metro South.

For more information, call (02) 8096517 or visit www.parkwaycorporate.com.

Gov’t expects 3rd telco player by June

THE COUNTRY can expect a third major telecommunications service provider to be named by June, even as the government continues to fine-tune selection criteria.

The Department of Information and Communications Technology (DICT) and the National Telecommunications Commission (NTC) are now looking at May 24 as deadline for bid submission, officials said in a public consultation in Quezon City on Tuesday, adding that they expect the final memorandum circular on selection criteria published on April 9.

“The submission of bids is May 24, 2018,” NTC Commissioner Gamaliel A. Cordoba said in the second stakeholders’ consultation.

“So — worst case — maybe first week of June we will be finished with the exercise.”

Sought for clarification, DICT acting Secretary Eliseo M. Rio, Jr. said in a telephone interview that the end of “exercise” refers to “the naming of the third player: around end of May, but that can extend to June.”

The new service provider should be able to accept subscribers by yearend, Mr. Rio told reporters after the event.

The government is also overhauling the draft criteria released for comment last week that included a requirement for interested parties to have a net worth of at least P10 billion.

“Wala na ‘yun (That’s gone),” Mr. Rio replied when asked on the net worth requirement.

“Ang papalit dyan is ‘yung (What will replace that will be) performance bonds, where they say ‘I’m going to put up these services — this level of services — I assure you and I bet that I can do it,’” he explained. “They are going to be required to put in 25% of their equity in a bank after 90 days.”

The new parameters will put more emphasis on performance metrics like committed minimum coverage of population and Internet speed.

“For the first year, the minimum is 15% of the population. This is not geographical but in terms of the people reach. What would happen is that the bidder for the first year… will cover 20% of the population… cannot go below 15% set by the govt,” NTC’s Mr. Cordoba explained.

“We expect in year seven or eight, the new player would be able to cover 80%.”

He added that committed speed will also have a staggered increase over the same period, starting with 8 megabits per second (Mbps) on the first year of operation and reaching 16 Mbps by the fifth year.

Winthrop Yu, chairman of Internet Society-Philippines, told reporters on the sidelines of consultations that “what the government is trying to do is remove what in elections would be nuisance candidates that don’t have the capacity to deliver results.”

Other criteria in the Feb. 20 draft include not being related to any telecom group with mobile and broadband wireless market share of at least 40% — in reference to PLDT, Inc. and Globe Telecom, Inc.; and not having any “bidder’s liabilities,” defined as “uncontested obligations” to the NTC as of Jan. 31, including supervision and regulation fees, spectrum user fees, penalties, surcharges and interest.

“Hopefully, this week we can have initial draft which we can publish maybe next week, and then 10 days after that, we can have our first public hearing [on the new draft],” DICT’s Mr. Rio said.

The search for a third major telco player was triggered by President Rodrigo R. Duterte’s (PRRD) call for improved telecommunications services. He had wanted the new service provider named by next month.

Sought for comment, Presidential Spokesperson Herminio Harry L. Roque, Jr. told reporters in a mobile phone message: “We may have been overtaken by circumstances.”

“Seems that there will be a delay even if PRRD does not want it,” he said. “But if delay is inevitable, so be it.” — Patrizia Paola C. Marcelo

Fiscal gap steadies in 2017, but falls short of program

By Melissa Luz T. Lopez
Senior Reporter

THE PHILIPPINES incurred a slightly narrower budget deficit in 2017 that fell below program, with a double-digit pickup in spending matched by above-target revenue collections, according to latest Treasury data.

The country logged a P350.6-billion fiscal gap last year, slightly smaller than 2016’s P353.4-billion deficit and 27% short of a P482.1-billion program for 2017, the Bureau of the Treasury said in a statement. Last year’s full-year gap was equivalent to 2.2% of gross domestic product (GDP), compared to 2.4% of GDP in 2016 and a three-percent program.

Fiscal Performance

Revenues reached P2.473 trillion for the full year, up by 13% from the P2.196 trillion raised in 2016 and two percent past a P2.427-trillion target, marking the first time in recent years that collections beat the official target.

The Treasury said this is the highest annual collection growth recorded since 2013.

Broken down, the Bureau of Internal Revenue (BIR) collected P1.772 trillion in taxes, up 13% year-on-year but a tad short of the P1.783-trillion target. The Bureau of Customs (BoC) collected P458.2 billion last year, 16% more than the previous year’s tally and nearly matching a P459.6-billion goal.

