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Rice imports down 42% on higher international prices

BW FILE PHOTO

THE PHILIPPINES imported 2.19 million metric tons (MT) of rice in the year to date, down 42.8% from a year earlier due to higher international rice prices, the Bureau of Plant Industry (BPI) said.

The BPI said rice imports in August up to Aug. 24 fell 56.4% year on year to 188,933.9 MT.

Federation of Free Farmers National Manager Raul Q. Montemayor said that rice importers were greatly affected by the higher market prices.

“It has become too expensive and risky for some importers to bring in rice specially after the India export ban,” Mr. Montemayor said in a Viber message.

Ateneo de Manila economics professor Leonardo A. Lanzona said in a Messenger chat that the rice export curbs by Vietnam have also affected rice imports.

“As a result, world rice prices have increased, thus resulting in lower imports,” Mr. Lanzona said.

India announced in July that it had imposed an immediate ban on exports of non-basmati white rice to ensures domestic availability of the commodity.

Vietnam also announced that by 2033 it plans to reduce rice exports to four million tons a year.

In the year to date, Vietnam remained the Philippines’ top source of rice, shipping 1.97 million MT or 91.2% of total Philippine imports.

Thailand and Myanmar shipped 90,459 MT and 85,545 MT, respectively.

Rice imports from India hit 13,187.39 MT in the year to date, equivalent to 0.6% of the total.

The Department of Agriculture’s price monitors placed the price of domestic well-milled rice on Aug. 24 at between P45 and P57, while regular-milled rice was selling for P41 to P55.

Imported well-milled rice was selling in Metro Manila markets at between P46 and P52. The Philippines does not import regular-milled rice. — Adrian H. Halili

Style (08/28/23)

Rustan’s Beauty Addict Event marks Beauty Hall opening

ON SEPT. 7, Rustan’s The Beauty Source presents the annual Beauty Addict Event, to be held in its newly revitalized Beauty Hall. Participating brands — Chanel, Clarins, La Prairie, Anastasia Beverly Hills, Tom Ford, MAC, La Mer, Clé de Peau Beauté, Shiseido, Hermes, Diptyque, Maison Francis Kurkdjian, L’Occitane, Grown Alchemist, Malin+Goetz, and L:a Bruket, among others — can literally be seen under a new light during the event. Interested parties may register for the Beauty Addict Event at bit.ly/RTBS-SeeingBeautyInANewLight. During the launch, there will be cocktails, roving interviewers, and photo opportunities with the Glam Bot, a high-definition, slow-motion camera that will highlight the guests’ beauty looks and styles up close. Guests can explore the new Beauty Hall and enjoy special offers, activities, and games from their favorite beauty brands during the event. There will be light installations and LED screens at the Beauty Hall. The Beauty Hall will be officially launched through a ribbon-cutting ceremony with Rustan’s executives followed by a dramatic reveal featuring the Halili Dance Group. Afterward, guests will be treated to a special performance alongside the Manila String Machine Orchestra together with Bea Tantoco. Capping off the night is an afterparty featuring live music by Renee Dominique and top DJs. The champagne bar is sponsored by Philippine Wine Merchants. Gourmet hors d’oeuvres will be catered by Margarita Fores. On Sept. 7 participating beauty brands will be offering one-day promos from midnight to 11:59 p.m. This applies to all Rustan’s stores, Personal Shopper On Call, and Rustans.com. Metrobank credit card holders who are also Rustan’s Beauty Addict Members, will get an additional P1,000 off on top of the existing Beauty Addict Event day promotions for a minimum purchase of P10,000. During the event, the first 100 guests to arrive at Rustan’s Beauty Hall will receive a two-sided Beauty LED Compact Mirror featuring a regular mirror, a magnified mirror, and LED lights that mimic sunlight. Guests who post their selfies on their socials during the event will also have the chance to win the “Best Selfie Award.” Each will receive a P10,000 shopping spree at Rustan’s The Beauty Source. Meanwhile,  from Sept. 8 to 17, participating Rustan’s beauty brands will have another promo applicable to all Rustan’s stores, Personal Shopper On Call, and Rustans.com. Plus, from Sept. 1 to Nov. 30, Rustan’s will offer the Beauty Addict Holiday Gift With Purchase. For a minimum receipt purchase of P30,000, Beauty Addict members are entitled to a complimentary Make It Pop Floral Jewelry Box from Kate Spade New York. Running simultaneously is the Beauty Addict Holiday Raffle. The grand prize winner will get a three-night stay for two at an exclusive hotel in Paris, France inclusive of Singapore Airlines KrisFlyer miles, redeemable for a Business Class Saver Award ticket to Paris, France. For every purchase of P2,500 worth of products and services from Rustan’s The Beauty Source, Beauty Addict and KrisFlyer members are entitled to one electronic raffle entry, while Metrobank cardholders, who are also Beauty Addict and KrisFlyer members, are entitled to two electronic raffle entries when they shop until Nov. 30.

Magnitude 9.9 Super Sale at the Paseo Outlets

THE PASEO Outlets at Greenfield City is gearing up for the Magnitude 9.9 Super Sale on Sept. 8 to10. Discounts can be as large as 70% off, with discounts on top of discounts on already on-sale items. Among the participating brands are 158 Designer Blvd. (buy two sale items, get an additional 10% off from Tommy Hilfiger), American Eagle Outfitters Outlet (buy 1 get 1), Bench Depot (Cotton On, Call it Spring, Kashieca, La Senza, and Pedro), BrandSmart, Crocs Outlet, Levi’s Factory Outlet, Marks & Spencers (buy two or more, get 20% off), along with sportswear and shoe brands Under Armour, Merrell, No Fear, Oakley Vault Saucony, and Skechers, adidas, Puma (Buy 2, Get 3), the Nike Factory Store, and Park Outlet (up to 70% off on Nike, Jordan, Puma, New Balance, Converse, Havaianas). Don’t miss multibrand stores The Outlet with Banana Republic, Gap, and Old Navy, Fusion (up to 70% off on Merrel, Keds, Sperry) Time Collection Outlet Store and USDS Outlet. At F&F, get Calvin Klein items at up to 50% off. The Paseo Outlets is located along Tagaytay Balibago Rd., Greenfield City, Sta. Rosa, Laguna.

Uniqlo collaborates with KAWS on T-shirts and more

UNIQLO will simultaneously launch the definitive book on the renowned contemporary artist KAWS, and a new UT T-Shirt collaboration collection with the artist, on Sept. 8. Both the new UT collection and the art book — launched exclusively with Uniqlo and publisher Phaidon — will be available at Uniqlo stores globally and through uniqlo.com. Designs in the collection of T-shirts and sweatshirts will feature KAWS’ signature COMPANION and BFF characters (the latter in bright pink), the cover of the new book, as well as the artist’s iconic XX motif. Items will be available in adults’ (unisex) and kids’ sizes. Additionally, Uniqlo will also offer a range of limited-edition gifts for customers purchasing the art book and UT collection. To celebrate the collaboration, some of the largest Uniqlo stores around the globe will be wrapped in designs featuring KAWS’ characters. The three adults T-shirt designs (P790), two adults sweatshirt designs (P1,490), three kids T-shirt designs (P590), two kids sweatshirt designs (P990), and the KAWS Art Book (P3,490) will be available at Uniqlo stores around the Philippines and uniqlo.com. The kids’ items only available at stores with kids’ sections, as well as on UNIQLO.com Special site: https://www.uniqlo.com/ph/en/contents/feature/kawsut2023/

Old Navy holds pants sale

OLD Navy will be holding the Very Important Pants sale from Sept. 15 to 17, with a Buy 1, Get 1 Jeans and Long Pants offer and 40% off on two or more regular-priced items. Old Navy VIPs can enjoy the same Buy 1, Get 1 offer and 50% off on regular-priced items during the VIP preview starting Sept. 11 to 17 at Old Navy Shangri-la, Bonifacio High Street or oldnavy.com.ph. Old Navy’s bestselling women’s jeans use innovative technology that features the Never-Quit Shape Retention and the latest stretch fabric making it easy to move in without bagging or sagging at the end of the day. There will be extra high-waisted wide-leg trouser jeans (online exclusive), high-waisted jeans, 1990s-inspired baggy wide-leg non-stretch jeans, and mom jeans, to ripped jeans and acid-wash jeans. There are also non-stretch jeans for women, made from 100% cotton. For men there are the classics: straight jeans, as well as fashion-forward baggy, loose, and slim jeans, crafted with high-quality denim that offers both durability and comfort. Most feature 360° super stretch tech for maximum comfort. There are also jeans for girls and boys. Old Navy makes its jeans eco-friendlier as well, using more recycled cotton and less water in the production process to create jeans that are more sustainable. Aside from classic styles, like chino pants to trendy joggers, and cargo pants, Old Navy has athletic pants and powersoft legging for yoga, workouts, and at the gym.

Michael Cinco to hold Metaverse Fashion Gala

INTERNATIONALLY renowned Filipino fashion designer Michael Cinco will bring his couture to Philippine Blockchain Week (PBW) in the country’s first-ever Metaverse Fashion Gala. Taking place on Sept. 18 at the Marriott Grand Ballroom, Newport World Resorts Manila, the event will redefine how audiences see digital fashion. “Fashion has always been about redefining barriers, and right now, there’s no bigger barrier than taking what’s physical into the digital,” said Mr. Cinco in a statement. “I’m excited to be partnering with PBW and even more excited for everyone to see what we have planned.” At the Gala, collectors will see a showcase of signature Cinco pieces, while the runway models’ avatars will be shown wearing the same outfits in the Metaverse. Fashion collectors will be invited to take home their favorite pieces, which will be made available for purchase through an exclusive pre-sale, which — in addition to the actual gowns — will come with special edition digital collectibles. PBW delegates will be treated to an exhibit of Michael Cinco gowns, which will be exhibited throughout the PBW venue. Part of the proceeds from the Michael Cinco Metaverse Fashion Gala will benefit the World Wildlife Fund for the conservation of endangered species, and the Global Reskilling Movement, an international initiative devoted to providing better opportunities for the youth. Tickets for the Michael Cinco Metaverse Fashion Gala, which include pre-show cocktails and a five-course dinner are on sale now. For reservations or more information, visit pbw.ph/mc or e-mail info@pbw.ph.

Red Charity Gala is back with Ivarluski Aseron

AFTER a three-year hiatus due to the pandemic, the fashion and charity event, the Red Charity Gala, returns on Oct. 8 at The Peninsula Manila. It will feature designer Ivarluski Aseron. Launched in 2009 by philanthropists and socialites Tessa Prieto and Kaye Tinga, the Red Charity Gala was organized to benefit The Philippine Red Cross, a non-profit humanitarian organization, and the Assumption HS81 Foundation, among other chosen beneficiaries. Every year, the Red Charity Gala features collections from famed local fashion designers such as Rajo Laurel, Joey Samson, Chito Vijandre, Lesley Mobo, Jojie Lloren, Ezra Santos, Cary Santiago, Michael Cinco, Furne One and Dennis Lustico. This year, it turns the spotlight on Ivarluski Aseron. In his latest collection, he paid homage to the Philippine culture with his modern takes on the Filipiniana incorporating the basket weaving technique typical of the banig. The designer has gained numerous accolades including Fashion Designer of the Year for Evening Wear at the Mega Fashion Awards 2008 and Revolutionary Designer of the Year at MTV 2004. He has participated in many local and international fashion weeks including Bali Fashion Week in 2007, Kuala Lumpur Fashion Week in 2005/2007 and Philippine Fashion Week from 2002 to 2005. For this year’s Red Charity Gala, Mr. Aseron’s collection will center on the theme “A Memoir in Motion.” For updates, follow Red Charity Gala on Instagram (@redcharitygala) and contact Maggie Gineta at 0917-832-5570 for other information.

BTS’ Suga, Mitchell & Ness collaborate on NBA collection

THE NATIONAL Basketball Association (NBA) and Mitchell & Ness have announced a new NBA capsule collection in collaboration with NBA Ambassador and BTS star Suga. The South Korean rapper, songwriter, and producer provided extensive creative input on the apparel line, which features NBA team-branded T-shirts, hoodies, jackets, shorts, and headwear across six NBA teams: the Brooklyn Nets, Chicago Bulls, Golden State Warriors, LA Clippers, Los Angeles Lakers and New York Knicks. The teams were selected based on the US cities where Suga performed as part of his recent solo world tour SUGA | Agust D TOUR ‘D-DAY’. The new SUGA x NBA capsule collection by Mitchell & Ness is marked with Suga’s Agust D moniker to signify his relationship with the NBA and also incorporates several design motifs inspired by his album D-DAY. The collection will be available in the coming weeks through select brick-and-mortar and online NBA Stores, Mitchell & Ness stores, and the Weverse Shop. Interested parties can visit www.nba.com/SUGAxNBA to register their interest with an NBA ID and gain access to early purchase information.