Non-tax revenues such as fees and penalties collected by other government agencies totaled P222.5 billion, up three percent from a year ago and overshooting a P168.5-billion target.

December alone saw revenues grow 35% to P223.1 billion from the year-ago P165.3 billion. This came as non-tax revenues from the Treasury more than doubled to P26.1 billion and as collections from the BIR, BoC and other tax-collecting offices jumped 29% to P197 billion.

Government spending hit P2.824 trillion in 2017, an 11% rise from the P2.549 trillion disbursed a year ago. However, this missed the P2.909-trillion spending target by three percent, according to Treasury data.

Spending grew 16% to P330.2 billion in December alone from P283.6 billion a year ago.

Despite settling below the deficit ceiling set for the full year, Finance Secretary Carlos G. Dominguez III said the latest figures represent a “big improvement” in public spending.

“[I]t’s not like a sports car when you step on the gasoline it goes right away. This one takes a little time for the government, [but] we are moving in the right direction I think,” Mr. Dominguez told reporters on the sidelines of the launch of the Philippine Tax Academy (PTA).

“Last year was the first full year that we were doing it… This year we’ll even do better.”

The Department of Finance (DoF) on Tuesday unveiled the PTA, which will provide continuing training and education to tax-collecting officials.

Economists see improved fiscal performance this year, with spending expected to accelerate as the government rolls out more infrastructure projects and aided by additional revenues from tax reform.

“[W]e saw a narrowing of government underspending for 2017 versus 2016, suggesting an improvement in the utilization of programmed budget for spending purposes,” said Angelo B. Taningco, economist at Security Bank Corp.

“We expect government spending to accelerate on the back of its infrastructure push, and would outpace government revenues and support economic growth,” Mr. Taningco added, noting that he expects a fiscal deficit equivalent to 2.7% of GDP this year.

The administration of President Rodrigo R. Duterte plans to spend some P1.1 trillion this year on priority infrastructure, about a fourth of the full-year national budget and equivalent to 6.3% of GDP.

“More infrastructure financing via official development assistance could speed up the deployment of more infrastructure projects and lower the financing costs of the government,” added Michael L. Ricafort, economist at the Rizal Commercial Banking Corp.

He added that resolving right-of-way issues and improved clarity on contracts may “help accelerate” project deployment, which in turn could spur growth.

Tax reform will also help sustain an increase of government spending, with the first package that took effect Jan. 1 expected to generate up to P90 billion in additional funding for this year alone

DoF’s Mr. Dominguez said a team from the Department of Public Works and Highways has been sorting out right-of-way issues for all priority infrastructure projects.

The government plans to raise P2.841 trillion revenues and spend P3.364 trillion this year, resulting in a P523.6-billion budget gap, according to the Department of Budget and Management.

This is expected to spur GDP growth to 7-8% from last year’s 6.7% and 2010-2016’s 6.3%.

Loans continue to fuel banks’ 4th quarter double-digit asset growth

By Lourdes O. Pilar
Researcher

FOURTH-QUARTER growth in the assets of the country’s biggest banks continued to post double-digit growth from the previous year, with loans increasing by nearly a fifth and asset quality still above regulatory minimum levels.

BusinessWorld’s 4th Quarter Banking Report shows the combined assets of the country’s universal and commercial banks (UK/Bs) grew 11.5% to P14.88 trillion from the P13.35 trillion recorded in 2016’s comparable three months.

The fourth-quarter 2017 growth pace was slower than the 14.1% expansion in the third quarter as well as the 12.94% clocked in 2016’s final three months. Nevertheless, total asset growth remained faster than the country’s 6.6% fourth-quarter overall economic expansion.

Bank loans, which comprised 53% of the big banks’ assets, grew 18.5% to P7.93 trillion from P6.69 trillion in the fourth quarter of 2016.

In terms of profitability, UK/Bs’ median return on equity (RoE) improved to 5.7% from 4.7% in the third quarter of this year. RoE — the ratio of net profit to average capital — measures the amount shareholders make on every peso invested in a company.

BDO Unibank, Inc. (BDO) continued to be the biggest bank in terms of assets, followed by Metropolitan Bank & Trust Co. (Metrobank) and the Bank of the Philippine Islands (BPI).

They were also the banks that issued the most loans during the period, also in that order.

Among banks with assets worth at least P100 billion, Robinsons Bank Corp. posted the fastest growth in assets and bank loans in the fourth quarter at 34.9% and 48.5%, respectively.