Adidas introduces Switch Fwd

ADIDAS has released its latest running shoe, Switch Fwd, constructed using cutting-edge design processes. The shoe’s engine — the EVA compound midsole — features intricately designed voids that collapse and spring forward, converting weight into forward motion, unlocking the potential of athletes of all levels by moving them forward with every stride. The result is a smooth-running experience that’s unique to forward technology-fueled running shoes. The soft EVA compound midsole, working in unison with the TPU plate, ensures a stable and cushioned transition through the forefoot and midfoot during the forward motion process. Additional features of the new Switch Fwd include a lightweight Continental outsole, which gives runners extra grip in all weather conditions; and a lightweight engineered mesh upper, which features strategically placed windows on the forefoot and midfoot for enhanced breathability. The shoe launches in a primary white and silver-violet colorway with lucid lemon detailing for women, and a primary white and wonder blue colorway for men with lucid lemon accents. The Switch Fwd is priced at P8,500, and is available via the adidas app, online https://www.adidas.com.ph/running and in stores.

Ever Bilena launches Matte K-Beauty collection

TO HELP fans achieve a K-inspired look, Ever Bilena has launched its newest Matte K-Beauty collection lipsticks. The lipsticks come in a lightweight formula and are infused with sunscreen filter and vitamin E for moisturized and protected lips. This matte K-Beauty collection quickly delivers vivid pigmented colors in just a few swipes. It features six colors inspired by trendy Korean shades: Daily Coral (similar to Etude Fixing Tint in BT21 RJ), Auburn Delight, the Paradise Nude, Maple Candy, Sweet Pea (a deep muted pink with a cool undertone), and Marshmallow Berry (similar to Peripera Ink Velvet in 28 Mauveful Nude, a cool-toned purple nude lip shade). The newest Ever Bilena Matte K-Beauty collection is available for P225 per lipstick. Ever Bilena products can be purchased on their official Shopee and Lazada stores, Watsons branches nationwide, and all leading department stores nationwide.

Looking back and MOVING forward

PHOTO FROM TOYOTA MOTOR PHILIPPINES

On its 35th year, Toyota Motor Philippines sees a future
with the revival of a trusted utility nameplate

By Dylan Afuang

LAST WEEK, TOYOTA Motor Philippines Corporation (TMP) celebrated 35 years of feats in automotive sales and production in the country.

TMP proudly sits as the number-one “mobility company” in the Philippines, holding an almost 50% market share in vehicle sales. As a result, the country has also become the Japanese carmaker’s 10th largest market globally.

From its incorporation in August 1989 to mid-2023, TMP has produced 1.03 million vehicles domestically, delivered 2.24 million units to homes across the nation, and received over 16 million units for maintenance at Toyota dealer workshops all across the country.

TMP continues to aid in the nation’s growth as well. Since 2000, TMP has invested a total of P73.7 billion, paid P448 billion in taxes and duties, and exported P73.7 billion worth of car parts and components. TMP’s Santa Rosa, Laguna plant also manufactures Toyota Aisin transmissions.

“It has been a privilege to grow and prosper here in the Philippines,” declared Toyota Motor Corporation Chairman Akio Toyoda in his speech at TMP’s 35th-anniversary event held in Bonifacio Global City, Taguig. The executive had flown in for the occasion, and to attend key TMP activities over the weekend.

“My greatest wish is simply to be number one in the hearts of our customers here in the Philippines,” Mr. Toyoda continued. “Because we want to contribute more to this country than just cars. We want to help foster economic opportunity.”

For his part, TMP Chairman Alfred V. Ty recalled, “Thirty-five years ago, we established Toyota Motor Philippines, a company wholly committed to improving the lives of Filipinos through the business of manufacturing and selling automobiles. Many things have changed since, but the philosophy established by our founders, Dr. Shoichiro Toyoda and Dr. George SK Ty — ‘number one in quality and number one in customer service’ — will always remain the same. We renew our promise of providing mobility (for) every Filipino.”

One vehicle aimed to mobilize the Filipino masses and spur local economy is the next-generation Tamaraw — a light commercial vehicle (LCV) still in concept form and whose production version is slated for 2024 release.

Also known as the Toyota IMV 0 Concept and Rangga, the Tamaraw Concept can be configured in various body types — from pickup, delivery truck, public utility vehicle (PUV), ambulance, to mobile cafe — to suit a variety of businesses and purposes. The Tamaraw was shown as a pickup truck and PUV at TMP’s anniversary event.

Renowned for dependability, the Tamaraw line was born in 1970, and was then succeeded by the Tamaraw FX, Revo, and Innova models. The future iteration will revive the utility vehicle model once upon a time so ubiquitous here that it has become a landmark model for Toyota, and even for the entire Philippine auto history.

Mr. Toyoda shed more light on the IMV 0 vehicle.

“I truly believe these are products that can enhance the quality of life for many people and provide new economic opportunities,” he said about the Toyota innovative international multi-purpose vehicle (IMV) family, which comprises the Innova, Fortuner, and Hilux. “We believe in building cars to serve the real-life needs of our customers. That is why our IMV 0 team spent many months in the field observing the lifestyles and needs of our potential owners,” the leader added.

According to Mr. Toyoda, localizing the vehicle will also enable TMP to meet the unique conversion needs and demands of Philippine clients. At TMP’s Santa Rosa, Laguna, plant, the new Tamaraw will also be produced as completely built-up units (CBU). “In 2024, for the first time ever, IMV vehicles such as the next-generation Tamaraw will be produced as CBUs right here in the Philippines!” he proudly exclaimed.

TMP invested an additional P4.4 billion in the Philippines for the local Tamaraw production that could start by the third quarter of next year.

When asked by “Velocity” about the Tamaraw’s potential price points and specifications once it enters production, TMP Vice-President for Product Planning Nico Bravante pointed out that these are still being studied by the carmaker.

However, the pickup Tamaraw Concept displayed appeared to be a functioning prototype, with a 2.4-liter diesel in its engine bay, mated to a manual transmission. These clues suggest that the real thing is nearing final stages of development.

“As we look ahead, I want to assure you that the future of Toyota Philippines is very bright and only going to get brighter,” Mr. Toyoda concluded.

Part of this hope surely rides on the trusty Tamaraw.

Globe says mobile download, upload speeds in 127 areas improve

GLOBE Telecom, Inc. said mobile data download and upload speeds improved in more than a hundred areas in the Philippines for the second quarter, marking a significant development as the company targets to provide digital inclusion to its customers.

“As we’ve seen a consistent rise in demand for mobile data, especially in the last few years, we have been constantly improving our network to bring better experience to our customers,” said Darius Delgado, head of Globe’s consumer mobile business, in a statement on Sunday.