In terms of deposits, BDO had the most money with P2 trillion, followed by BPI and Metrobank.

In terms of growth, Robinsons Bank saw the biggest increase in its deposit base at 42.2% followed by Asia United Bank (22.9%) and Security Bank Corp. (19.2%).

ASSET QUALITY
Banks’ median capital adequacy ratio dipped to 17.2% in the fourth quarter from the third quarter’s 17.6%.

Nevertheless, the ratio remains above the regulatory minimum of 10% set by the Bangko Sentral ng Pilipinas as well as the international standard of eight percent.

Meanwhile, the non-performing loans (NPL) ratio of the biggest banks improved to 1.42% compared to the third quarter’s 1.61%.

The non-performing assets ratio — a measure of bank health that combines NPLs, foreclosed properties and total assets — likewise improved to 0.53% from 0.59% in the third quarter and 0.56% in the fourth quarter of 2016.

As a percent of total assets, foreclosed properties remained steady at 0.35% compared to the third quarter and lower than the previous year’s 0.39%.

The banks’ NPL coverage ratio — the ratio of the total loan loss reserves to gross NPL — stood at 149.4% last quarter.

This was higher than 136.1% in the preceding three months, but was still enough to cover the entire value of bad loans held by the UK/Bs.

Loan loss reserves totaled P145.7 billion, 7.37% more than a year ago.

Biggest Banks

BusinessWorld Research has been tracking the financial performance of the country’s UK/Bs on a quarterly basis since the late 1980s using banks’ published statements of condition.

Meralco receives offer for 50-MW solar capacity

MANILA ELECTRIC Co. (Meralco) has received an offer for an additional capacity of 50 megawatts (MW) of solar energy and has subjected the same to a competitive selection process (CSP), the outcome of which will be known by end-February, company officials said.

Lawrence S. Fernandez, Meralco vice-president and head of utility economics, said the distribution utility had so far signed with three solar power developers, with all power supply contracts awaiting approval from the Energy Regulatory Commission (ERC).

The fourth offer came from Pilipinas Newton Energy Corp. for 50 megawatts at P2.98 per kilowatt-hour (kWh), the lowest solar cost received so far by Meralco, he added.

“The three are still pending with the ERC. One has not yet been filed,” he told reporters, referring to the offer of Pilipinas Newton. “It’s still undergoing CSP (competitive selection process).”

Meralco’s first solar power supply agreement is with Solar Philippines Power Project Holdings, Inc. at P5.39 per kWh. It was followed with a deal with PowerSource First Bulacan Solar, Inc. for P4.69 per kWh, and another contract with Solar Philippines for P2.99 per kWh, Mr. Fernandez said.

ERC rules require power supply contracts to be subjected to price challengers through a CSP, which is aimed at sourcing energy at the lowest cost.

“Malalaman natin (We will know by the) end of this month kung may (if there is a) price challenger,” he said.

Based on data from the Department of Energy, Pilipinas Newton is building a 70-MW solar farm in San Manuel, Pangasinan. The target commissioning and commercial operation dates of the project are yet to be disclosed.

Mr. Fernandez said Meralco is sourcing the new solar capacity based on the power situation in the past five years which bared that demand from 2012 to 2017 in the Luzon grid has grown by around 2,900 MW against a capacity addition of only around 2,600 MW.

“Naa-outpace ng demand ’yung capacity addition (Demand is outpacing the capacity addition). We’re not even considering potential maintenance or replacement of old capacity,” he said.

“The grid itself really needs more and more new capacity not just for this summer but going forward if demand continues to grow,” he added.

Separately, Oscar S. Reyes, Meralco president and chief executive officer, said the company had signed with Lopez-led First NatGas Power Corp. for the entire capacity of latter’s 414-MW San Gabriel gas-fired power plant in Batangas.

The power supply contract is for six years, he said.

“What we need is — [that’s why] we signed with San Gabriel — capacity that we can ramp up and ramp down,” he said.

“So it’s mid-merit,” he said, referring to energy that can quickly switched on when needed. “24/7/365 so the plant must be able to do that.”

Mr. Fernandez said Meralco is open to sourcing energy from all technologies “as long as it’s competitive, it will lead to a more efficient and a more reliable system,” adding the company would know by the end of the month if the San Gabriel offer is topped by a lower price offer.

He said the first CSP for San Gabriel resulted in a failed bidding because no price challenger came forward. ERC rules call for a second round of bidding.

Last year, natural gas accounted for 37.5% of Meralco’s fuel sources, with coal making up the second biggest at 34.1%. The balance is a mix of sources, including hydropower, biomass and geothermal.