For the April-to-June period, mobile data download and upload speeds in about 127 areas improved versus the first quarter, Globe said.

It recorded significant improvement in upload speed in Clarin, Bohol while recording the “highest boost” in download speed in Barira, Maguindanao.

Areas with significant improvements in download and upload speed are Taytay, Palawan; Claveria, Cagayan; San Agustin, Surigao del Sur; and Calubian, Leyte, the company said.

This came after the company committed to deliver better browsing speed to include remote areas in the Philippines.

“We are encouraged by these results, which prove that our efforts are paying off,” Mr. Delgado said.

Meanwhile, Globe continues to strengthen its efforts against bank-related scam and spam messages.

Last week, it reported that for the second quarter, these messages declined to 779,254, marking a significant decrease from the 5.1 million recorded a year ago.

For the January-to-June period, these messages also fell by 46.5% to 4.85 million from 9.06 million in the same period last year, Globe said.

At the local bourse on Friday, shares in the company fell by P45 or 2.41% to end at P1,825 apiece. — Ashley Erika O. Jose

A 5% economy?

STOCK PHOTO | Image by Sean Yoro from Unsplash

I take no delight in having been right and was unsurprised when the disappointing second quarter gross domestic product (Q2 GDP) annual growth number of 4.3% (from 6.1% in Q1) came out. Together with a few other private macro watchers like Anton Periquet (Chairman and CEO of AB Capital) and Philippine Institute for Development Studies (PIDS) Senior Fellow Margarita Debuque-Gonzales, we forecast a less optimistic growth of around 5% for this year, and over the medium term.

At a public forum in the UP School of Economics last week, honorable Professor Philip Medalla, unshackled by public office, was also less sanguine. Analysts who earlier were more optimistic hurriedly adjusted their forecast downwards by as much as one percentage point.

But not government.

Planning Secretary Arsi Balisacan — recently awarded Most Distinguished Alumnus by the UP Alumni Association (UPAA) — in a related lecture reaffirmed that their 6-7% is still achievable this year. Attributing the underperformance largely to government underspending, especially on capital outlays, he said that the government economic team — made up of himself, Finance Secretary Ben Diokno, and Department of Budget and Management Secretary Amenah Pangandaman — committed to do catch up spending for the second half.

I am vigorously rooting for the government to succeed in this.

I am also somewhat skeptical that this can be done speedily given the structural nature of the bottlenecks in government’s execution capacity. This impediment was underscored in a question that UPAA Lifetime Achievement awardee, engineer Rene Santiago, posed to Secretary Balisacan, noting the very low absorptive capacity of the Department of Transportation (at around 30% of disbursements) and the Department of Public Works and Highways (at 50%-60%). With inputs from him, Christine Tang and I identified the roadblocks for both (official development assistance/general appropriations act) ODA/GAA-financed and private-public partnership (PPP) projects which I excerpted in my column last April, “Infrastructure Anyone?” (https://www.bworldonline.com/opinion/2023/04/30/519979/infrastructure-anyone/).

These include: 1.) right of way delays; 2.) lack of a national inter-modal framework to serve as a basis for identifying, selecting, and prioritizing projects that will yield the highest economic returns for our archipelagic country; 3.) non-implementation of contracted user fees and charges; 4.) the problem that is the Department of Transportation and Communications (despite its having a very qualified and competent head, Secretary Jimmy Bautista); and, 5.) third-party challenges that hold up progress, from project preparation to award, especially for PPP.

While I would like to be optimistic that these can be overcome, it may be Panglossian to believe so, at least in the short run. Of course, government can choose to prioritize spending magnitude over quality, which may boost growth for 2023, but at high cost beyond.

THE MEDIUM TERM
Like Anton Periquet and Maggie Gonzales, we are also not optimistic that the Development Budget Coordination Committee’s forecast GDP growth of 6.5% to 8% for the balance of the administration’s term is likely, for several reasons.

First, there is the still depressed global growth due to several factors including the persistence of recession risks in the US, the war in Europe, and China’s reeling from a real estate bust, its poor COVID management, and the trade tensions with the US and its allies.

Then, consider that pre-pandemic, we were already at the peak of the credit cycle, largely due to long-running benign inflation and being “forever QE,” thus having both low interest rates and abundant capital (and with no way to go but to slow down).

Third, there are the adverse effects of COVID scarring, especially on the labor force (e.g., resistance to going back to the office, jobs mismatches) and a learning crisis.

Fourth, we have constrained fiscal resources and headroom, with public debt-to-GDP now at 60% from 40% pre-pandemic, and a highly elevated deficit-to-GDP of 7.3% in 2022, targeted to be pruned to 6.1% this year, and a primary budget deficit of 5.6% last year, targeted to go down to 3.6% this year.

Then there is the still high inflation as the continuing Ukraine-Russia war and the emerging El Niño phenomenon have an impact on food markets (e.g., India and Vietnam restricting rice exports), aggravating the decades-long hopelessly dysfunctional Department of Agriculture and Department of Agrarian Reform coupled with political resistance to agricultural imports from impacted sectors and rent seekers.

All this, together with still ongoing US Fed monetary tightening and the resulting elevated global and domestic interest rates, have a consequent negative impact on private investments and consumption. An emerging sustained “twin deficit scenario” (fiscal and foreign exchange) flagged by Prof. Medalla, also implies a likely wider interest rate premium on Philippine loans and securities.

Then there is the absence of any obvious new growth drivers to complement two old reliables, OFW remittances and BPO (business process outsourcing) earnings, whose future growth is challenged by an already high base compared to decades ago. Generative AI also poses a medium-term threat to BPO, especially for routine work, unless we can rapidly upskill our workers.

Finally, despite highly acclaimed roadshows by President Marcos Jr. and his economic team and prominent business leaders, there has been so far limited conversion to foreign direct investments — thanks to a miserable NAIA airport matched by a bureaucracy stuck in neutral. (Overheard from a foreign investor and tourist: “I won’t ever go back — spent more time at the airport than the beach.”)

Anton Periquet is even forecasting medium term growth of 4.5%, “a return to GMA era trajectory where foreign investment was absent and fiscal constraints prevailed.”

IMPACT ON FISCAL SUSTAINABILITY
A low medium term growth scenario, say of under 5%, has implications on fiscal sustainability. This can fuel a downward spiral of low revenues, high budget deficits, high interest rates, low public capex spending, thus even lower GDP, and potentially an expansive public debt-to-GDP ratio that makes us vulnerable to risks from financial shocks. Prof. Medalla even flagged the risk of a “perfect storm if perception of the Philippine government as a borrower were to go back to what it used to be.” This is well analyzed in a PIDS paper by Margarita Debuque-Gonzales, Justine Diokno-Sicat, et al (https://www.pids.gov.ph/publication/discussion-papers/fiscal-effects-of-the-covid-19-pandemic-assessing-public-debt-sustainability-in-the-philippines).

Thankfully, Secretary Diokno and his team are well aware of this, and are thus pushing for reforms that can tame spending and raise revenues, including: 1.) the reform of military pensions; 2.) tax measures such as new taxes on the digital economy and on junk food (though unpopular and regressive), and further reform of VAT to limit leakages; 3.) the privatization of government assets and operations, notably the big ticket Philippine Amusement and Gaming Corp. (better known as Pagcor); and, 4.) expenditure reforms including revisiting the expensive and flawed “free tuition in SUCs” (RA 10931), and streamlining of government bureaucracy.

These are all highly political. With resolve, strategic and skillful management leveraging of the President’s high approval rating, and with closer coordination with legislators via LEDAC (the Legislative-Executive Development Advisory Council), they are achievable. A column I wrote last month elaborates on some of these actions for the next 365 days. (https://www.bworldonline.com/opinion/2023/07/25/535716/marcos-2-0-year-2-to-dos/)

 

Romeo L. Bernardo is principal Philippine adviser to GlobalSource Partners (globalsourcepartners.com). He serves as a board director in leading companies in banking and financial services, energy, food and beverage, real estate, and others. He has had a 20-year run in the public sector, including stints in the Department of Finance (Undersecretary), the IMF, World Bank, and the ADB.

romeo.lopez.bernardo@gmail.com

BoE’s Broadbent  says rates may have to stay high ‘for some time yet’

JACKSON HOLE, Wyoming — Interest rates in Britain might have to stay high “for some time yet,” Bank of England (BoE) Deputy Governor Ben Broadbent said on Saturday, as the central bank seeks to curb the highest inflation rate among the world’s big rich economies.

Broadbent said in a speech that the knock-on effects of the surge in prices — such as pressure on employers to push up wages, which has led to record growth in pay — were unlikely to fade away as rapidly as they emerged.

“As such, monetary policy may well have to remain in restrictive territory for some time yet,” Mr. Broadbent said in a text of remarks he was due to make at the annual Jackson Hole Economic Policy Symposium in the United States.

The BoE said earlier this month that borrowing costs were likely to stay high for some time as it raised rates for the 14th time in a row.

Hit by the impact of Brexit, the COVID-19 pandemic and then Russia’s invasion of Ukraine, the BoE has struggled to tackle an inflation rate that peaked at 11.1% last October and which, at 6.8% in July, remains more than three times its 2% target.

Investors expect another increase in the BoE’s Bank Rate to 5.5% from its current level of 5.25% on Sept. 21, after the next scheduled meeting of the Monetary Policy Committee.

Mr. Broadbent said the BoE’s stance on interest rates would respond to “the evidence on spare capacity, and to indicators of domestic inflation, as and when it comes through.”

It was reasonable to expect a decline in energy and core goods prices over next few months but “one can only be cautious” about how quickly the pressure on wages will ease off, he added.

Mr. Broadbent said the shocks that had buffeted Britain’s open economy, with its reliance on imports, provided a stark illustration of how a sudden contraction in the supply of imported goods could hurt incomes and turn up the pressure on domestic inflation, chiefly via wage increases. — Reuters

Higher costs holding back chicken production

PHILSTAR FILE PHOTO

CHICKEN production growth was at the lower end of the expected range in the second quarter as poultry farmers grapple with higher production costs, an industry official said.

“The usual growth for the poultry sector is 3% to 7% a year. The 3.3% posted for the second quarter is at the low end of the range. It’s not a big deal in term of achievement but a cause for concern,” United Broiler Raisers Association President Elias Jose M. Inciong said.

The Philippine Statistics Authority (PSA) reported last week that chicken production rose 3.3% to 477.76 thousand metric tons on a liveweight basis.

The factors affecting production intentions, Mr. Inciong said in a phone interview, are the higher cost of inputs.

“The cost of production is high, because the raw materials for feed remain costly,” he said.

He added that feed ingredients like corn, soya, and feed wheat were at record levels, while coconut oil remained expensive.

Additionally, Mr. Inciong said competition from imports was also discouraging domestic producers.

In the seven months to July, imports of chicken rose 17.4% to 249.37 million kilos, accounting for about 35% of all meat imports during the period.

Philippine Chamber of Agriculture and Food, Inc. President Danilo V. Fausto said in a Viber message that the farmgate price of chicken needs to rise to encourage farmers to produce more.

For the second quarter, the farmgate price of chicken averaged P134.13 per kilogram, up 2.4% from a year earlier.

 As of June 30, the PSA said the national chicken inventory rose 2.8% from a year earlier to 200.21 million birds.  — Adrian H. Halili

Bob Barker, long-time US TV game show host, 99

Bob Barker in the hit game show The Price is Right. — IMDB
Bob Barker in the hit game show The Price is Right. — IMDB

BOB Barker, an affable fixture on US television for half a century who hosted the popular game show The Price Is Right for 35 years and was a committed animal rights activist, has died at age 99, his publicist said.

The silver-haired Barker, host of The Price Is Right from 1972 to 2007, won 19 Daytime Emmy awards, the top US television honors, and also was known for a memorable comic turn playing himself in the hit 1996 film Happy Gilmore, beating up a character played by Adam Sandler.

Mr. Barker died on Saturday morning of natural causes at his longtime Hollywood Hills, California, home, his publicist Roger Neal said.

Mr. Barker gave millions of dollars to pro-animal causes, including donating $5 million for a 1,200-ton ship named the Bob Barker that was operated by the Sea Shepherd Conservation Society to stop Japanese whaling ships from killing whales off Antarctica.

The Price Is Right, in which contestants tried to guess the price of various consumer products and played a slew of games to win prizes, became a US pop culture institution on daytime TV with the smooth-talking Mr. Barker at the helm for 6,586 episodes.

A studio announcer would bray “Come on down!” as one by one excited contestants would trot out of a studio audience down to the stage. Exuberant contestants occasionally would bear-hug and even tackle Mr. Barker.

“Can I kiss you?” a woman once inquired during a show.

“No, I’m working,” deadpanned Mr. Barker, known for his good-natured humor. “Meet me in the parking lot later.”

Over the years, he handed out more than $300 million in cash and prizes like cars, appliances and trips.