Meralco’s controlling stakeholder, Beacon Electric Asset Holdings, Inc., is partly owned by PLDT, Inc. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has interest in BusinessWorld through the Philippine Star Group, which it controls. — Victor V. Saulon

Manila Water net income climbs 7%

MANILA WATER Co., Inc. recorded a 7% increase in 2017 core net income to P6.5 billion, driven largely by the strong sales of its Metro Manila water concession, the expansion of other local operations and higher supervision fees, the company said on Tuesday.

The “robust” income rise came with a 5% growth in consolidated revenues to P17.7 billion, it told the stock exchange. Net of non-recurring expenses, reported income increased by 1% to P6.1 billion.

“We are proud of our ability to register solid core income growth in 2017, as it highlights the strength of our business, and our people. Building on this foundation, we continue to build our business and expand our market reach, both domestically and in the region,” said Ferdinand M. dela Cruz, Manila Water president and CEO.

“Our organization is now geared up for growth, and we are very excited to take on the opportunities that lie ahead,” he added.

Manila Water said all operating units last year reported “notable growth” in billed volume. The Manila concession grew by 2% as it connected new customers in previously unserved areas. It said with the concession’s continuing expansion, it now serves more than 6.5 million people in the eastern side of Metro Manila.

Its other subsidiaries in the Philippines — operating in Boracay, Cebu, Clark and Laguna, and with the addition of estate water — all posted double-digit billed volume increases, the company said.

Other income net of expenses rose by 20% to P541 million because of the higher equity share in the net income of associates.

Manila Water said its two bulk water companies in Vietnam, Thu Duc Water and Kenh Dong Water, together with Saigon Water, contributed P457 million in net income, up 24% from 2016.

The company said consolidated operating costs and expenses rose by 19% to P7.4 billion, led by the 67% increase in overhead costs to P1.5 billion.

Of the total overhead costs, provision for uncollectible receivables made up 38%. Direct costs, which rose by 12%, was mainly due to higher power and light charges from higher consumption and rates.

“The healthy balance sheet enabled Manila Water to carry out an unprecedented capital expenditure program rollout in 2017,” the company said.

Consolidated capital expenditures increased by 48% to P13 billion after the company’s “intensified infrastructure build-up to lay additional groundwork for future growth. Its strong balance sheet is supportive as well of its new acquisitions.”

On Tuesday, shares in Manila Water climbed 2.39% to P27.90 each. — Victor V. Saulon

Megaworld hikes spending for Parañaque township

THE GROUP of tycoon Andrew L. Tan is ramping up spending for its township called Westside City in Parañaque City to P121 billion for the development of residential units, hotels, and a casino complex in the area.

In a statement issued Tuesday, Megaworld Corp. said it will now be spending P54 billion over the next 10 years for Westside City, an integrated urban township within the state-owned casino and resorts complex, Entertainment City.

This is more than five times the original capital expenditure of P10 billion Megaworld allotted for the 31-hectare estate when it was launched in 2015.

With this, the listed property developer will be building two new homegrown hotel brands, namely Kingsford Hotel with 529 rooms and Grand Westside Hotel with 685 rooms.

“We give our all out support to the country’s growing tourism industry. Providing more hotel options will further boost tourist arrivals especially in this growth area,” Megaworld Senior Vice-President and Treasurer Francis Canuto said in a statement.

For the residential component, Megaworld will build Bayshore Residential Resorts consisting of 15 towers and Gentry Manor with four towers. The two developments will supplement Westside City’s residential inventory of around 4,000 units worth about P50 billion.

Meanwhile, Travellers International Hotels Group, Inc. (TIHGI) has also committed to spend $1.1 billion or around P57 billion for the development of Westside City Resorts World Complex inside the township.

“While a big portion of Westside City will be handled by Travellers International, Megaworld is pouring in a huge amount of money to expand our residential and hotel offerings within the township. The demand is high and we want to tap every available opportunity in this booming side of the metro,” Mr. Canuto said.

Aside from residential and hotel components, Westside City will also house a luxury mall and an array of leisure and entertainment facilities.

Megaworld is the property arm of Mr. Tan’s Alliance Global Group, Inc., while TIHGI handles investments for the gaming sector.

Shares in Megaworld gained 20 centavos or 4.35% to P4.80 apiece on Tuesday, while shares in TIHGI added two centavos or 0.59% to close at P3.43 each. — Arra B. Francia

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