“I think TV hosts are like pies and some people like apple and some cherry and some chocolate,” Mr. Barker told the Hartford Courant in 2009. “I’m just very fortunate that they liked me well enough to invite me into their homes for 50 years.”

The Price Is Right became the longest-running game show on US television. Mr. Barker returned to the show in 2013 to mark his 90th birthday and again in 2015 for an April Fools’ Day episode.

Mr. Barker was known for pro-animal causes and campaigned for them into his 90s. He would end episodes of The Price Is Right by urging viewers to get their pets spayed and neutered to control the animal population and began a foundation to subsidize the practices. He also spoke out against the treatment of animals in zoos, rodeos, and circuses.

Mr. Barker stopped eating meat in 1979. His hair abruptly became silver when he quit using hair dye because it is tested on animals. In 1987, Mr. Barker quit as longtime host of the Miss USA and Miss Universe beauty pageants when pageant officials refused to stop draping contestants in fur coats.

In the film Happy Gilmore, Mr. Barker played himself in a memorable scene in which he was playing in a golf pro-am tournament with Mr. Sandler’s character, an excitable failed hockey player turned golfer. The two come to blows in a wild, extended comic brawl that ended with Mr. Barker thrashing Mr. Sandler.

They staged another fight for a promotional video in 2015 when Mr. Barker, who studied karate with tough-guy actor Chuck Norris, was 91.

In 1994, a woman who worked as a model on The Price is Right sued him for sexual harassment but Mr. Barker said it was a consensual intimate relationship. The suit later was dropped.

Mr. Barker, born on Dec. 12, 1923, in Darrington, Washington, began his career in radio. In 1956, he was hired to host a TV version of the radio quiz show Truth or Consequences on NBC, and stayed with the program until 1975. Even before his stint on that show wrapped up, Mr. Barker began hosting The Price Is Right on CBS.

Mr. Barker did not remarry after his wife, Dorothy, died of cancer in 1981. — Reuters

‘Morizo-ned’

That’s Toyota Motor Corporation Chairman Akio ‘Morizo’ Toyoda burning rubber aboard a WRC-spec GR Yaris. — PHOTO BY KAP MACEDA AGUILA

Of the WRC-spec GR Yaris, the Toyota chairman, and screaming like a kid aboard an amusement park ride

AN ANGRY SUN that seared the goings on belied the inundation of the previous night. Even some ominous rainclouds that hovered above for a few moments appeared unconcerned about staying put and moved on. Only a few rapidly drying puddles and a pump angrily siphoning off remaining water at the Quirino Grandstand gave clues to what happened just a few hours prior.

“The rain was crazy last night,” several Toyota Motor Philippines Corporation (TMP) officials told me as I arrived at the venue.

All good then. It was starting out to be perfect day for what was to come: the Philippine staging of the Toyota Gazoo Racing Festival (or, more simply, TGR Fest) – a celebration upon a celebration that was the 35th anniversary of TMP.

Open and free to the public, the spectacle was billed as a “gathering of motorsports enthusiasts and car aficionados celebrating the thrill and joy of driving Toyota cars.” To the uninitiated, Toyota Gazoo Racing (or GR) embodies the motorsports aspirations of the brand, and whenever you see that logo affixed onto a vehicle (more so if it prefixes a nameplate such as in the case of the GR Supra, GR Yaris and GR 86 here), you can expect heightened driving experience, response, and performance.

Back to the TGR Fest, the two-day event turned the historic venue in the heart of Manila into a showcase of speed and driving ability. Japanese TGR champion racers Norihiko Katsuta and Masahiro Sasaki flew into town to pilot GR cars through a maze of orange cones – highlighting a skill for driving, and drifting. Of course, Filipinos were well-represented in these “gymkhana” exercises through Alex Perez, Luis Gono, Marlon Stockinger, and Ryan Agoncillo using aforementioned GR performance cars.

But the highlight of the event was, undoubtedly, the appearance of the top brand ambassador of Toyota: Akio Toyoda, the company’s chairman, who takes on the name “Morizo” whenever he gets behind the wheel in pursuit of speed and performance.

Mr. Toyoda is obviously not your average high-powered automotive executive – not just because he willingly takes the wheel, but he has been keenly trained to do so.

The grandson of Toyota’s founder Kiichiro Toyoda, Akio-san is also Toyota’s master driver or chief test driver. Sure, most anyone can lay claim to that title, you say – particularly because of his name. But the younger Mr. Toyoda was actually mentored by the company’s then chief test driver, Hiromu Naruse. According to Toyota Times, Mr. Naruse, who joined the company in 1963, “had been involved in motorsports activities as a mechanic and evaluation test driver.” He was also the chief of the Gazoo Racing team, which was established in 2007.

The story goes that the two first met when Akio went home to Japan after serving as a vice president for a United States subsidiary of Toyota. Even as he already wielded a “top-ranked driving license” then, Mr. Toyoda was at the receiving end of harsh words from his future driving coach.

“It’s annoying that someone at the top like you doesn’t know the basics of driving, but just gets into the car and comments on this and that,” Mr. Naruse had reportedly said, adding, “Test drivers put everything on the line in the name of creating better cars. To talk about this and that without knowing anything just causes trouble.”

Then came the offer: “If you feel like it, even if just once a month, I’ll teach you how to drive.” And so he did.

Sadly, Mr. Naruse passed away in 2010 aboard a prototype vehicle he was testing near the Nürburgring in Germany. Gazoo Racing and its people soldiered on, and the term “let’s make ever-better cars” that is the mantra of Toyota is said to embody “the feelings (Mr. Toyoda) inherited from Naruse.”

* * *

At the pit area, several of us media people were cracking jokes in anticipation of what was to come: A “taxi ride” aboard any of the vehicles – one of which would be driven by, you guessed it, Morizo.

“Maybe we could request for a straight-line performance,” someone quipped, quite aware that he was prone to car sickness. I was also a little, well, concerned because I have a knack for get dizzy when I’m not at the wheel myself. To be honest, we weren’t lacking in faith for the drivers; rather, we were worried about our own constitution.

I was handed a balaclava and an open-faced helmet which I quickly squeezed onto my head. Things seemed to happen both quickly and in slow motion. I was escorted into the passenger seat of Morizo’s WRC-spec Toyota GR Yaris – a heavily modified beast boasting, per Toyota, over 500ps and 500Nm. Its inline, four-cylinder turbo is also a glimpse at the present and future – being a hybrid.

A staffer strapped me onto the racing seat as the GR Yaris’ engine roared impatiently. I was taking everything in, and was, of course, conscious that I was going to be driven around by Morizo himself. I was grabbing my phone in a death grip. “Whatever you do, don’t let go of your phone,” said one of the Japanese handlers when I asked if it was okay to do video aboard the vehicle. Visions of my phone smacking Morizo on the head while the GR Yaris danced around the cones played non-stop. That must not happen, Kap.

“Please take care of me! Good luck to us!” I meekly pleaded. “Yes,” said Morizo, with a smile that bordered on mischief, to be honest. I wanted to ask so many things. This could have been a one-on-one interview, except for the screaming.

Mine, of course.

We were off, and Morizo was working on the steering wheel like crazy while I was trying to steady the phone and its front-facing camera in an effort to let it inhale everything it could. I remember a fleeting moment of embarrassment – quickly supplanted with terror – when I realized I was screaming “Oh my God!” within obvious earshot of the leader of Toyota.

I was also trying to figure out if I was getting car sick (thank God I wasn’t). I remember spying a GoPro camera affixed on Morizo’s side of the cabin, and I briefly prayed it wasn’t turned on.

Meanwhile, I could have sworn seeing Morizo’s grin get wider as my yelling increased in volume. He must have thought what a softie he ended up with. Smoke from the burning tires crept into the cabin from the abuse, and made the experience a truly more intense one. After what seemed like an endless number of donuts, I felt he let off the throttle and headed to the pit.

I read a great scribe describing his visceral experience with a sports car as akin to being “mugged by angels.” I think that perfectly captures my “taxi ride” with Morizo.

Overwhelmed but blessed.

Pepsi-Cola on track to meet energy reduction targets 

PEPSIPHILIPPINES.COM

BEVERAGE manufacturer Pepsi-Cola Products Philippines, Inc. (PCPPI) is on track to achieve its energy reduction targets as it aims for more sustainable operations.

“For water, our target is to reduce usage by 10%; while for fuel, energy, and power, our goal is to reduce them by 4%. As of end-July this year, we have already reduced our total energy use by 1.5%, keeping us on track with our targets,” PCPPI Director for Manufacturing Walton A. Firmeza said in a statement.

PCPPI is also aiming to lower the use of grid electricity in select plants by up to 30%, while an 8% reduction is projected in the company’s total grid electricity usage as it shifts to solar power for its manufacturing plants.

The company will install solar panels in select production facilities as part of its transition to renewable energy and plan to reduce energy consumption.

“We assess our organizational priorities based on where we can make the most impact. Among the initiatives we have in place addresses our use of water and energy for our returnable glass bottles,” Mr. Firmeza said.

He said the company’s bottle washers consume most of a facility’s energy.

“As such, we ensure that we use energy-efficient washers, conduct proper and regular maintenance, and train our teams on how they can help support our productivity goals,” he added.

PCPPI also strengthened its efforts to lower the plastic content in its products and packaging. The company previously reported that the volume of carton material used in its packaging dropped by 99.1 metric tons in 2022.

“Through these initiatives, we are able to reinforce our commitment to take action to protect our planet, while inspiring and empowering our people to do the same,” PCPPI President and Chief Executive Officer Frederick D. Ong said.

Meanwhile, PCPPI said its resource management policies are reflected in the company’s Luntian Yaman program, which focuses on water usage reduction, electricity use optimization, fuel yield optimization, solid waste management, and community-building participation.

The company added that its environmental, social, and governance commitments are referenced from the United Nations Sustainable Development Goals.

“By upholding the three pillars of sustainability, namely circular economy, water stewardship, and inclusive business, PCPPI is committed to creating a positive impact on society with programs focused on environmental sustainability, nation-building, and inclusive development,” the company said.

PCPPI is the domestic manufacturer of PepsiCo beverages such as Pepsi, Mountain Dew, 7Up, Mirinda, Mug, Gatorade, Sting, Tropicana, Lipton Iced Tea, Milkis, Chum Churum Soonhari, and Premier Purified Water.

The company has 14 manufacturing facilities, which serve over 700,000 outlets nationwide. — Revin Mikhael D. Ochave 

Remembering Willie

The chronic problem of tax evasion in general and smuggling in particular has not only meant losing huge revenues but also enervating our institutions. Finance Secretary Ben Diokno thus pays serious attention to tax administration reforms to curb all kinds of tax evasion.

To be sure, tax administration by itself will be insufficient to significantly generate the revenues to realize the medium-term and longer-term development goals. In truth, the country needs new taxes or increased taxes for certain categories to finance post-pandemic development programs and the transition to a green economy. Higher taxation can be done in a fair and equitable manner. For example, policy should tax consumption that harms health (e.g., alcohol and tobacco) and the environment. And tax the rich.

But neither should we diminish the value of tax administration in contributing to overall tax effort, strengthening State capacity, and regaining public trust in the revenue-collecting agencies.

Recently, tax administration has been concerned over smuggling. The issue of smuggling has attracted more attention than other types of tax evasion. Smuggling has become the staple of headline stories. The fact is that all sorts of products are being smuggled. Rice, onions, poultry, pork, seafood, tobacco, liquor, fuel, motor vehicle parts, and counterfeit signature brands are among the most smuggled items.

The estimates of the volume and value of the smuggled products vary widely. This is understandable, for information on illicit trade or criminal activities is incomplete. Although some quarters exaggerate the claims to serve their own agendas, the more reasonable and sober estimates nonetheless suggest that the magnitude of smuggling exacts a significant cost to society.

Reformers acknowledge that the very weakness of our institutions abets tax evasion. Much still has to be done in designing or reformulating the rules and policies to curb tax evasion, including smuggling.

Having laws, even laws with harsh penalties, does not guarantee success in defeating tax evasion. Take the case of the Anti-Agricultural Smuggling Act (Republic Act 10845). It imposes the penalty of life imprisonment and a fine equivalent to twice the fair value of the smuggled product on top of the payment of the taxes, duties, and other charges. Yet, this law, which was passed in 2015, has not deterred rampant large-scale smuggling of agricultural goods. It is a law that has merely become “ink on paper.”

Republic Act 10845 is being amended but mainly to include illicit tobacco products (including manufactured cigarettes, which legally and technically are not agricultural goods) in the list of goods to be covered by the anti-smuggling law.

We do hope that the amendment of the law will not lead to having more ink on paper. The key is to put in place credible, effective enforcement measures that will make likely or more probable the capture or arrest of those engaged in illicit trade.

It is against this difficult background that we will miss Willie Parayno, Jr. who died on Aug. 2.

Willie was the head of the Bureau of Customs (BoC) during the Fidel Ramos administration. He also became head of the Bureau of Internal Revenue (BIR) for three years under the Gloria Macapagal Arroyo administration. He however resigned as BIR Commissioner as a matter of principle in the aftermath of the “Hello Garci” scandal, which allegedly implicated then President Arroyo in the rigging of the 2004 presidential election. Though non-partisan, Willie’s conscience made him join several Cabinet Secretaries and heads of other government agencies (known as the Hyatt 10) who resigned from the tainted Arroyo administration.

Willie was the embodiment of the silent reformer who designed and implemented measures in the BoC and BIR that yielded dramatic results. His legacy should inspire current and future reformers.

Years ago, I wrote columns about Willie’s sterling record. In “Tax Challenge” (BusinessWorld, May 31, 2010), I said that “the momentum for reforms petered out after the principled resignation of Guillermo Parayno, a competent and credible reformer.” Similarly, in “The Truth about Gloria’s Economics” (BusinessWorld, Jan. 16, 2016), I said that “the reforms undertaken by the resigned BIR head, Guillermo Parayno, have been sidetracked.”

What were Willie’s reforms? I narrated some of them in “BIR Reforms: Welcome Success Story for 2003” (BusinessWorld, Feb. 2, 2004).

Willie was a pioneer in the use of information technology (IT). IT was his tool as far back as the 1990s when he headed BoC. Through IT, our revenue-collecting agencies disseminated information to the public, facilitated payments, improved taxpayer compliance, and enhanced transparency.

Willie, too, forged a close partnership with the private sector and civil society to advance “Good and Honest Governance Programs.” The close partnership was done in a manner that the BIR kept arms-length transactions with private parties.

Further, Willie introduced innovation in tax administration. For example, he rolled out “BIR on Wheels” to reach out to hard-to-tax professionals. He was likewise able to get the cooperation of the informal sector like the tiangges through convenient and light ways of tax compliance.

Most critical was how Willie obtained the support of the rank and file, perceived by many (unfairly though) as corrupt. Instead of demeaning and demoralizing the employees, Willie rejuvenated them, and encouraged teamwork towards adopting systems to meet goals and targets.

I cut and paste what I wrote then:

“Mr. Parayno’s specific attributes have served him well in making BIR a success story for 2003. As an engineer, he is very thorough with the processes and systems, but does not lose sight of the general goals. As a psychologist, he knows how to combine carrots and sticks. As a military strategist, he waits for the opportune moment to attack and does not fear taking a tactical retreat. And as a technocrat, he has disdain for political partisanship. He will not use the office to promote the incumbent or to demolish the opposition.”

Although what I wrote about Willie focused on his BIR accomplishments, they were in fact an extension or a continuation of what he did at the BoC. During his stint at the BoC, the agency exceeded targets and had surplus collection. Willie had things done through innovation, automation of processing, and simplification of rules. He earned the sobriquet: “father of computerization.”

He inspired his people at the BoC and BIR, and he made the revenue-collection agencies gain the trust of the public. Some of his followers regard him as the “best Commissioner.”

His various colleagues describe Willie as having competence, integrity, and brilliance. Such a combination of characteristics is rare. And let’s not forget Willie’s vision and love for country. He was magiting — courageous, patriotic, and heroic.

He lived up to the name of his Philippine Military Academy class, the Magiting Class of 1970.

The stories about Willie must be told to different generations of reformers. As former BIR Commissioner Kim Henares said, the goals that Willie envisioned and the reforms he pursued remain a work in progress. And it is our task to continue Willie’s work in progress.

 

Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.

www.aer.ph

Private equity firms turn to left-field financing for deals

PRIVATE EQUITY FIRMS are turning to a new weapon to help them get their buyouts over the line: less-than-conventional funding.

Mergers and acquisitions (M&A) activity has slumped this year in part because spiraling interest rates have made traditional private equity (PE) investors nervous about leveraged acquisitions. Buyout firms are increasingly using expensive subordinated debt — also known as junior financing — to help fill funding gaps and get deals done.

HPS Investment Partners provided $600 million of preferred equity, which sits below other debt in the queue for repayment, to support GTCR’s recent purchase of a majority stake in Worldpay, Inc., according to people close to the matter who asked not to be identified because the talks are private. The funding came on top of a $9.4-billion debt package backing the deal.

HPS also provided up to €300 million ($324 million) of payment-in-kind (PIK) debt — which defers interest payments for a period of time — as part of a €1.5-billion debt financing of One Rock Capital Partners’ buyout of packaging material maker Constantia Flexibles GmbH, the same people said.

“From larger companies to those in the lower-mid market, there are many more discussions about junior financing — whether that’s HoldCo PIK, mezzanine or preferred equity,” says Alex Griffith, a partner at law firm Proskauer Rose. “HoldCo PIK used to just be an additional slug of money up front to get a deal over the line. Now, people are realizing it solves many different issues.”

OPPORTUNITY KNOCKS
Junior financing is becoming popular, too, for specialist lenders attracted by returns that can run as high as 15% or so. Oaktree Capital Management, alongside its dedicated mezzanine funds, is looking to raise more than $18 billion for what would be the largest private credit fund. It will pursue opportunistic investments. HPS recently closed a junior debt fund with $17 billion of capital available.

“For lenders, it’s riskier and you’re not secured in the same way as a senior creditor, but you can generate much higher returns,” says Aymen Mahmoud, co-head of the finance, restructuring and special situations group in London for law firm McDermott Will & Emery. “A $250 million PIK instrument, which compounds at market rates would be worth 50% more in principal within five years.”

PIK debt typically pays about 125-150 basis points above senior debt and preferred equity pays around the mid-teens on average, according to several bankers. For buyout firms, that may be a price worth paying if it lets a deal go ahead in a moribund M&A market.

Traditional lenders have been lowering the amount of leverage — the debt a company has versus its earnings — that they’re prepared to provide for buyouts. At the same time, the large limited partners that usually co-invest alongside PE firms have become less willing as the M&A slump means they’ve been getting less cash back from previous bets.

Subordinated debt can also be used by private equity firms to refinance the existing borrowings of portfolio companies. Higher rates and lower earnings threaten to make it impossible for some businesses to keep paying interest on the same amount of debt, but PIK lets them delay repayments so it doesn’t immediately strain cash flow.

“It’s all economics,” says Mr. Mahmoud. “If the numbers work for junior financing when the private equity firm models it, it can be helpful as even this expensive debt is cheaper than equity. But it only really exists as an option for high-quality credits where extending leverage makes sense.” — Bloomberg

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